5 Steps to Obtaining a Mortgage

5 Steps to Obtaining a Mortgage

Love Buying a Home series – Week 6

My step-by-step series will take you through the entire home-buying process — from finding a buyer’s agent to settlement day, and all the details in between. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

Today’s mortgages are not “one-size-fits-all.” That means you’ve got lots of options out there that could fit your budget and finances. This is good news for many home buyers!

However, you do need to do your homework first so that your mortgage application can be processed properly and with success. The lending environment can be complex and complicated at times. Lenders, underwriters and mortgage insurers must all complete certain steps before they can have your financing in place.

It’s important to try and keep things going smoothly by taking on a few steps of your own, and knowing what needs to be done next. This preplanning will help get your mortgage and financing all figured out. That way you can avoid any snafus when you least want them to appear.

Once your mortgage situation is all set, you’ll be in a much better position to negotiate with the sellers and move forward on a purchase. Here’s what you need to keep in mind:

1. Evaluate your affordability and don’t forget about monthly budget.

Do you truly know how much mortgage you can afford and how a loan officer or bank will determine it?

Lenders and mortgage insurers look at a variety of factors, but the two important factors are your monthly mortgage payment and your total debt load, relative to your gross income. You may hear a lender call this your “debt-to-income ratio.”

But wait, let’s hit pause first and ask this question instead: How much are you actually comfortable spending on a mortgage payment each month?

This is a much better way to determine your affordability. It’s important to emphasize knowing what your monthly budget is for housing, NOT just the purchase price that you could qualify for!

Many of you may want your monthly housing expenses to be much lower than what you may pre-qualify for. This topic was covered in detail in Do the Math – A Mortgage You Can Afford, the fourth article in this series. Go back and review if you need a refresher.

This article makes you carefully look at your monthly budget, including current expenses and future ones as a homeowner.

2. Interview loan officers to find the best fit for your needs.

In the same way that you have the freedom to choose your real estate agent, you can choose your loan officer too! Assuming that you are comparing the same loan program with the same criteria, rates and fees will be pretty comparable amongst most banks and lenders. It’s often more important to focus on other factors, including the level of service provided and how well they’ve executed transactions for other buyers.

The type of mortgage you are seeking may also impact your choice, since some loan officers are more familiar with certain mortgage programs than others. This is so important to understand to put yourself in the best position possible for your home financing.

For example, First Home Mortgage has partnered with a lot of the first time home buyer programs in MD, DC, and VA.

3. Discuss your loan options with your loan officer and make sure your agent is kept in the loop!

Deciding what type of mortgage is best for you depends on your personal situation, your financial scenario, and your future plans. It’s something we discuss during out initial consultation.

We also uncover if there are any additional incentive programs that may be available to you. These may depend on if you are a first time home buyer, if your income is below 80% of the area median income, your credit score, and so on.

Mortgage programs are always changing. That’s why it is so important that you work with a loan officer that will sit down with you to understand the different options available to you based on the type of home you are looking to purchase.

4. Get pre-qualified before you start searching for homes

Plan to complete a pre-qualification application before you start seriously looking for homes. 

 By doing this you will uncover how much home you can afford. Getting pre-qualified will also ensure that you are shopping in the right price range for your monthly payment and out of pocket goals. (Remember, stick to your monthly budget no matter what you get pre-qualified for!)

To start this process, you submit an online application along with your financial documentation. The most common documents reviewed are pay stubs covering 30 days, 2 month bank statements, 2020 and 2019 W2s/1099s, and in some cases federal tax returns. So make sure you’ve gathered the required documents before you get started. There may be additional paperwork requested depending on your financial situation.

This process is an important step that will put you in a better negotiating position with sellers. Your pre-qualification signifies to sellers that you are a committed buyer who has done their homework and secured a lender to provide financing on their home. This puts you in a better position when you submit an offer.

5. Decide who you want to use for financing before you begin submitting offers

As soon as you are under a contract to purchase a home, things move very quickly. You will be in a legally binding contract of sale and there will be deadlines that you will need to hit to ensure you get to closing. You do not want to start shopping now!

That’s why it is so important to choose your loan officer during your planning phases (typically around the same time as you select your real estate agents). In the same way that your real estate agent will be showing you homes, the loan officer that you hire will be able to run cost estimates to make sure you are comfortable with the costs before you decide to go in on an offer.

Just like choosing your real estate agent, remember to work with someone that you trust, makes you feel comfortable, and specializes in the type of financing that will suit your needs best!

As you can see, there are certain steps you’ll need to take to get a mortgage, and I am here to help!  I recommend getting in touch at least 3-6 months before you are ready to move (12 months if you are buying for the first time) We want to make sure that you are in the best financial position for your dream home before you start looking at homes, so be in touch with me when you are ready.  I’m here for you!

Stay tuned for next week! It’s the Fun “House Hunting” Guide is the next article in Love Buying a Home series. You’ll find out the ways you can shop productively (and smartly!) with tactics that will streamline your search.