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| » Decisions to Make |
| » What You Should Do Before Applying For a Mortgage |
| » What if I Change My Mind ? |
| Getting a home loan can be a confusing and complicated process especially if you've never been through the mortgage process before. This Mortgage Guide tries to take some of the mystery out of the home mortgage application process. We explain in a step by step process what you need to accomplish. |
| Information Your Lender Needs at Application |
| Ordinarily, you will complete a standardized mortgage application when you meet with your lender or broker. This standard application is a four-page form that asks detailed questions about your income, assets, liabilities, credit and subject property. |
| Get Organized |
| The more complete and organized you are, the greater your chances of getting the loan you want within the time frame you need it. |
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 What Type of mortgage? Based on your particular financial circumstances, your broker or lender will offer you a variety of mortgages with various repayment terms. |
| Mortgage amount? This is the amount of money you want to borrow. Before actually applying for a loan, many borrowers find out how much they can afford by getting pre-qualified. |
| Down payment? Most lenders expect home buyers to make a down payment of at least 5 percent of the value of the home. |
| Closing date? Be sure to tell your loan officer approximately when you would like to close your loan, so that the loan process will coincide with this date. |
| Lock-in interest rate? A rate lock-in (or rate lock) guarantees you a specified interest rate, provided the loan is closed by the lock expiration date. Make sure to lock in for a period that will cover the time until your expected closing date. |
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| Loan Documentation |
| Your lender or broker will need all of your financial information to determine how much you can borrow. |
| More loans get delayed because of lack of acceptable documentation than for any other reason. So, if you can't find some important documents, now is the time to start ordering copies from tax preparers, financial advisors, or the IRS. |
| Proper documentation includes, but is not limited to; tax returns, bank statements, mortgage notes, rental agreements, pay stubs, and credit card bills. |
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| Employment Status |
| Confirm contact information with your employer. |
| Find out who is authorized to release information about your employment status. |
| Be sure you provide the correct contact information to the lender to avoid any lengthy delays. |
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| Check Your Credit |
| Your lender will obtain a complete credit history for each borrower. You have your credit report before you apply for a mortgage because if there are any problems or issues, you can start to clear them up before you submit your final loan application. |
| You can obtain a credit report from each of the three main credit bureaus for a small fee. Regardless of how good you think your credit is, you never know for sure until you check. Often times there are errors that the consumer is not even aware of. |
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| Shop for a Loan |
| Shop and Compare |
| Contact at least three to five different lenders or mortgage brokers. One of them is bound to offer the loan that's best for you. |
| Compare loan programs and rates before you choose a loan. If you find a lender that offers a 7.00 percent rate when all the others charge one-half point more, you'll save $12,208 in interest over the life of a 30-year, $100,000 fixed-rate mortgage. Understanding the tradeoffs can help you choose a loan wisely. |
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| Rates, Points and Fees |
| Getting a low rate is important, but you may not benefit from it if you have to pay too many up-front points and other fees. |
| Understand the relationship between points and rates. A point is just prepaid interest, and each point you pay equals one percent of your loan amount. |
| ü If you get a $150,000 loan and pay two points, that's $3,000 in points. The more points you pay, the lower the rate you'll get. |
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| How Long? |
| If you plan on moving in a few years, consider an adjustable rate mortgage (ARM) since you may be able to sell the house before the rate gets too high. |
| If you plan to stay longer, a fixed rate mortgage may be an attractive option because your rate stays fixed for the term of the loan. |
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| Pre-Qualification Letter |
| Getting pre-qualified by a broker or lender provides an estimate of how large a mortgage you can afford. Although pre-qualification doesn't obligate the lender to approve your mortgage, it's a good way to make sure that you apply for a loan within your price range. After getting pre-qualified you will have a good idea of the maximum loan amount you can afford thereby narrowing down your house search to suitable, affordable properties. |
| Signed Sales Contract |
| Many borrowers go to their loan interview with a signed purchase sales agreement, (PSA). Usually, your real estate agent has presented your offer to the seller of the property and helped you negotiate the terms. This means both the buyer and the seller have accepted the terms of the final offer. Your contract will state the amount of your down payment, the price of your new home, the type of financing you're looking for, and the proposed closing and occupancy dates. |
| Deposit |
| This is a payment you submitted with the offer to show the seller that you are serious about buying the home. This earnest money is deposited in an escrow account and will be applied to your settlement costs. Your lender may ask you to bring the receipt for your deposit along with your sales contract to the initial loan interview. |
| Home Inspection |
| Getting a satisfactory home inspection should be specified in your purchase agreement. You will want the assurance that comes from having a professional house inspector evaluate the structural and mechanical condition of the property. Home inspections can identify problems before you buy a house. |
| Application Costs |
| Application costs and terms vary, most lenders and brokers require you to pay an application fee, a credit report fee, and often an appraisal fee at the time you apply for a loan, so be sure to bring your checkbook to the interview. |
| Application Fee: The application fee covers the lender's cost to review the information on your loan application. It also usually includes processing fees and underwriting costs. |
| Credit Report Fee: The credit report fee covers the cost of a credit report from one of the major credit reporting agencies (CRAs). Your credit report verifies information that you supply on your loan application and will include credit scores and additional information from the public record. When a credit report is received, your lender will compare it with your application and look for any discrepancies. You may be asked to give reasons for the discrepancies, or provide letters of explanation. |
| Appraisal Fee: An appraiser is a person who is qualified to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for other properties. Appraisals for government-insured loans (such as FHA or VA) need to be done by specially certified appraisers and may cost you less than those for other types of loans. |
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| Ask your broker or lender if there are any circumstances under which you would be entitled to a refund of your application fee. Generally, you can only get a refund if your lender does not approve or deny your application within an agreed upon time. |
