The Steps of Getting Financing on a Mortgage
These six letters could bring fear to those in the process of buying a used home or building a home, but relax, getting a mortgage shouldn’t be scary. Whether you are a first-time buyer or you are on your 10th home, finding and securing a mortgage is something many homebuyers go through.
Here are the steps of getting financing on a mortgage to make obtaining a mortgage and going through the motion easier and perhaps even enjoyable.
By following these steps of getting financing on a mortgage, you should be able to get yourself ready for all the paperwork and disclosures that go with finding and securing a mortgage.
The first four steps of getting financing on a mortgage should be considered before you start hunting and shopping for a loan to save time.
Begin by Reviewing Your Financials
Be sure to look over with a fine toothcomb all your finances. Know what your monthly income is and be ready to document everything from present costs of living, as well as if you have any savings or possible equity from an earlier home you hope to use for a down payment. It may be a good idea to determine if you can pay for a mortgage at this time when going through the steps of getting financing on a mortgage.
You can determine this by doing a rough estimate by calculating your overall debt-to-income (DTI) ratio, or the section of your total gross monthly income that currently goes toward paying debts for credit cards, auto loans, student loans, and other expenses.
Check All Credit Reports
Next, when going through the steps of getting financing on a mortgage order all three of your national credit bureau files (Equifax, Experian, Trans Union) if possible two to three months in advance of looking for a loan. They are each free once a year from www.annualcreditreport.com. If you notice errors, omissions, or outdated information, you must request corrections from creditors immediately. Experts say it your legal right under federal statute.
Check Your FICO Scores
When going through the steps of getting financing on a mortgage keeps in mind your FICO score is the only credit score that surely matters. After reviewing and correcting any errors on your credit files, order your FICO scores from one or more of the three major credit bureaus or through www.myfico.com.
As you go through the steps of getting financing on a mortgage, you’ll need a FICO score of at least 680 to qualify for most loans, and a score of 740 or above to earn the lowest mortgage rates and fees.
Compare Mortgage Types
Like anything else there are various types of mortgages, so be sure you educate yourself on the types of mortgages before searching and going through the steps of getting financing on a mortgage.
A 30-year mortgage offers lower monthly payments than 15-year loans, but shorter mortgage terms let you pay off the debt quicker.
FHA, VA, and Rural Housing loans offer the lowest down payments and require the lowest FICO scores. Hybrid adjustable-rate loans offer fixed payments for an initial term of years ( 5 or 7) but then become annually adjusting rates, subjecting you to higher payments if interest rates rise.
Conventional (Fannie Mae, Freddie Mac) loans usually offer the best rate if you can put a 20 percent down payment.
Start Searching for a Mortgage
Next, as you go through the steps of getting financing on a mortgage try to get an overall picture of prevailing rates for different loan types and payment terms among multiple lenders online and offline. Know, however, without pulling your credit information and formal application lenders’ or loan officers’ quotes are not binding.
When doing these steps of getting financing on a mortgage begins comparing key features of loan offerings from competing lenders.
Explore Interest Rates
The cost of mortgage money is typically the same across the country on any given day. Beware of super low-interest rate quotes; the key differences are often the result of differences in fees and loan origination charges as you go through the many steps of getting financing on a mortgage.
There are extra fees a lender charges as part of its compensation for making a loan at a particular interest rate, because of the credit risk of the borrower. These can be paid at the time of closing or financed over the full term of the loan. Generally, if you plan to stay in the house you are buying for a few years, it is better to pay less on points, even if the quoted rate is a bit higher. If you plan to stay in the loan for many years, opt for a lower interest rate and slightly higher points. Keep all this in mind as you push yourself through the steps of getting financing on a mortgage.
Annual Percentage Rate or APR
When going through the steps of getting financing on a mortgage, find out what the annual percentage rate is for each mortgage you’re considering. This is the effective interest rate you will pay with points and loan origination charges included. It will usually be different from the published rate.
What Are Rate Lock Costs?
Be sure to explore rate locks and how much will it cost to lock in the quoted interest rate – in other words, guarantee it, regardless of what occurs in the money marketplace – beyond 30 days, 45 days, 60 days, and so on. This is important as you go through the process and the steps of getting financing on a mortgage.
What About Debt-to-Income Limits?
When you go through the steps of getting financing on a mortgage don’t forget to ask if the lender will accept the DTI you calculated before without charging more in rate or fees for the type of loan you desire.
Loan Amount and Size
Based on the information you have provided; ask what size loan the lender will be able to consider during the important steps of getting financing on a mortgage.
Make sure you know how long the mortgage application process will take from application to closing while going through the steps of getting financing on a mortgage. Ask the lender what the usual turnaround timeframe is – weeks, months, etc.
You should inquire from competing lenders what they charge for origination, processing, document prep, courier, and application fees. These are often places where lenders rack up extra charges. Do your homework and add each lender’s total estimated loan fees to see how they compare to the competitors during the steps of getting financing on a mortgage.
Search for Lender Ratings
Some online mortgage sites show multiple lenders and share borrower ratings by borrowers regarding service, efficiency, accuracy, and more from their experiences. When you are searching and going through the steps of getting financing on a mortgage preview these before submitting your application.
Pick the Best Lender Available
During the steps of getting financing on a mortgage makes sure to choose the loan that best meets your financial situation with the lowest total cost package.
Request a Pre-Approval Letter
A pre-approval letter is important and helpful in the grand scheme of things when you are going through the steps of getting financing on a mortgage. Such a letter will state a maximum loan amount from the lender you plan to hire. This will aid in shopping for a house, as it will tell a builder or home seller you are financially qualified.
Choose the Home You Want to Buy and Sign a Contract to Make it Yours
A copy of this contract will need to be part of your loan application as you progress through the steps of getting financing on a mortgage.
Time to Apply for the Loan You Wanted
When going through the steps of getting financing on a mortgage be sure to review the “Truth in Lending and Good Faith Estimates.” Lenders are required to provide you within three business days of application. If you have questions about any fees, get them answered early in the process. Confirm closing/settlement date and location.
Check the Status of the Mortgage During Processing
Ask things like did the appraisal arrive at the amount needed for the loan? Do underwriters need additional documentation? Any problems that might delay – the closing?
Request a copy of the appraisal after it is completed as you go through the steps of getting financing on a mortgage.
Request a Copy of the Settlement Sheet (HUD-1) Three Days in Advance of Closing
Compare line by line with earlier estimates. Ask for explanations or corrections of any discrepancies or higher than expected charges while going through the steps of getting financing on a mortgage.
Closing Day Is Here
As you complete the final steps of getting financing on a mortgage before you know it, it’s time to sign the closing documents; the home you fell in love with is yours.
Now that you have gone through the steps of getting financing on a mortgage, do take a breath. Pat yourself on the back for going through the many steps of getting financing on a mortgage.
Once you have recovered from the paperwork and the stress of going through the steps of getting financing on a mortgage call the moving company and start planning where you will put all your furnishings and heirlooms!
Time to Celebrate
While it may have been a lengthy and tedious process you can honestly say to yourself you went through the steps of getting financing on a mortgage and prevailed.
Remember all good things in life take effort and buying a home is something that certainly qualifies. Your family and friends will be thrilled that you came through the steps of getting financing on a mortgage with flying colors.
Enjoy your new home.