The mortgage process is intimidating to anyone, especially a 1st time home buyer, but with a little mortgage research and coaching it can become a painless process that could change your financial outlook and life. With a little homework and the guidance of one of our mortgage professionals you can become an informed consumer and save thousands of dollars over the length of your mortgage loan.
As educators and industry insiders we’ve done our best to break the process down into a series of steps that simplify the big, intimidating, picture And,... we believe that if you follow these steps you’ll be on your way to a better rate, a loan program that is the best possible match to your situation and an avenue to greater financial freedom and success.
So here it is, our 6 step guide to finding the mortgage program that is right for you!!
Of course you can skip some of the steps geared towards first time home buyers or aimed at VA mortgage loans if you do not fall in those categories but like any good coach we want to cover all the bases.
Step 1: Determine what kind of mortgage loan you need or want?
By honestly answering these questions you can get on your way to determining the type of Mortgage that best fits your financial circumstances. You are taking control of the mortgage process and not allowing it to take control of you.
Step 2: Answer the questions honestly and formulate a mortgage plan!
Sure,...we all want a lower mortgage rate but why would you waste your time trying to obtain one if your credit scores does not warrant it or you only have a few years left on your mortgage and it just doesn’t make good, financial sense. By answering the above questions you are starting to narrow down the scope of “WHAT MORTGAGE IS BEST FOR ME!”
Think about your answers and goals and read the following objectives.
- I want a lower mortgage interest rate: First you need to determine your current rate (see B below) and then check the newspapers or go online and see what rates are. Is the rate you are currently paying that much higher or lower than what you are currently paying? Banks Credit Unions and Mortgage Companies do not do mortgage loans for free, so if the difference in rate is only a ¼%-1/2% lower the costs associated with refinancing your mortgage may not make financial sense.
- Your current Mortgage interest rate: Look at you last mortgage statement to see what your interest rate is. Look for the date you started the mortgage and the “maturity date”. Are the terms 10 years, 20 years or 30 years.
- Do you escrow for real taxes and insurance: Pull your latest tax bill out and your latest insurance bill, find out exactly what the yearly costs are. This will be important since these numbers help determine your debt ratio which is important to the mortgage lender.
- Do I want Cash out at the mortgage closing: Do I need cash for home improvements, college tuition, debts, bills, medical expenses, investment purposes or a 1000 other reasons! Determine the amount of cash out you require if any. Remember the more cash out you take could increase the mortgage interest rate and or the mortgage payment that you will be making monthly.
- Do I want to pay off credit cards or other debt: Look at the credit cards that have the higher rates and put them first on your list and work down from there. If you have any judgments or liens (state or federal taxes) put them on the list since the mortgage Lender will require them to be paid off at the time your mortgage closes.
- Do I have mortgage Insurance (PMI) on my loan?: Also look at your last mortgage statement or bill. Are you paying private mortgage insurance. Private Mortgage insurance (PMI) is required by many Lenders for loans that are more than 80% of the mortgage loan compared to the value of the home. If you’ve paid your mortgage down to less than 80% of the property value, you could eliminate PMI with a mortgage “REFI”.
- How long do I intend to live in my home: Simple question, tough to answer and one that has great ramifications. The government says that most people move every seven years, so why do most people have a 30 year fixed rate loan? The point is ARMs, (adjustable rate mortgages) are a good option if you will move or be transferred by your employer in 3 to 7 years.
- What is my Income per year and what is my spouses Income per year: You will want to know what your income is per year as well as monthly. The easiest way to figure this out is pulling out your last pay stub. The pay stub should show the year to date as well as what you make weekly, bi-weekly or monthly. The W-2 will show exactly what you made last year. You need to know these amounts since they will help the lender to determine the amount of the mortgage loan you qualify.
- Will my/our incomes remain steady?: Will your income remain steady over the next few years or will it increase substantially; if so you might be able to forego principal payments of your mortgage loan in the early years and catch up in the later years.
- If you are purchasing a new home how much money can you afford to put down: Gather your checking account statements, savings statements, money market statements as well as stocks and bond statements and determine how much money you actually have to make a down payment on a home as well as how much you will have left over for closing costs.
- How much house can you really afford: When you know how much you can afford as a down payment on the home and know your monthly income plus monthly debts, you can go to a mortgage calculator and determine how much house you can afford.
- Are you a Veteran? If you are a veteran and qualify for a VA loan you may be able to purchase a home with a small down payment and other VA benefits. Make sure you tell the Lender you are a Vet and qualify for a VA loan..
Step 3: You have Answered the questions so,...LETS GET ORGANIZED!!!
Gather up:
- Copies of your last two paychecks.
- Copies of your last two years W-2’s.]
- Copies of last two years Federal Income Tax returns.
- A copy of your last closing statement,... if refinancing.
- A copy of last month’s mortgage bill/statement.
- If you’re on a Land Contract; Copy of Land Contract [ ]
- If you’re paying on Land Contract copies of the last 12 month checks to the Land Contract holder.
- A copy of last months bank statement(s).]
- A copy of last month’s 401-K statement(s).
- A copy of last months Investment statement(s).
- A copy of Homeowners Insurance front page.
- A copy of your real estate tax bill.
- A copy of your Divorce Decree.
- A copy of your Child Support Agreement.
- A copy of your Drivers License.
- A copy of Bankruptcy papers if you filed in the last 5 years and or information is still being shown on your credit report.
- A copy of the last appraisal on your home if available.
Step 4: Decide what type of loan is right for you:
As you can see from the table below regardless of the type of credit you have you can qualify for almost any loan. That does not mean that everyone can or will accept the loan they qualify for from the mortgage lender. The rate may be 10% but the Lender is willing to only lending 50% loan to value, you already have an 80% loan on your home, thus you will not accept the mortgage lenders terms. What the table does show you is that you have choices. Arms are adjustable rate loans that remain fixed for a certain number of years and then start adjusting. If you are only going to stay in your home for three years then a 3-year Arm would be perfect for you. Why; the mortgage interest rate will remain fixed for 3 years but will generally be lower than 15 and 30 year fixed rates. If you happen to stay another year the loan is not due but the interest rates generally adjust upward. The table gives you some ideas of what to ask about or exactly what type of loan you are looking for.
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Type of Loan
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Good Credit
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Bad Credit
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Time in Home Less than 5 yrs
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Time in Home Less than 10 yrs
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Time in Home Less than 20 yrs
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Interest Only
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x
|
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x
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|
|
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1 Year Arm
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x
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x
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x
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|
|
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3 Year Arm
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x
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x
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x
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|
|
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5 Year Arm
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x
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x
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|
|
|
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15 Year Fixed
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x
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x
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X
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|
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20 Year Fixed
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x
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x
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|
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x
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30 Year Fixed
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x
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x
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|
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x
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Home Equity
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x
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x
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X
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x
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Debt Consolidation
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x
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x
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x
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X
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x
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FHA
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x
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x
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|
|
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Step 5: Complete an application and compare offers!
Mortgage lenders come in many different shapes and sizes. They can be a local bank or Savings & Loan, a credit union, or national mortgage companies like “Ditech”. As a Consumer you have many options, any of the above can give you a great mortgage loan,...- IF YOU HAVE DONE YOUR HOMEWORK or have a mortgage pro like us on your side.
Once you have narrowed it down to the type of loan and the Lender and the Lender has supplied the GFE and TIL, it’s time to commit to the loan and obtain loan approval. Ask the Lender to approve the loan subject to the appraisal of the property. In other words you want all contingencies except the appraisal removed before you pay for and the Lender orders the appraisal. Once the approval is obtained and a loan commitment letter is given to you; then pay for an order the appraisal. Based upon your previous work you already know what the home is worth, you already told the loan officer what the home was worth and the Lenders underwriter has taken this value along with your income, real estate taxes, insurance, debts, existing mortgage payments, credit scores and credit reports and calculated exactly what you qualify for and the interest rate and payment. You have already done the work they are just confirming the numbers.
Step 6: Close your mortgage loan
Once the appraisal is ordered and reviewed by the Lender the loan should close within a few days. The whole process if you have done your job by answering all of the questions in Step 1 & 2 and having all of the documents outlined in Step 3 should take 2-3 business weeks or 14-21 days. The process could take as few as a week or the time to order and receive the appraisal or over a month if you have an inept Lender. Your in charge the Lender/loan officer should be more than willing to communicate with you every step of the way including being available either at the closing table or on the phone during the closing. If the loan officer is not taking your calls ask for his boss/supervisor or owner of the company. If they do not respond take your business elsewhere, there are people out there that want your business and will provide you great service. Never, Never, Never stay with someone that thinks they are doing you a favor after all you have done most of the work! The mortgage process is not some secret mysterious process, you already should know if you qualify for a loan since you answered the above questions. Best of Luck on your mortgage loan search!!
We know that every loan won’t fit into this framework so we have created some very informative pages/articles to deal with specific situations like a:
A Home Purchase
Whether your dream home is new construction or an existing home, you will want to know what to look for as you begin your home search. You will need a checklist for buying a home to serve as your roadmap with criteria for buying a home.
Click here for the full story and our guide to buying a new home.
A Mortgage Refinance
In recent years, many companies have introduced "no cost" and “low cost” mortgage refinance packages that minimize or completely eliminate your “out of pocket” expenses for a mortgage refinance. Usually these mortgage refinance packages compensate with a higher interest rate, or by including some of the costs in the amount that is financed.
Click here for the truth about a Mortgage Refinance.
A Debt Consolidation
Debt Consolidation means many different things depending upon who you are and exactly what you are trying to accomplish. To some it means taking a large number of credit card payments and other debts and consolidating them into 1 loan with a lower interest rate to reduce the monthly payments.
Click here if credit card bills are killing you and your budget.
A better Mortgage Rate
It’s not always about the best mortgage rates. Your financial situation, the value of your home, employment situation and credit rating determine the mortgage rate that you will get.
Click here for a “No Nonsense” look at mortgage rates.
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