Looking for a new or first house is a very exciting process. Applying for the home mortgage can be very stressful. There is a process you can use to make the loan process easier to navigate and then put all your effort into finding just the right place for you and your family.
Before You Start House Shopping
While you are still in the dreaming stage, well before you start browsing online or going to open houses, there are some basic tenets that will make the loan application easier.
- Credit – Make sure to pay all your bills on time and, if possible, well before the due date. Late payments will show up on your credit score and you would like everything to be as clean as possible.
- Spending – Keep spending, especially through credit cards, as low as possible. That will give you time to start saving for the down payment and incidental expenses. Having that cushion will really help. Avoid running up your credit card charges, or at least pay them off as soon as possible.
- Job Security – In addition to your current salary, lenders will look at your employment history. Significant breaks will raise eyebrows as well as job-hopping, even if it shows increasing income. Loan officers look for stability and a steady income that will pay them back. If you are self-employed, bring copies of your profit and loss statement or income tax returns to show consistent income over the past few years.
- Loan Choices – Educate yourself on the different types of mortgages like fixed-rate, adjustable, FHA, and VA. Each will have its own type of standards to be met and different fees.
- Extra Expenses – In addition to repaying the principal and interest each month, you will have to allow for annual taxes and insurance. Especially if you are moving from a rental situation into homeownership, this can be a large impact on your monthly budget. Contact your insurance agent and talk about rates. Different neighborhoods can also affect the rates you will need to pay for not only household insurance but possibly auto coverage. Your insurance representative will be able to identify higher crime areas that will have some impact on rates in general.
One of the first things a potential lender will look at is your FICO score. There are three major credit bureaus: Equifax, Experian and Transunion. Each issue a score based on your payment record and amount of accumulated debt. Then the lender will determine how much, or little, risk you pose and base your interest rate on that information.
Check these scores periodically. If you see errors or have questions, contact them.
If you are trying to reduce your credit card balances, contact the credit card company directly. See if they will lower your interest rate, even for a year so that you can get caught up. Another option is to apply for a no interest credit card and transfer outstanding balances as another way to reduce debt.
When you have your credit scores under control, it is time to seek out a bank loan officer or a mortgage company. The representative will help you understand all the documentation required. While much of it is the same, each lender will probably have some variants. The rep will submit all your paperwork to an underwriter who will make the decision.
You will get one of four responses: approved; approved with conditions; suspended; denied. Approved and denied are pretty self-explanatory. Approved with conditions usually means there will be a few more hoops to negotiate like clearing up issues on the credit report or refinancing an auto loan. Whatever the problem, your loan officer will suggest how you can correct the issue. Suspended means they need more documentation.
PreApproval is very important because it will allow you and your realtor to manage your expectations of what is within your price range and what is not. Another factor is if you find the house you want and there are multiple people looking at it, PreApproval can be a deciding factor on who gets the property.
Rates and Term
Interest rates change. In a volatile market they can change even daily. So, when you are ready, you need to lock in the loan. That means your lender will commit to funding your purchase at the interest rate and conditions in the written agreement. Then it doesn’t matter what happens tomorrow. If the rates start to rise, you are still locked in. The terms and conditions will be for a set period of time.
It’s not quite over. You still need to double check that you have given the underwriter all the documentation and information requested. Sometimes it means getting verifications. Some of these things include explanations and confirmed correction of any glitches in your credit report. If you are self-employed, you might need to provide profit and loss statements that have been prepared by an accountant. You will probably also need to update any account statements, employer payroll or other information.
Realtors can probably tell you stories of how after the down payment is in escrow, the lender balked because something was not complete. Ask your lender to review with you each of the items that you have produced. Go over the list with him or her to be sure nothing is overlooked.
Especially for first time home buyers, this process can seem lengthy and complicated. A good way to simplify issues is to deal with a company that is experienced in the lending field. Contact Lending Arch. We have a simple application and with access to numerous lenders across the country, you will be able to compare rates at a glance. What could be simpler? Our service agents are ready to help you. Just log on and see how we can expedite the process.