Many people are surprised to learn that the best
time to look for a mortgage is BEFORE you look for a
house. Beginning your adventure with the search for
financing gives you plenty of time to pull together
records you will need to get a mortgage when you
finally find the home you want to buy. It's a big
advantage to get familiar with mortgage lenders in
your area in the early stages of your house hunting
project. There are also two valuable things you can
carry away from your visits with lenders that can
help make your home search a little easier.
Pre-Qualification
Pre-Qualification consists of a verbal or written
statement of the maximum amount of mortgage you
should be able to receive based on the financial
information you've provided. This helps you and your
real estate agent narrow your home search to houses
available in your price range. There should be no
charge for a Pre-Qualification.
Pre-Approval
A Mortgage Pre-Approval is a formal letter from your
lender which indicates to a seller and his or her
real estate agent that you have had your credit
reviewed and are "credit worthy." It also shows that
you have been approved up to a certain loan amount.
There are many benefits in having a Mortgage
Pre-Approval, not the least of which is that it can
eliminate a great deal of potential anxiety since
you do not have to wonder about your credit rating
or how much of a mortgage you're approved for.
There are other benefits as well. Your offer to
buy can be taken more seriously once you have
finally found your dream home. Many offers today are
made with contingencies, such as mortgage
qualification, the sale of another dwelling, etc.
When you indicate to the seller of the home you want
that you have been "pre-approved" for a mortgage,
your offer becomes more attractive. The seller knows
that it's likely that a sale to you will "go
through" and not result in costly and inconvenient
delays.
Closing on your new house will likely be faster
and easier. The pre-approval process includes some
of the steps that would be taken in the regular
mortgage process. Since you will have already gotten
those steps out of the way, your mortgage can be
closed faster.
There is typically a modest charge to obtain a
Mortgage Pre-Approval. This covers the cost of the
lender obtaining and reviewing your credit report.
To get a Mortgage Pre-Approval, contact your
mortgage consultant.
The amount of your down payment varies with the
program you select. The following are some examples
of the programs which are available and their
respective down payments:
- Fannie Mae and Freddie Mac will allow as little
as 5% down.
- The community homebuyer program allows 3% down.
The Farmers home loan program allows zero down, but
it is only for specific geographic regions.
- Some lenders will do an 80% loan with the seller
carrying the other 20%; Therefore allowing you to
purchase with nothing down.
- FHA will allow roughly 3.5% down, however, all of
that 3.5% can be a gift from a family member.
- VA is a true 100% loan to value loan, and the seller
can pay all the closing costs. This means you could
purchase a home with nothing out of your pocket.
The best way to know what type of loan program to
chose is to estimate how long you plan to keep your
home.
- If you think you may be in the loan for 3
years or less you might want to consider a 3
year or a 5 year adjustable rate mortgage.
- If you are not sure how long you will have
the loan you might want a 7 or 30 year fixed
rate mortgage.
The following are good questions to ask a mortgage
lender:
- How long have you been in the mortgage business
in this area?
- If I get my mortgage here, how likely is it that my
mortgage will be serviced here or sold to another
lender for servicing?
- About how many days will it take to get my mortgage
processed?
- Would you please provide me with a written "Good
Faith Estimate" outlining closing costs and interest
rates if I were to get a mortgage from your company
today?
In order to process your mortgage, your loan
consultant will need several pieces of information
regarding your income, debts, and residency. You may
be asked to provide other information such as the
previous two years federal tax returns or specific
financial documentation, particularly if you are
self-employed, own rental property, or have income
such as commissions and bonuses.
There's nothing like preparation to help take
some of the anxiety out of the mortgage application
process. An hour or two spent "pulling together"
financial information can save many days of delays
down the road.
The length of time it takes from start to finish can
vary with the complexity and details of your
transaction.
- The absolute fastest would probably be a 2
day closing from start to finish. These are very
rare and can only happen if you have a just
about perfect loan.
- The typical time frame is usually 2-3 weeks
to obtain loan approval and then another week to
close.
- Some loans can literally take months to
close. For example, construction loans with all
the permits that are required can take a long
time. Likewise, a foreclosure loan can sometimes
take a long time just due to the extra title
work needed.
- If you make application before you buy your
home and have your loan pre-approved, you can
save yourself 2-3 weeks.
There are a number of costs associated with applying
for and closing on a mortgage besides the house
payment. To begin with, there is a fee charged by
the lender to obtain a credit report and conduct a
formal appraisal of the property. This can range
from between $350 and $500. In addition to this
amount, which is due when you apply for the home
loan, are closing costs. Costs associated with the
closing can (but not always) include the following:
- Origination fees
- Commitment and processing fees
- Discount points ("points")
- Attorney's fees (if you retain one to
examine the paperwork)
- Title insurance fees
- Surveys
