What’s involved in applying for a mortgage?

Almost everyone needs to borrow money to buy a home, repair it or make major improvements to the property.  Your buying power will ultimately depend on two things:

             How much you have available for a down payment?

            How much a financial institution will agree to lend you?

When you apply for a mortgage, the lender will primarily consider two factors in determining how large a loan to grant you.

             Your earnings

            Your existing debt

Any lender you apply to for a mortgage will verify your credit history, so it’s smart to check your own credit rating in the beginning of your home search, even if you are sure you have an excellent credit record.  There may be blemishes in your credit history that you don’t know about.  Resolving any credit problems to improve your credit rating will provide benefits, such as preferred rates from lenders and home insurers.  Acquiring a copy of your credit report is simple.

The Fair Credit Reporting Act allows consumers to obtain one free credit report form each of the three major reporting bureaus every 12 months.  To obtain a report visit:  www.annualcreditreport.com the only authorized source for consumers to access their annual credit report online for free.  Or you may call 877-322-8228.   

Shopping for a Loan

Your challenge is to select loan terms that are most favorable to your situation.  For example, if you anticipate that you will be living for many years in the house you are buying now, the interest rate may be your primary consideration.  If you anticipate keeping the house for only two or three years, the closing costs and whether or not there is a prepayment penalty (a charge for repaying the loan early) may be more important to you.   (link to different types of loans available)

Rate lock-in 

When a lender quotes you an interest rate, that is the rate in effect for that day, but it may not be the rate available to you when you actually close the loan.  Because a higher interest rate may reduce the size of the mortgage for which you qualify, it is import for you to know whether the lender will agree to hold the quoted rate for you.  This is called a “lock-in”.  Am early lock-in may save you thousands of dollars in interest over the life of the loan if interest rates are rising.

Good Faith

Within three days after you have submitted your application for a home loan, the lender is required by law to provide you with an itemized estimate of the costs to settle (or close) the loan.  This report is referred to as a “good faith estimate.”

Speeding up the approval process

Be sure to respond promptly to your lender’s request for additional information while your loan is being processed.  Not getting back to your lender in a timely fashion with requested documents can slow down the approval process.     

Commitment Letter

When your loan is approved, the lender will send you a commitment letter.  This is a formal loan offer.  It will state the loan amount (the purchase price less the down payment), the terms of the loan (number of years you have to repay the loan), the loan origination fees, the mortgage insurance fees, and the monthly charges (principal and interest, taxes and insurance or PITI).

Choosing the right lender can make your home buying experience a smooth transaction, instead of a nightmarish experience.  Here is a list of my preferred lenders listed below to ensure that your home purchase goes as smooth as possible.