Money

How to get a mortgage – USA TODAY Blueprint


When it’s time to buy a home, more than three-quarters of buyers take out a mortgage to finance their purchase. But with all the steps involved, getting a home loan can feel intimidating — especially if you’re a first-time homebuyer

By arming yourself with information and preparing your finances, you can sail through the mortgage application process and quickly move into your new home. Here are the steps you should take to get a mortgage.

1. Get preapproved and set your budget

Setting your budget before you apply for a mortgage can boost your chances of being approved, says Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America. To figure out what you can afford, visit a mortgage lender and ask for a preapproval letter. They’ll pull your credit and ask questions about your income, debts and assets.  

This puts you on the right track because “you might think you can afford X, but the reality is you can probably only afford Y,” Haynie says, “and the preapproval letter can show that.”

If you’re preapproved for a lower amount than expected, you have some options. You can work on improving your credit score, paying off debt or saving more for your down payment before applying for the mortgage. 

2. Find your home

The next step is hiring a real estate agent, who acts as your guide throughout the homebuying process. They’ll send you updates on listings in your area, take you to open-house appointments, and help you create an offer and understand the paperwork.   

“Find somebody who is familiar with the area that you’re looking to move into,” Haynie says. “It’s also important to work with someone who is in your price range. Some agents only focus on high-end stuff, so that’s probably not where you’re going if you’re looking for a starter home.”

More house-hunting tips: Make a list of features you want in your new home, such as the square footage, number of rooms and proximity to desired schools. Start monitoring homes on the market that meet those requirements. Are they selling for more or less than the asking price? This information can help you create an offer letter with a price you’re comfortable with.

3. Decide which type of home loan you want

While you check out properties, you can start thinking about the type of home loan you want. The right mortgage for you depends on factors like what you qualify for, the location and price of the home, and the size of your down payment. Here are the major mortgages to choose from:

  • Conventional loans aren’t insured by a government agency. These usually require a down payment between 3% and 5%, a minimum credit score of 620, and a maximum debt-to-income ratio of around 36% to 45%. 
  • Jumbo loans are mortgages that fall outside of the price limits set by the Federal Housing Finance Agency. Eligibility requirements vary by lender, but you’ll typically need a down payment of at least 10% and a credit score around 700 to qualify for these loans.  
  • FHA loans are mortgages that are insured by the Federal Housing Administration. To qualify for an FHA loan, you’ll need a credit score of at least 500 and down payment of 10%. With a higher credit score of at least 580, you may put down as little as 3.5%. 
  • VA loans are mortgages backed by the U.S. Department of Veterans Affairs. They’re available to eligible current and former military members and surviving spouses. VA loans don’t require a down payment, but you’ll need to pay a funding fee at closing.
  • USDA loans are mortgages guaranteed by the U.S. Department of Agriculture. These loans are designed for low-income buyers looking for homes within a designated rural area.   

4. Compare mortgage lenders

 You can also start checking out mortgage lenders while you house hunt. Every lender is different, so they may offer different mortgage rates, loan programs, eligibility criteria and closing costs. 

Online mortgage lenders, community banks and credit unions typically offer lower fees and interest rates or set more flexible lending guidelines, so these are a good place to start. 

More tips on comparing lenders: Do your own research online and ask for recommendations from people in your network. Then, you can create a running list of banks and credit unions that fit your criteria. Check which types of loans they offer and compare rates, terms and fees. Then look at lender reviews online.

5. Fill out applications for multiple lenders

Once you’ve signed a purchase agreement with the seller, you can start submitting mortgage applications with multiple lenders. Your credit score won’t suffer as long as you submit all of the applications within a 45-day window. 

“You don’t have to go with the same lender that did the preapproval for you, but they already have a lot of your documents and information,” Haynie says. “So that lender would know a little bit more about you than starting from scratch.”

Why apply with multiple lenders? Getting rate quotes from multiple lenders often helps you save money — and there’s even research to back this up. Interest rates can span as much as half a percentage point or more between two lenders, according to a study by the Consumer Financial Protection Bureau

For example, if you buy a home for $400,000 and put down 20%, you’d save $104 a month with a 6% interest rate compared to 6.5%. And over the life of the loan, you’d save more than $37,500.

6. Choose a lender and sign the contract

After submitting your mortgage applications, each lender will provide you with a Loan Estimate. This document includes important details like your loan amount, monthly payment, interest rate and a list of closing costs. 

Compare these offers and use the best one to negotiate with the other lenders. Ask them to match (or beat!) the interest rate, lower the closing costs or offer some other type of incentive. 

Once you choose a lender, you’ll sign an “intent to proceed” letter that confirms you’re moving forward with the loan.

7. Go through the underwriting process

The underwriting process allows the lender to review your documents, order an appraisal of the home you’re buying and generally assess your financial health. 

“They’re going to check your income, your employment and the assets you’re using to close on this loan,” Haynie says. “They’re going to look at your credit record again, too.”

The bank takes on most of the work during this part of the mortgage process. But good communication is key. If the lender has questions and requests additional documents, get back to them quickly. Everything slows down if you take days to follow up, you forget to inform the lender of important changes (like a job switch) or you take on new debt.

8. Close on your new home

Closing day is the last step in the mortgage process. Before you sign the closing papers, you’ll do a walkthrough of the property. Go through the rooms, check the appliances, make sure any repairs were done as agreed and look for any new damage that could have occurred when the sellers moved out.

Once this is done, you’ll get to the closing table where you’ll pay your closing costs and sign a pile of paperwork. 

“A lot of those documents you actually get prior to closing,” Haynie says. Read the closing disclosure before closing day so you’re not trying to decipher everything on the spot. “The closing agent should walk you through every document, though, and explain what everything means.”

Bring anything your lender requests, like an identification card and a cashier’s check for closing costs. After signing the paperwork, you should get the keys to your new home!

Frequently asked questions (FAQs)

When you submit a mortgage application, you’ll typically need to provide the following documents:

  • A fully executed purchase contract, signed by both parties
  • Two years’ worth of W-2 forms
  • Most recent pay stubs
  • Two years’ worth of federal income tax returns
  • Two month’s worth of bank statements 
  • Identification such as a driver’s license

Self-employed borrowers will also need to provide copies of their business tax returns from the last three years and a copy of their most recent year-to-date profit and loss statement and balance sheet. 

You can apply for a mortgage with a poor credit score — which typically falls between 300 and 600 — but it might make it difficult to qualify and receive a good interest rate as most lenders require a score of 620 or above for conventional mortgages. 

However, if you have bad credit you could still qualify for an FHA loan, which is a mortgage that comes with flexible qualification requirements. The minimum credit score for an FHA loan is either 500 or 580, depending on the size of your down payment. 

Yes, but it depends on the loan program you choose. A VA loan or a USDA loan, for example, don’t require a down payment for those who qualify. But if you’re looking to get a conventional loan, then you’ll typically need a down payment of at least 3% to 5%. 

Deciding on when exactly to start the application process depends on your situation. But once you’re ready to buy a home, you should start by getting a preapproval letter from a bank or credit union. The letter will show you how much house you can afford and it doesn’t require a commitment to that lender, so it’s a good idea to have this ready as you go house hunting. 

Just keep in mind that a preapproval is typically only good for 90 days and is not a guarantee for a loan. You’ll submit the actual mortgage application a little later, after you’ve signed a purchase agreement with the seller and chosen a mortgage lender.

Every home purchase timeline is different, but it can take anywhere from one week to 60 days to close on a mortgage. In general though, if you’re taking out a conventional mortgage, you can expect closing times to be between 30 and 45 days after you sign the contract.

It doesn’t cost anything to submit a mortgage application, but lenders may charge origination fees that cover the costs of processing the loan once you decide on an option. The fee is usually 0.5% to 1% of the value of the loan. So on a $300,000 home loan, for example, you might pay an origination fee of $1,500 to $3,000.



Source link

Leave a Response