Wouldn’t it be cool if there was a TV show called Mortgage Hunters where instead of watching hopeful homebuyers search for a house, you could follow along as they tried to get the best home loan?
Okay, it might not be cool. But a show like that could be informative for individuals and couples who are about to make what could be the biggest financial commitment of their lives.
Buying a house, after all, isn’t just about finding the property you want and negotiating with the seller. Unless you have enough cash to buy the place outright, you’ll have to secure a mortgage. And that means getting the sweetest terms you can based on things like your financial profile, property type and being ready to go when you find your dream home.
No one wants to lose out to a better-prepared buyer, or to find out they could have gotten better loan terms if they’d gone with a different lender.
Getting a Good Mortgage Loan
What should you be aware of as you make your way through the mortgage selection and approval process?
Your Money “Story” Matters
Before you start a serious home search or apply for a home loan, it can help to take a step back, look at the big picture, and decide if you’re financially prepared to take on a mortgage. Are you staying current on your bills?
You can get a free credit report annually from www.annualcreditreport.com that includes bill payment history, current debt, and other information lenders typically check on. The report doesn’t include a credit score, but you may be able to find one on a credit card statement, or you may want to buy a score from the credit reporting companies to get an idea of where you land. Keep in mind that these scores may not be the same score used when you apply for your mortgage loan.
If you spot any errors on the report, you may decide to take the time to get them fixed. Taking the time to get your credit in shape could help improve the chances that you’ll be approved for a mortgage with the best possible loan terms.
You Can Hunt for the Right Lender and Loan Online
This is where an episode of Mortgage Hunters might start—with homebuyers shopping for lenders, and lenders telling them how much they can afford to borrow based on their income, debt, and other factors.
This pre-qualification stage is usually pretty informal. You may want to shop for lenders online, or you could ask for referrals from friends and family or your real estate agent (if you have one).
Lenders likely won’t pull your credit from all 3 bureaus at this point (a lender may do a soft pull on your credit at this point which does not affect your credit score), or verify your employment.
And no one is making a commitment: A lender who pre-qualifies you is not guaranteeing you a loan, at this early stage qualifying information such as income and assets are not yet verified. This is also a good time to assess the many types of mortgages various lenders have to offer—and the choices may seem endless. There are conventional loans and government-insured loans (FHA, VA, USDA).
There are fixed rates and adjustable rates. There are different loan lengths. And there are multiple options for a down payment amount. (Twenty percent is the optimum, because it allows the borrower to avoid paying for private mortgage insurance (PMI), but many lenders will take less. For example, SoFi will accept as little as 10% down on loans up to $3 million.
A Pre-Approval Letter Can Show Sellers You’re Sincere
Once you have an idea of how much house you can afford and which mortgage lender you want to go with for your loan, it’s pre-approval time. That’s when things get more serious.
You can expect the lender to do a credit check, verify your income and assets, and calculate your debt-to-income ratio (your monthly debt including the new proposed house payment, divided by your monthly income). Be ready to provide any requested paperwork, which might include things like pay stubs, tax returns, W-2s and 1099s, bank statements, statements that show you’ve paid off certain loans, and information about debts you still owe.
If all goes well, the lender will provide you with a pre-approval letter, and you can shop for a home in the designated price range.
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Underwriting May Feel Overwhelming
Once you find a home, make an offer, and the offer is accepted, you might find yourself mentally moving into the home you hope to buy—but you aren’t done yet. During the underwriting process, the lender will typically confirm the credit, income and asset information you provided. In addition, The lender will verify the market value and eligibility of the property.
Often the lender will order an appraisal of the home you’re buying to be sure it is worth the amount you’re purchasing the home for. The title company you choose will typically perform a search on the home’s title to be sure there are no liens, judgments, unpaid taxes, or other claims against the property. Depending upon where the property is located, You also may need to provide a property survey.
When the underwriting process is complete, you’ll receive a decision in writing on whether your application has been final approved (yay! All loan conditions are met), denied (lender will provide you with an explanation ), approved with conditions (the underwriter may need backup paperwork, such as a more recent bank statement), or suspended (the underwriter couldn’t complete the evaluation with the information received and needs more information in order to reach a credit decision on the loan).
Closing Day Is for Signatures—and Celebrating
The closing is the final step in financing a home. Typically, at least three business days before closing, you should receive a closing disclosure, which will list the terms of your loan and any associated fees. Once you review it, you can contact the lender with any questions or concerns.
On your closing date, you’ll be given several documents to sign and keep, including a promissory note, deed of trust, and deed. You’ll also be asked to bring (or provide in advance) a cashier’s check or proof of wire transfer for the amount of money you need to close, your driver’s license or ID. You also may wish to bring your real estate agent and/or attorney with you to help you go over everything one last time—especially if you are a first-time homebuyer.
Unless there’s a complication, the closing should go reasonably quickly. And finally, once the home is recorded in your name, you’ll receive the keys to your new home.
Preparing for a Lender Search
One of the most momentous decisions you will likely make during the homebuying process will be choosing a lender to work with. Since this could be a long-term relationship, it’s important to choose the mortgage lender you feel is the best fit for your needs.
Competitive interest rates are, of course, a plus, but your costs could be impacted by fees, the down payment the lender requires, and any PMI necessary to get the loan. Easy access to the lender also can be a factor to consider.
How difficult is the application process? How long will it take? How hard is it to get answers to questions? What will the relationship be like after you get your loan and move into your home?
Just because a lender approves your loan application doesn’t mean you’re getting the best deal. Being choosy can pay off when you’re hunting for the right mortgage loan.
Even after you’ve diligently selected a lender, it may not be the best fit for the entire life of the loan. If that’s the case, mortgage refinancing could be worth considering.
Refinancing may allow some borrowers to secure lower interest rates or more preferable terms. The decision to refinance your mortgage shouldn’t be taken lightly, but could result in potential savings, depending on the new loan terms you’re able to secure. Consider SoFi as you compare refinancing options. At SoFi, you can apply easily online and get a quote in just a few minutes.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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