Step 1: Finding the Right Mortgage
30 year or 15 year Fixed mortgages are the most common type of mortgages. Another form is the adjustable rate mortgage, they are commonly referred to as ARMS, however, the interest rate on ARMS can vary over the length of the loan. Other types of mortgages offered are assumable loans and seller financing.
Step 2: Determining the house that fits your budget
You might consider the following points:
Would you be able to manage the monthly payments?
What would be an affordable down payment for you?
What is the total amount for real estate taxes, insurance (including homeowners and maybe mortgage insurance if the down payment is less than 20 %?)?
If you currently own your own home how much equity is there?
Be sure to take note of any payments due monthly on debts. For example, credit cards, alimony and student loans. (Note: It is preferred that the total monthly debt payments should not be more than 36 % of pretaxed income.)
Step 3: Checking your credit.
Upon your application for a loan the lender will verify that your credit is in good-standing. This is done by ordering credit reports. Therefore, it is highly recommended that you obtain your credit reports in order to check for errors so you can correct them.
Step 4: Consider prequalification or preapproval
Are you still in the process of finding a home? Wondering how to get a mortgage? If you are, why not consider becoming prequalified or preapproved. The lender will research your financial history in order to prequalify you. For preapproval, the lender checks your credit, if it is approved you will receive a letter stating you are preapproved for a certain amount. Both a prequalification and a preapproval will positively influence your ability to purchase.
Step 5: Gather and organize all the required paperwork.
Step 6: Finding a lender.
Comparing mortgages and talking to several lenders before you apply for a loan is a very important step. You will not only acquire knowledge but be more confident when discussing your requirements with the lenders. Keep in mind that the lowest mortgage rate offered may not be the best one for you; you should check on the points and on any other fees that could be connected to the loan.
Step 7: Sizing up your potential home.
When you have found a home you are seriously considering be very sure that this is the home you want. At this point, it’s likely that an appraisal will be done; this is a normal part of the mortgage process. For you, an appraisal means you are paying the right price for the property.
Step 8: Preparation for the closing.
Timing is all important at this step:
The closing date should be scheduled before the loan and any locked in rate expires.
Also, make sure there is plenty of time to complete home inspections, repairs, if necessary, and last but not least the completion, if needed, of any loan documents.
Step 9: Closing day!
On this important day you are about to take possession of your new home! Before that happens you will be signing legal documents and paying closing costs for the property.
As to closing costs, the costs could include payments for such things as surveying, taxes, insurance, attorney fees, agent fees, points, loan origination fees, PMI (private mortgage insurance) and the balance of the down payment.
Step 10: Servicing the mortgage.
Normally, the mortgage banker would service the loan for the life of the loan. However, it’s quite possible that the loan could be handled by a third party. You will be told at the closing who exactly will be servicing your mortgage loan.
Suggestions and tips
Unexpected expenses occur quite often when you own a home. One should be prepared for the maintenance costs involved for example, when a water heater, furnace, or electric problem suddenly crop up. These unexpected expenses should be considered when weighing up the cost of a house payment versus a rent payment. Obviously, apartments come with a landlord whose responsibility is the repair of the apartment, however, if you make the decision to own a home then creating a budget and following it will keep you a homeowner.
If you have friends or relatives who have previously been through the process of seeking a mortgage loan, ask them if they can recommend at least three mortgage loan officers. Also, your bank may also be helpful in providing some recommendations.
When you eventually choose a loan officer and before you speak with him/her, you should decide the cost of the home you can afford, the down payment you are able to make, and don’t forget to include the extraneous costs such as real estate taxes, homeowner association dues if applicable, hazard insurance, etc. (NOTE: for loans with less than a 20 % down mortgage insurance is usually required which adds an additional cost. On the other hand, some loans can be as small as 5% or less down payment. And, let’s not forget that the VA even will offer no money down program for veterans.)
When you feel you have the right decisions, you can now begin the job of choosing the right real estate agent and make them aware of your budget. The MLS is a multiple listing service which most agents will provide to the potential homeowner via their website on the internet. However, a prospective home buyer should not limit themselves to just the MLS, there are other options to choose from such as checking out HUD homes from FHA and VA foreclosures and let’s not forget the homes that need fixing up and repaired. There just may be a bargain waiting for the savvy buyer.
You have found a home…now what? Make your best offer and be sure to work closely with the loan officer who will now require a variety of documents from you. A list of documents you will need for the approval of the lender include pay stubs, W-2 forms, tax returns and any asset documents, e.g. bank statements, 401K statements, letter describing gifts. (Note: a relative might gift you the down payment; some first time buyer programs would allow this gift. However, the down payment is not allowed if it comes from an unsecured loan or cash savings saved at home, sometimes called “mattress money”.)
One more important point is to keep in mind that the lender could ask for an update of the pertinent documentation at any time. Therefore, it is highly recommended that major purchases such as a new car should be avoided at this time, also this is not a good time to be changing employment if you are thinking about it. Before closing, a lender could take another look at your credit reports and if you choose to purchase a new car for example, the lender will find a payment due each month for the car; or if by changing employment your income has been negatively affected and thereby won’t support the new loan and house payment then it’s quite likely your loan will be denied.