You are thinking about buying a house, and don’t know where to start on getting a mortgage. Most home buyers have more questions than answers: Do you need a 20% down payment?Is my credit score high enough?Can I get down payment assistance? Below you can find the answers to those questions, and you will also learn some things to consider when choosing the right mortgage lender to help you.
Find a Local Mortgage Lender
Once upon a time, people borrowed money from their local banker and things were done through relationships, and sometimes based on a handshake.That is not the case in today’s world.Most people don’t have relationships with their banker because we are just one of millions of other clients they have, so it’s not about the loyalty to your bank.
However, having a local, well-known, and trusted mortgage lender is important when buying a home.While it doesn’t matter if the mortgage lender is located near your home (because everything can be done online) it is important they are located within your time zone. You wouldn’t want to be unable to get last minute documents complete because it’s after hours where your lender is located.
Additionally, you should hire a local mortgage lender that is known to other real estate agents. When you make an offer on a home, having a local lender that the listing agent or home seller recognizes could make them feel better about accepting your offer.
Find a Mortgage Lender With Good Reviews
The number one thing to consider when you are picking a mortgage lender is customer service. Buying a home can be stressful, so having someone who can help you through the process is paramount to an enjoyable home buying experience.You need to find the mortgage lender that has the best reviews from satisfied customers, and one that you feel comfortable with.
The best mortgage lenders are those who take personal responsibility for your loan. This means they communicate in a timely manner—and deliver necessary documents without delay. They anticipate complications and take proactive steps to avoid these problems. They oversee the loan application process thoroughly and competently and they meet crucial deadlines.All of this boils down to having great customer service.
Here are some things to consider:
·Will they be responsive to your requests?
·How do they communicate with clients – email, text, phone calls, in person?
·Will they get your file complete in time for closing?
·How long are their turnaround times on preapproval, appraisal and closing?
·Do they have multiple types of loans?
·Do they offer grants, down payment assistance, or other special programs?
·Will they answer your questions and help explain the process?
Ask Your Agent to Recommend the Best Mortgage Lender
Your real estate agent is probably in the best position to offer you advice on choosing the best mortgage lender for your needs. Your agent should possess firsthand knowledge of which mortgage lenders get the job done and which ones fall short. Your mortgage lender is extremely important in a real estate transaction. Most transactions that don't close on time are traced directly to the lender's inability to complete the loan on time.
Is My Credit Score High Enough
To be clear, you don't need to know your credit score before you start shopping for a mortgage lender. However, checking your score beforehand can give you an idea of what sorts of terms mortgage lenders may offer you and whether you're even ready for a mortgage in the first place.
Once every 12 months, you’re entitled to a free credit report from each of the three main reporting bureaus – Experian, Equifax and TransUnion – by visiting AnnualCreditReport.com. Many credit card issuers offer a free FICO score as a perk, but if you want your complete (three-bureau) credit report, you may have to pay for it. MyFICO.com is one popular website that sells FICO scores from all three credit bureaus. Generally, we don’t recommend paying for your credit score report since you can get it for free and the lender you choose will be running a credit report on you that they can share with you.
If you have a lower-than-expected credit score, look through your credit reports for errors, late payments, delinquent accounts in collections and high balances.
Not everyone can qualify to buy a home; you have to meet certain credit and income criteria to assure mortgage companies you can repay the loan. Generally, if you have a score under 580, you’ll have a tough time qualifying for most types of mortgages.However lending guideline do shift and change over time, so your best bet is to speak to a mortgage lender to get the current facts about your credit score and how it will impact your ability to get a mortgage.
How much money will I need
Some people believe that you need to have a 20 percent down payment saved up before you can buy a home.That is not true in today’s mortgage world.Many lenders offer conventional loans with as little as 3 percent down, and some government-insured loans require no down payment while others require just 3.5 percent down. Keep in mind that if you put down less than 20 percent, you will likely be required to pay mortgage insurance.If you or your co-borrower is a veteran, you could qualify for a VA loan with zero percent down payment.Another zero percent down payment option is a USDA rural development loan.
Know the Difference
While most home buyers don’t need to get too technical with this, you may want to dive a bit deeper and learn about the types of mortgage companies that you may encounter during this process.
Mortgage lenders: These are companies that lend money to a borrower to purchase a home and set the terms of the mortgage, including interest rates, term, conditions, repayment schedule and lending fees.Some mortgage lenders “sell” the loan after closing to another company that “services” the loan.
Mortgage brokers: Brokers are independent, licensed professionals who act as matchmakers between lenders and a borrower to find loans that best suits the borrower’s needs. Brokers are paid by either the borrower or the lender (but not both) and charge a small percentage of the loan amount (1 to 2 percent) for their services. They do not fund loans, and they don’t set interest rates or loan origination fees, or make lending decisions.
Retail lenders: Retail lenders (also called direct lenders) sell their own mortgage products directly to clients, without a middleman. Retail lenders do this in person, by phone or online, and offer their companies’ loan products only. (Think of your big banks and credit unions)
Once you have decided to move forward and buy a home, and once you have decided on a mortgage lender, you have a few more steps before buying a house.
Getting a mortgage pre-approval letter before you start looking at houses will give you an edge when bidding against other buyers. The letter shows the seller that you're a serious buyer whose loan is likely to close. It is evidence that a lender has evaluated your finances and figured out how much you can afford to borrow, and therefore how much house you can afford.
Getting pre-approved now will also save time later. When you're ready to make an offer on a home, lenders will already have the information they need to process your home loan.
To get pre-approved, you’ll have to provide lenders your financial information.
Here’s a list of what a lender typically requires:
·Two years of tax returns, W-2s and 1099s
·Salary and employer information, including pay stubs from the past 30 days
·Bank, savings, checking, investment account information, including statements for the past 60 days
·Outstanding debt obligations, including credit cards, personal and auto loans, student loans, alimony or child support
·Information about how much of a down payment you can make, and where the money is coming from
·Social Security numbers for yourself and any co-borrowers
·Driver’s license or other government photo ID.
·Residential address history, as well as names and contact information for landlords in the past two years.
Now that you have a mortgage lender in mind, you should use them as a resource to ensure you get the best loan available for your specific situation.You may want to ask them some questions like:
·What lender fees will I be responsible for at closing? (Fees may include commission, loan origination, points, appraisal, plus credit report and application fees.)
·Will you waive any of these fees or roll them into my mortgage?
·What are the down payment requirements?
·What loan products will work best for my specific situation?
·Do you have any down payment assistance or grant programs available that may work for me?
·If I am getting money from a family member for my down payment, what do I need to do to be able to use those funds?
Also, check with your mortgage lender or broker if buying discount points to lower your rate makes sense. If you buy points, you’re paying some interest upfront in exchange for a lower rate on your mortgage.
As you get farther into the home buying process, you may want to consider getting a second opinion by getting pre-approved by another lender. Then you can compare “Loan Estimate” forms from each one to determine who offers you the best rates and terms. Keep in mind that the rate quote you see online is an estimate. A lender or broker will have to pull your credit information and process a loan application to provide an accurate rate, which you can then lock in if you’re satisfied with the product.
When comparing your options, you should take a close look at all of the cost information involved. When going through the process, you're going to want to ask each loan officer and broker for information on their present mortgage interest rates, whether the rates are fixed (or negotiable), whether the quoted rate is for an adjustable-rate mortgage, and you should ask about the loan’s annual percentage rate (APR).
Once you have compared the Loan Estimates, you can always ask one lender to match what another lender offers.You might be surprised that you can get the best deal and still stick with the lender you chose in the beginning.
If you want more information about the home buying process, we would love to answer your questions.Feel free to call 469-759-3899, or reach out to us on Facebook, LinkedIn, or Instagram.We are here to help you throughout the entire home buying process.
Happy house hunting!
About the author:
Melissa Hailey is the Broker-Owner of North Texas Top Team, REALTORS in the Dallas-Fort Worth Metroplex. Our Team helps home buyers, sellers, landlords, and tenants move across North Texas and we connect clients to other great REALTORS across the country. She is a real estate instructor and coach who loves to see others succeed. She is a serial volunteer helping others in her community and in her industry. Connect with her at https://www.northtexastopteam.com/melissa-hailey/