Three Steps to Getting a Mortgage
Start by determining how much mortgage you can afford. Lenders are apt to put your loan application in the best light and qualify you for as much as they are willing to lend, which can be more than you can afford or need.
It’s up to you to take stock of your income and expenses, current and projected, to determine what you can comfortably manage each month. Along with your mortgage payment, don’t forget related insurance, taxes, homeowner association dues and any other costs rolled into the mortgage payment.
When you are ready to shop for a loan you have two basic types of mortgage stores to shop — direct lenders and mortgage brokers.
Direct lenders have money to lend. They make the final decision on your application. Brokers are intermediaries who, like you, have many lenders from which to choose. Lenders have a limited number of in-house loans available. Brokers can shop many lenders for each lenders’ store of loans. If you have special financing needs and can’t find a lender to suit them, an experienced broker may be able to ferret out the loan you need. Mortgage brokers, however, are paid from the amount you borrow. The amount varies. Mortgage brokers are a lot like real estate agents, make sure to go with someone who is recommended and has been in the business a substantial amount of time. Internet brokers perhaps receive the smallest cut, sometimes none at all, and can prove to be a real bargain.
Don’t just go with the lowest interest rate. There are many other factors that affect the true cost of the loan, inlcuding broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal and many others.
The application process is the easy part — provided you’ve gathered documents necessary to prove claims you make on the application.
The application will ask for information about your job tenure, employment stability, income, your assets (property, cars, bank accounts and investments) and your liabilities (auto loans, installment loans, mortgages, credit-card debt, household expenses and others).
The lender will run your credit report to look at your FICO scores, which are very important when it comes to rates and terms you will be offered. You will also likely have to supply additional documentation, including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, among other information. If the lender deems you creditworthy, it will likely hire a professional appraiser to make sure the value of the home you want to buy is worth your purchase price.
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