Your file should contain all of your important financial documents. Regardless of the loan type, lenders will need information about you. Make copies of financial statements; bank accounts, investments, credit cards, auto loans, recent pay stubs and two years’ tax returns.
Check Your Credit Rating
Credit scores range between 400 and 800. 620 + is considered “good”. 680 + is considered “premium” and may possibly help get you a lower interest rate.
SHOP FOR A LOAN
How to Find a Lender
Today, lenders can be found through a variety of sources. In addition to calling on ads in the newspaper, you can also find and apply to lenders over the internet and through referrals from your REALTOR. We would be happy to suggest lenders we have used successfully, who have proven themselves competitive and capable even with problem properties or poor credit.
Choosing the Right Kind of Loan
The fixed rate loan assures your monthly payments will stay the same over the life of the loan, which is typically between 15 and 30 years. Fixed rate loans may be best if you intend to hold the property for a long period of time, say over 7 years.
ARMs (Adjustable Rate Mortgages)
ARM’s may be suitable if you plan to sell or refinance your home within the next few years. The starting interest rate is typically lower than a fixed rate loan, saving you money initially. However, it is important to understand the index, the readjustment interval, the capitalization rate and downside risks of an ARM before making a final decision to use this type of loan.
Also called Hybrid Loans, these loans can offer fixed interest rates for the first 3, 5, 7 or 10 years after which the interest rate adjusts with the market every 6 months or year thereafter.
KNOW THE NUMBERS
Typically, it costs under $50 to check your credit. With your approval the lender will order a review of your outstanding loans and your repayment history from a third party credit agency.
Application and Processing Fee
This cost, typically a few hundred dollars, is charged to cover the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon closing.
What is APR?
The APR, or annual percentage rate, is the sum total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance.
Lenders hire experienced, often independent appraisers to evaluate the property’s purchase price, condition and size compared to similar recent neighborhood sales. This helps ensure the purchase price is not too high, and gives the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. The appraisal costs vary depending on the property, type of appraisal, and region.
Expect to see various costs incurred in the processing of your loan which might include notary, courier, and county recording fees.
Get Pre-Approved by a Lender
There are several benefits to going the extra mile and getting a pre-approval letter. First of all, you will know exactly how much real estate you can afford. When you find a property you want to buy, your offer will be in a better positioned than someone less prepared. Finally, being pre-approved is more efficient; it reduces the amount of time it will take your lender to fund your loan. Be prepared to provide comprehensive documentation, which the lender may independently verify, including but not limited to:
- Job and career status
- Monthly debt payments
- Cash available
- Total assets and debts
Applications and Processing
Mortgage Brokers and Lenders – Who Does What?
The mortgage broker is the person or company who is your main contact throughout your loan. They are often able to work with a number of lenders, who actually provide the funds for the loan. Typically, the lender pays the mortgage broker a fee for acting as the intermediary and supplying all the customer service.
Filling Out the Application
There are standard forms to be completed when applying for a loan. Some mortgage brokers keep these on their website so you can fill out and submit the forms on line. The information will be verified and used to qualify you for your loan, so take the time to answer questions accurately.
The mortgage broker will need copies of the documents you began gathering in the first phase of the loan process, including:
- Either 2 years of W-2 forms from your employer or 2 years of tax returns if you are self-employed
- Recent pay stubs
- 3 months bank and money market statements
- Credit card statements
- Brokerage, mutual fund and retirement account statements
- Drivers’ license or form of ID
(If you’re not a US citizen, then copy of your green card or visa)
- Copy of any existing mortgage debts if you are applying for a home equity line of credit or another mortgage
When the lender is ready to “close” your loan, or “fund” it, your real estate agent and your mortgage broker will have you sign the final loan documents. Signing will typically take place in front of a notary or an escrow officer. Ask your mortgage broker if there is anything you need to do to prepare for this, such as bringing a photo ID or perhaps a cashiers’ check if you are purchasing real estate. Allow yourself enough time to review the documents for accuracy
Your mortgage broker will probably call you to confirm that the money has been transferred and the loan has closed. Always follow up with a phone call to confirm that your loan funds went they were supposed to go.