- Pre-Qualification
Before you apply for a mortgage, you need to know your:
- Current monthly income
- Current monthly expenditures
- Desired monthly mortgage payment
- Anticipated sale price or home value
- Anticipated down payment amount
This information makes it much easier to figure out how much you can borrow and how much house you can afford.
Top- Obtaining a Loan
Whether you are seeking pre-approval or have agreed on a purchase price for your new home, you need to "prove" your eligibility for a mortgage. Mortgage lenders typically consider the following factors in determining your borrowing eligibility:
- Income
You typically need to prove both your monthly income and income-earning history.
- Expenditures
Both your current and projected monthly obligations are compared to your monthly income. As a general rule, your monthly housing expenses should not exceed 28% of your gross (pre-tax) monthly income. Overall, your total monthly expenses (e.g. housing, auto, student loans, credit card, etc.) should not exceed 36% of your gross monthly income. It is important to note that these are general guidelines and can vary depending on the loan program you select. There are some programs that are more flexible than others but most all lenders use formulas similar to the ones above.
- Credit History
A historical track record of handling financial obligations in a timely manner is a characteristic lenders look for. Lenders use your credit report to assess and qualify this track record. By clearly understanding your financial history, lenders can judge the likelihood that you will also handle your mortgage obligation responsibly.
- Down Payment Size
Although some loan programs only require a small or no down payment, a larger down payment can be considered favorable. Often, the size of your down payment can be increased through a gift from an immediate family member or by borrowing against another asset (such as a 401k plan).
The following income and employment information is generally required as part of the loan process:
- For the employed:
- Current pay stub showing year-to-date income
- Current W-2 Form
- For the self-employed:
- Current, signed business and personal income tax returns covering a two-year period
- Current balance sheet
- Year-to-date profit and loss statement
- For retired homebuyers:
- Social Security Award Letter
- Either a 1099 Form or bank statement spanning a two-month time period (all pages)
- Copy of your pension check and all supporting documentation
- Bank account information
Bank account statements spanning the most recent two-month time period (all pages)
- Investment information
Including account numbers, current values, and statements spanning two months
- Credit card information
Including credit card company names, account numbers, monthly payment amounts, and outstanding balances
- Other loans (auto, student, etc.) information
Including lending company names, account numbers, monthly payment amounts, and number of remaining payments
- Rental information (if applicable)
Landlord's name, address, and telephone number
- Other information:
- Name of settlement agent/attorney, firm's name and telephone number
- Divorce decrees and separation/alimony agreements (if applicable)
- List of other real estate owned, including value, mortgage balance, monthly payment
Top- Secure Your Rate
When applying for a mortgage for your home, you'll have to make a decision about the interest rate option best suited for you. Make sure you clearly understand the choices below so you can make an informed decision.
Often lenders will provide you an option of locking in your rate. This can require you paying a fee however. If you don't want to pay the fee or are not worried about rates changing during the process of closing your loan you can choose to not lock your rate. Ask your lender about your options.
Top- Loan Approval
There are several steps involved in approving your loan. Your lender or mortgage broker will assist you in the following steps:
- Ordering a home appraisal
- Ordering your credit report
- A list of documentation required
- Keep you continually updated
- Promptly contact you with your loan decision
Top- The Closing
When all the I's are dotted and the T's are crossed, you can relax and plan how you're going to decorate your new home or how you're going to pay off credit card debt.
In preparation for the closing, you may need to provide the following information:
- Your desired closing time and date
- Your settlement agent/attorney's name, address, and telephone number
- A survey and/or termite inspection (if required by your loan program)
- A certified or cashier's check as payment for your closing costs
The other closing participants will provide the following information:
- Loan closing documentation-provided to the settlement agent/attorney by the lender
- Title search and notification of final closing costs-provided to you by the settlement agent/attorney
Top- After Closing
Making arrangements to keep the financial commitments you made in buying the house can be a challenge. After closing, your loan servicer should provide you with the following:
- Monthly statements throughout the life of your loan
- The option of setting up an automatic draft payment plan after your first payment
- Property tax and insurance escrow account management
- Annual escrow account balance information
- Customer support
Top- If You Are Not Ready To Buy
Here are a few hints that can help you increase your future purchasing power:
- Budget
Focus on saving money. One of the easiest ways to accomplish this is by developing and adhering to a strict budget.
- Repair your credit
Consistency is the key. Make sure your bills are consistently paid on time.
- Manage debt
Refrain from accumulating additional debt while simultaneously paying off or down existing debt.
- Look for interest rate reductions
Your purchasing power increases as interest rates decrease. Keep track of your desired rate or payment amount by checking mortgage rates regularly.
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