So you have found the house of your dreams. Now what? Know the mortgage process before you apply for a loan and avoid any unpleasant surprises.
Buying a new home could be the single largest purchase you ever make, and applying for a mortgage may feel intimidating and seem like a daunting task. The best way to prepare yourself is to understand the mortgage process, know what questions to ask, and what your responsibilities are to get the loan you need. Whether you are purchasing a new home or refinancing your existing one, getting a loan does not have to be difficult or stressful.
The process can be broken down into three major steps: application, processing, and closing. If you think about it in those terms, it will seem a lot easier to tackle and master the mortgage loan process.
Before You Even Get Started
Before you start the loan process, you need to find a lender. There are a large number of reputable mortgage lenders to choose from. Shopping around for one that has the loan program you need, and offers competitive rates and fees, is an investment of time that you should make.
If you are wondering where to look for a mortgage loan provider, there are many options. Start by checking out what terms your bank offers. You can also find lenders by looking on the Internet through a search engine, a realtor referral, yellow pages, and, of course, through word of mouth. If someone you know has had a good experience with a lender, then it is definitely worth looking into.
When you start shopping around, compare the interest rates and lender related fees, such as document preparation, document review, management, administration, and loan processing fees, in order to make sure you are getting a competitive deal. When you compare interest rates, make sure you look at the origination and discount points associated with it. An origination point, sometimes referred to as a fee, is usually 1% of the loan amount. When you pay discount points your lender reduces your interest rate. In order to compare apples to apples, you have to get an actual percentage rate, which is often referred to as an “APR”. The APR is based on the interest rate, points, and fees. Therefore, this allows you to compare which lender provides you with the best overall deal. Finally, make sure you like the loan officer you are dealing with. Having a loan officer you trust, who returns your phone calls promptly and answers all your questions, will make a big difference in your mortgage experience. For helpful information about mortgage shopping, see the U.S. Federal Trade Commission’s publication Looking for the Best Mortgage.
Step 1: Getting Started by Applying for a Loan
So, you found the lender you want to work with. Now, you are ready to get started. Your loan officer will advise you on what type of loan best fits your needs. There are many loan types to choose from so make sure you understand all your options and why your loan officer is recommending a certain one. See the article on loan types in the related articles section.
You will be asked to fill out a comprehensive loan application and provide documentation that backs up the information you provide on the application. This may include a copy of your W2’s, your most recent pay stubs covering a whole month of salary, bank statements, and any other documentation that has information on your assets and liabilities. If you are self-employed or receive bonus or commission income, you may also have to also supply a copy of your tax returns.
The amount and kind of documentation you will need to provide will vary by lender and type of loan you choose. Don’t get overwhelmed. If you are prepared and collect this information before you are even asked for it, you will avoid the stress of searching for it at the last minute.