To find your best deal you may have to visit more than one mortgage broker or bank. You will need to first file your application and wait to see if they approve the loan. Get qualified before you start to look for a home, and you'll trim your search time.
To streamline the process and improve your chances:
- Order a copy of your credit report. The mortgage broker will also order a copy, but you should see it first. This will give you a chance to clear up any credit problems before you submit your loan application.
- Organize your recent tax returns and financial documents. The lender will need your financial information to determine how much you can borrow. If you don't have all the paperwork, you can get copies by contacting your tax-preparer and other people who deal with your personal finances.
Get pre-qualified for a loan before you start shopping for a home. You shouldn't have to pay a fee.
If you take the time to get pre-qualified:
- You know how much you can borrow so you don't waste time looking at properties you can't afford.
- You have an edge when you make an offer because the seller knows you're likely to get a loan and close the deal.
- You save time when you file your loan application because you've already assembled your paperwork.
- Contact at least six lenders. They'll qualify you based on their own rates, loan programs and in-house criteria. Be aware that lenders may press you to choose a loan right away.
- Talk to at least two mortgage brokers. They'll qualify you after reviewing the loan plans offered by all the lenders they represent. Again, you may have to pay a fee or listen to their sales pitch.
>> Next "Finance a Home" Topic: Find and Apply for a Loan
Find and Apply for a Loan
Look at loan programs and rates offered by several different lenders. If you find a lender that offers a 6.25 percent rate when all the others charge more, you'll save in interest over the life of a 30-year.
Comparison-shop on line to cut your search time drastically. Work with a mortgage broker who arranges loans from many different institutions. Choosing a mortgage can take weeks if you contact several lenders yourself.
Be sure to compare loans thoroughly:
- Compare at least 6 lenders or mortgage brokers. One of them is bound to offer the loan that's best for you.
- It not all about interest rates. Getting a low rate is important, but you won't benefit from it if you have to pay too many up-front points and other fees.
- Understand how points and rates work. A point is prepaid interest, and each point you pay equals one percent of your loan amount. If you get a $100,000 loan and pay 3 points, that's $3,000 in points. The more points you pay, the lower the rate you'll get.
- How long will you keep the loan. If you're going to move in a few years, consider an adjustable-rate mortgage since you may be able to sell the house before the rate gets too high. If you plan to stay longer, a fixed-rate mortgage may be an attractive option because your rate stays fixed for the term of the loan.
When you submit your loan application on line or in person, your lender combines the information on your application, the results of your credit report, the information about the property you want to buy, and your proposed down payment to estimate your ability to pay the money back.
If you have already gotten qualified for the mortgage, the lender may be able to approve the application and complete the loan within a couple of weeks. Otherwise, loan approval can take a month or two.
To improve your chances of loan approval:
- Fill out the loan application completely. The lender needs all this information to determine your creditworthiness.
- Respond promptly. Don't put off responding to lender requests for additional documentation. Get the documents yourself and hand-deliver them.
- Don't go on a spending spree. Before the sale is scheduled to close, the lender may check your credit report for high credit card balances and your bank accounts to make sure you haven't drained them.
- Make sure the appraisal is done properly. The lender will order an appraisal of the home to ensure that you don't pay too much. If the appraisal is too low, you can fight the report to prevent the transaction from falling through.
>> Next "Finance a Home" Topic: Close and Move In
Close and Move In
After your loan is approved, it will take at least a week or two to complete the transaction. The lender will draw up formal loan documents and handle the details. Whether you're buying or refinancing, the closing itself will probably take less than an hour.
Closing procedures vary throughout the country. If you're refinancing a loan, the lender will probably call you into the office to sign the documents. If you're buying a home, the closing will likely take place in the office of the escrow agent or attorney who oversees the transaction.
If you're buying a home, be prepared to:
- Bring a certified check or money order for your down payment and closing costs. The seller won't exchange the house keys for a personal check. The escrow officer or closing attorney will have a check from the lender for the amount you have agreed to borrow.
- Review the final loan documents. Don't be afraid to ask questions, or to refuse to sign them if they contain an error. Once your signature is on the loan papers, you're committed to abiding by their terms for the next 15 or 30 years.
- Sign the note and trust deed. After they're signed, you'll endorse the bank's check and give it to the seller in exchange for the deed to the property.
- Celebrate! Enjoy the feeling of owning your own home--and try to remember that sensation each time you write your monthly mortgage check.
>> Next: The Loan Process