Buying a home is one of the most significant financial decisions you will ever make. From a first-time homebuyer to buying a second home, it’s crucial to understand how to find the right mortgage lender who will guide you through the process. This comprehensive checklist gets you started on your journey through complex world of mortgage lending.
Before diving into how to find a mortgage lender, it’s essential to understand what mortgage lenders do. A mortgage lender is an entity that lends money for the purchase of property. They can include banks, credit unions, or other financial institutions. The lender makes money by charging the homeowner interest on their home loan. In addition, they typically collect fees for processing the mortgage.
Steps to Take
1. Determine Your Needs and Financial Capability
Before starting your search, assess your financial situation and research what kind of mortgage you can afford. Consider your income, credit score, debt-to-income ratio, as well as how much you can afford for a down payment. These factors influence the type of loan you qualify for and the lenders willing to work with you.
2. Research Different Types of Lenders
Do your homework. There are various types of mortgage lenders – from large banks to credit unions and online lenders. Each has its pros and cons. Discuss the options with your real estate professional. Not only will they be able to help answer questions, they will also help guide you through the steps.
– Banks: They offer stability, often have comprehensive services but could have higher rates.
– Credit Unions: In many instances, they may offer lower rates but options could be limited.
– Online Lenders: They provide the convenience of an easy online applications but lack personalized service and/or custom service based on your loan requirements.
3. Compare Loan Offers
Once you’ve narrowed down potential lenders, compare their loan offers. When you are looking to find the right mortgage lender, compare their interest rates, terms (15-year vs 30-year), fees involved, and whether they offer fixed-rate or adjustable-rate mortgages.
4. Check Lender Reputation
Check online reviews to find a mortgage lender, ask for references, and learn about a lender’s reputation. A trustworthy lender will have a strong track record of satisfied customers and ethical lending practices.
5. Ask the Right Questions
When you meet with potential lenders, come prepared with questions to ask the mortgage lender. Understand their loan approval process, what documents you’ll need, how long it will take, and if there are any prepayment penalties.
Financial Preparedness
Underwriters work with loan officers to secure necessary paperwork and validate your finances. They are like detectives. Their job is to make sure you are who you present yourself to be. Subsequently, they will check your credit score, schedule and review the home appraisal, and make sure you have been truthful in all of your financial claims so the lender can approve the loan.
To keep the process on track, get your papers in order. (This applies to both you and your spouse if applicable.) Always answer all questions and respond to correspondence in a timely fashion. The documentation may include but is not limited to the following:
- Valid driver’s license or state issued ID
- Copies of your checking and savings account statements
- Proof of assets
- Paycheck stubs
- Credit card accounts
- W-2s
- Proof of employment
5 Factors that could affect your mortgage outcome
By now you will have a general idea on how much you can afford for a mortgage. While your loan is processing, be sure not to make any major changes in your lifestyle.
1. Marital Status
There are two important documents in a home closing: the mortgage and the deed. The mortgage is the document that outlines the terms of paying back borrowed money. The deed is the document which lists who actually owns the property. To ensure that a home is correctly transferred between parties, title companies will review marital status to verify legal ownership of the property. They do this to properly prepare the documents. For this reason, make sure to let them know if there has or will be any change in your marital status.
2. Job Status
Don’t change jobs, become self employed, or quit your job during the process. Any one of these actions could result in a loan denial. In fact, the lender may re-verify your employment just prior to final approval even if you’ve already been approved.
3. Bank Accounts
Leave your money where it is until the purchase. Do not move money to another institution even if the lender has verified your funds at one or more institutions. In addition, check with your loan officer before making any large deposits. By all means, do not cosign a loan for anyone during the process.
4. Accounts and Bills
Pay all bills on-time and do not let accounts fall behind. Only pay off certain bills if your lender tells you to do so to qualify for the loan.
5. Shopping
Lenders are known to check your credit or re-verify funds at the last minute. Avoid making any large purchases. Do not use your credit cards excessively or spend money which you have set aside for closing costs. A major purchase that requires a withdrawal from your verified funds or increases your debt may affect your credit score. As a result, you may not qualify for the loan.
Buying a new home is one of the most exciting times. While it may at times seem overwhelming, the end result is buying a new home, moving in, and starting a new life chapter. Finding the right mortgage lender is an essential step in the home buying process. Do you homework, work closely with your real estate professional, take things one step at a time, and try not to worry.
Remember, while finding the best mortgage terms is important, it’s equally crucial to find a lender who is transparent about costs and fees and willing to answer all your questions. After all, this is likely one of the biggest financial decisions you’ll ever make – so take your time to make sure it’s the right one!