Getting a Mortgage Shopping for a mortgage is the first step toward owning
a home and perhaps the most daunting, especially if you are not prepared.
Once a simple task that meant comparing fixed rates from
among perhaps a dozen or fewer savings and loan companies, the mortgage
hunt today is like finding your way through a maze.
There are dozens of loan types and hundreds of loan programs
available through thousands of mortgage brokers, bankers, lenders, finance
companies, credit unions, even stock brokerage firms.
Contrary to popular belief, finding a mortgage doesn't begin
with an application.
Education is a better first choice. Mortgage information
sources are as vast as the number of mortgages available. Web sites, topical
newspaper articles, mortgage books, consumer seminars and workshops, financial
planners, real estate agents, mortgage brokers and lenders are all available
to assist you along the way.
First and foremost, you must determine how your mortgage
payment will fit your current budget and, to some extent, your future
obligations 15 to 30 years down the road.
If you discover too late that you can't afford your mortgage,
you'll not only face the possibility of losing the roof over your head,
but you could also damage your ability to purchase a home later.
Step 1: Examine Your Finances
If you can afford to buy a home, you must then determine how much mortgage
you can afford. Lenders are apt to put your loan application in the best
light and qualify you for as much as they are willing to lend, which can
be more than you can afford.
It's up to you to take stock of your income and expenses,
both current and projected to determine what you can comfortably manage
each month. Along with your mortgage payment, don't forget related insurance,
taxes, homeowner association dues and any other costs rolled into the
mortgage payment.
Step 2: Shopping For a Loan
When you are ready to shop for a loan you have two basic types of mortgage
stores to shop -- direct lenders and mortgage brokers.
Direct lenders have money to lend. They make the final decision
on your application. Brokers are intermediaries who, like you, have many
lenders from which to choose. Lenders have a limited number of in-house
loans available. Brokers can shop many lenders for each lenders' store
of loans. If you have special financing needs and can't find a lender
to suit them, an experienced broker may be able to ferret out the loan
you need. Mortgage brokers, however, are paid with a slice of the amount
you borrow, some more than others some less. Internet brokers today perhaps
receive the smallest cut, sometimes none at all, and can prove to be a
real bargain.
Along with shopping the source, you'll also have to shop
loan costs, including the interest rate, broker fees, points (each point
is one percent of the amount you borrow), prepayment penalties, the loan
term, application fees, credit report fee, appraisal and a host of others.
Step 3: Apply For a Loan
The application process is the easy part -- provided you've gathered documents
necessary to prove claims you make on the application.
The application will ask for information about your job
tenure, employment stability, income, your assets (property, cars, bank
accounts and investments) and your liabilities (auto loans, installment
loans, mortgages, credit-card debt, household expenses and others).
The lender will run a credit check on you to take a look
at your credit status, but you'll have to supply additional documentation
including paycheck stubs, bank account statements, tax returns, investment
earnings reports, rental agreements, divorce decrees, proof of insurance,
and other documentation. If the lender deems you creditworthy, it will
likely hire a professional appraisal to make sure the value of the home
you are about to buy is truly worth your loan amount.
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