Getting a Mortgage with Ease
by John Katalinich
Home Ownership is part of the American Dream. It is typically the single largest investment that each of us makes in our lifetime. Unfortunately for some, the process of getting a mortgage is intimidating. And those horror stories are the ones that are shared and remembered by consumers and thus contribute to the misconception that getting a mortgage and buying a home is more difficult than it actually has to be. The process can be much simpler if you are prepared to do some planning.
The first step is to ask yourself some simple questions. Do I want to own a house? Am I tired of paying rent? Is the house I currently own too small? How long do I plan on living in a community? How large a payment can I afford? While the answers may not be simple, they are key factors in determining if it is time to purchase a home.
A great number of people never ask themselves these questions. Instead, they just start looking for a house, they fall in love with one and finally go to a mortgage broker or lender to get a loan. Following this path undoubtedly creates the anxiety the mortgage process can evoke.
Once you adequately answer these questions and make the decision to purchase a home, the best next step is to talk to your lender. This step serves to address a number of the stumbling blocks that can occur. To begin, a lender can help you determine if what you believe you can afford is what you can actually afford. In recent years with the skyrocketing home prices, people buy homes that are much too expensive because they believe that their incomes and home values will continue to rise at the same pace as in the past. The risk you run is that something changes in either the housing market or your employment status resulting in you no longer being able to afford your new home. Therefore, it is best to make sure that you can continue to pay for housing should you have a short term shock to your financial situation.
Next, getting a pre-approval for a home you can afford will help speed the process of getting into a home you want to purchase with a loan product and term that best suits your needs. Currently, there are numerous loan types available. These include: Fixed Rate Mortgages, ARMs (Adjustable Rate Mortgages), Balloon Mortgages, Bi-Weekly Payment Mortgages, Interest Only Mortgages, 100% Financing Mortgages, FHA, and VA loans.
In order to be pre-approved, you will need to provide your income, how much you owe to other lenders, a detailed list of assets and other personal financial information. Most of these items can be provided from your pay stubs, W2’s, bank/credit union statements and, if possible, personal financial statements. Once your lender collects this information and a mortgage application is completed, your mortgage lender will examine your credit from a credit report obtained from one of the national credit reporting agencies. These reports detail all current outstanding amounts owed and monthly payments on those balances, how well you have paid previous debts, and whether you have filed bankruptcy in the past. The reports also provide your lender with a credit score, which is a number that represents how risky it is to lend you money. The higher the score, the lower the risk you are to the lender.
It is very important that you get a written pre-approval letter from your lender that is binding and guarantees you financing. A written mortgage commitment should be given to you stating specific terms of the program under which you are approved. The written commitment should include: the loan amount, term, and interest rate agreed upon. These terms will be contingent upon an acceptable appraisal of the property, title work, and the purchase agreement. You should also receive a Good Faith Estimate which will protect you from undisclosed, and sometimes outrageous, fees involved in the transaction.
Another factor you should consider when choosing a mortgage lender is to find one who can provide the direct servicing of your loan. Local servicing provides you with a local contact should you have problems or questions about your loan (i.e. monthly payment, taxes, insurance).
The bottom line is that the mortgage lending process should be the least of your worries when purchasing the home of your dreams. Choose a mortgage lender who has your best interest and financial well being at heart.
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