Home shopping can be some of the most fun you’ll have. You can compare and contrast different houses, neighborhoods, and “vibes” as you search for the perfect fit. But what people don’t usually discuss is the money. Namely where it’s coming from and how to work with a lender how to get it.
Families have a myriad of options when it comes to attaining a mortgage, be it a large national bank, a small local lender, or even a mortgage broker. But what can you expect once you truly start looking for financing?
The biggest decision boils down to which lender to choose. Every lender is different and every financial institution has different criteria for borrowers. Before you start to work with a lender it’s important to speak with as many lenders as you can. If you know you have stellar credit, shopping around will get you the best rate. If you think there may be some hiccups to overcome, different lenders will be able to give you a roadmap to your best financing options, which can often look different than you originally imagined.
How do you know you’ve found the right lender? You ask questions. A lot of questions. Be prepared to ask each lender what loan they think might be the right one for you. Make sure to ask what the interested rate and annual percentage rate they are currently offering. Knowing what down payment the institution expects for the loan will be able to help you plan for closing, as well as what origination fees there may be and what discount points are offered. Namely, what are all the costs of the loan. You’ll also want to check to see if you can lock the rate in place, that way if the market shifts you’ll be protected with the better rate. Also, how much time do you need to find the loan? Time matters and making sure you’re ready for closing is important!
And don’t worry! These questions are expected (and encouraged) during your initial talks with lenders. And it won’t hurt your credit. You will not have to have your credit pulled at this stage. That comes next, in the pre-approval process.
Many real estate agents will ask that you provide a pre-approval letter before taking you to see homes. And they are super straight forward to attain. Once you’ve found a lender who answers your questions and you’d like to move forward with them, you’ll fill out a mortgage application. You’ll be asked to provide your income, Social Security Number, personal assets, and current debts. Once all of this information is reviewed and approved, you’ll be issued a pre-approval letter which is typically good for 60-90 days. This becomes the window in which you can look for a home. Beyond that window, you’ll need another letter which means another credit pull.
I know, this can all seem like a lot. But a good lender will be able to walk you through this all step by step. Especially once you actually find a home you love. Prior to this point, everything has been based on the hypothetical. Now it’s time for the lender to actually fork over the money and the documentation reaches a new height.
Your mortgage lender will usually ask for W-2a from current and past employers over the last 2 years of each applicant. Pay stubs may also be requested to show more recent earnings. Your lender will also check your income tax returns over the last 2 to 3 years to see how much income you reports and the deductions you claimed. Alimony and child support will also be reviewed, so be prepared to provide court documents.
When assessing your assets and debts, lenders are calculating your debt-to-income ratio and they’ll want to make sure you have the assets to be financially sound after paying the down payment and closing costs associated with the mortgage.
The whole process can seem invasive and be stressful, especially for first time home buyers. Being as open and forthright as possible is incredibly important. And keep in mind, the process takes as long as it takes all the players to provide and file documentation. The quicker you are to answer questions and provide substantiating documentation, the faster the proves becomes. Frequent open communication is highly encouraged!
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