Start a File:
Organization is pivotal in making a real estate transaction as quick and painless as possible, and the creation of a file is a good step in that direction. Your file should contain every financial document, so begin by making copies of all financial statements; bank accounts, investments, credit cards, auto loans, recent pay stubs and two years’ tax returns. If you don’t have a down payment, start saving for one and put aside extra funds for incidental property buying and closing costs (i.e., inspections, appraisals, title insurance, etc).
Check Your Credit Rating-
Credit scores range between 400 and 800. 620 + is considered “good”. 680 + is considered “premium” and can help in securing a lower interest rate.
Below is contact information for the 3 major credit reporting agencies to help you acquire your credit rating. Your lender will also have advice and tips on how to improve your credit score if necessary. Remember that your credit rating is one of your most prized possessions—treat it accordingly.
Get Pre-Approved By A Lender-
Seeking out pre-approval for a mortgage is a smart decision that can improve your chances of getting the house you want. A Pre-Qualification or Pre-Approval letter will assure sellers that buyer has the ability— and the intention— to complete the real estate transaction. Pre-approval takes the guesswork out of deciding how much real estate you can afford, which offers peace of mind to both you and your Realtor®. And when it comes time to make an offer on a property, your offer will be better positioned than a potential buyer who lacks a Pre-Approval letter. In short, being Pre-Approved makes your purchasing experience more efficient and enjoyable.
Lenders typically need the following information:
- Job and career status<
- Monthly debt payments
- Cash available
- Total assets and debts
Think before you do anything!
When anticipating a real estate purchase, it is best to keep things as they are—that means that it’s prudent to avoid changing careers, moving funds around or purchasing that big ticket item. Especially on credit cards—lenders don’t want to see large outstanding credit balances. Lenders also like stability, so if you are anticipating any major changes, you’ll benefit from meeting with a lender and if you can’t resist buying that new plasma TV, consider this: A $500 a month debt payment (like a credit card or auto loan) could lower the amount of property you can afford by about $83,000! *
* Based on a 30 year mortgage at 6% interest.
How to Find a Lender:
With the proliferation of the Internet, it’s easier than ever to find a lender and compare loan programs to determine which is best for your individual situation. In addition to the Internet, you find lenders in the newspaper, and most commonly through referrals from your REALTOR®. We have relationships with dependable lenders who share DiTo Properties’ high standards of customer service; the lenders we work with have proven themselves competitive and capable even with problem properties or poor credit.
Choosing the Right Lender: Interview several lenders to evaluate the following:
- Ability to explain things clearly and return your phone calls in a reasonable time period
- Competitiveness of interest rates, costs & fees.
- Availability of loan programs that suit your credit profile and desired property
- Access to local loan approval committee that understands the kind of property you are buying
Choosing the Right Kind of Loan:
Today there exist a tremendous variety of loans; too many to list here, but rest assured there is a type of loan that will satisfy your needs. Your lender can help you select a loan program to suit your needs. Below are descriptions of the three most popular loan types we see in practice; for more detailed information click the link at the end of this page.
The fixed rate loan assures monthly payments will stay the same over the life of the loan, which is typically between 15 and 30 years. Fixed rate loans are most often suitable for people intending to hold onto a property for seven years or more
.ARM’s (adjustable rate mortgages):
Accepting an ARM may be advisable if you plan on selling or refinancing your home within the next few years. Starting interest rates are typically lower than a fixed rate loan, saving you money initially. However, it is important to understand the index, the readjustment interval, the capitalization rate and downside risks of an ARM before making a final decision on accepting this type of loan.
Also called Hybrid Loans, these loans can offer fixed interest rates for the first 3, 5, 7 or 10 years after which the interest rate adjusts with the market every 6 months or year thereafter.
A credit report typically costs under $50; with your permission, the lender orders a complete credit history, including a tally of your outstanding loans and your repayment history from a third party credit agency.
Application / Processing Fee:
This cost, typically a few hundred dollars, covers the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon closing.
What is APR?
The APR, or annual percentage rate, is the sum total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance.
The interest rates on variable loans readjust periodically based on changes in an index. Typical indexes include the Federal Funds Rate, Treasury Bill.
When mortgage companies compete by offering lower interest rates, they may charge a one-time pre-paid interest payment calculated as a percentage of the loan. Called “points”, this may range from 0.25% to 2% of the loan balance, and is usually paid up front. Points are tax-deductible; consult with your tax advisor.
Lenders hire experienced, often independent appraisers to evaluate the property’s purchase price, condition and size compared to similar recent neighborhood sales. This procedure helps ensure the purchase price is set accurately, and offers the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. Appraisal costs vary depending on the property, type of appraisal, and region.
It is not uncommon to incur various charges during the processing of your loan—some common fees include charges for notary and courier services, and county recording fees.
These vary widely, so be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the time period during which the penalties apply.
Click here to use our Financial Calculators
Does it Help to be Pre-Qualified by a Lender?
The pre-qualification process can be completed fairly quickly, based on less information than what is necessary for getting pre-approved. While it is fast and it does help, a pre-qualification letter—a lender’s estimation of the maximum loan amount you can qualify for—it is subordinate to actual pre-approval. In a competitive seller’s market, a seller may accept a pre-approved buyer’s offer over an offer from a pre-qualified buyer.
Get Pre-Approved By A Lender for Peace of Mind
As you can see, there are numerous advantages to securing pre-approval. Primarily, you know exactly how exactly much real estate you can afford, and when you find a property you want to make an offer on, your offer will be in a better positioned than someone less prepared. Finally, being pre-approved is more efficient: it reduces the time it takes for loan funding. Be prepared to provide comprehensive documentation, which the lender may independently verify, including but not limited to:
- Job and career status
- Monthly debt payments
- Cash available
- Total assets and debt
Mortgage Brokers and Lenders:
The mortgage broker is your main contact throughout your loan. They typically work with a number of lenders, who actually provide the funds for the loan, and subsequently can offer you a wide variety of loan options. The lender ordinarily pays a fee to the mortgage broker for acting as the intermediary and rendering all customer service.
Filling out the Application:
There are several standard forms to be completed when applying for a loan, and many mortgage brokers post them on their website for clients to easily fill out and submit online. Submitted information is verified and then used to determine your qualification for loans—so take the time to answer accurately! Click to Apply Online.
The mortgage broker will need copies of the documents you began gathering in the first phase of the loan process, including:
- Either 2 years of W-2 forms from your employer or 2 years of tax returns if you are self-employed
- Recent pay stubs
- 3 months bank and money market statements
- Brokerage, mutual fund and retirement account statements
- Proof of other income sources (alimony, trusts, rental income, etc.)
- Credit card statements
- Auto /boat / student / miscellaneous loans
- Drivers’ license or form of ID
- If you’re not a US citizen, then copy of your green card or visa
- Copy of any existing mortgage debts if you are applying for a home equity line of credit or another mortgage
Mortgage lenders have analysts or “underwriters”, review the specifics of your application and verify your documentation’s accuracy to confirm your ability to repay the loan. Once you are in contract on a property, there may also be a loan approval committee which will meet to review the underwriters’ conclusions regarding your creditworthiness, and to evaluate the property on which they are lending. This is the underwriting process, and questions invariably arise, so be prepared for it and don’t take it personally. Your mortgage broker’s will keep you apprised of any issues that arise, and you should return their calls promptly to keep the process moving forward smoothly.
Signing the Loan:
When your lender is prepared to ”close” or fund your home financing loan, your real estate agent and your mortgage broker will direct you sign the final loan documents. This process usually is executed in the presence of a notary public officer or escrow officer. You mortgage broker can tell you how to prepare for this—i.e., if your photo ID is required at the signing or if a cashiers’ check is necessary if any funding will be changing hands. The documents are long and complex, but it’s in your best interests to plan for enough time to review them thoroughly.
If funds are being wired:
“Wiring instructions” directs the electronic transfer of funds between financial companies. It will benefit you to arrange to have any wiring instructions submitted prior to document signing, and verified for accuracy by both the sender and recipient. It is critical that these instructions be exact; and even so, delays are all too common.
Your mortgage broker next will notify you that the money has been transferred and the loan has closed. To ensure that all conditions have been satisfied, consider following up to confirm that the loan funds were distributed to the proper place. And of course don’t throw anything away-it’s always prudent to preserve all records of this critical phase of the transaction.