In a recent poll, 42 percent of home buyers Looking For Mortgage said they discovered that the mortgage experience”stressful,” and 32% found it”complicated” Even lenders agree that it is often a struggle.
Getting a mortgage is, by general consensus, the most treacherous part of purchasing a house. In a recent poll, 42% of home buyers said they found that the mortgage experience”stressful,” and 32% found it”complicated” Even lenders agree that it is often a struggle.
“A lot can go wrong,” says Staci Titsworth, regional director at PNC Mortgage in Pittsburgh.
Waiting until you can make a 20% down payment
A 20% down payment is the golden number when applying for a conventional home loan, since it enables you to avoid paying private mortgage insurance (PMI), an additional monthly fee of 0.3% to 1.15% of your total loan amount. However, with mortgage rates where they are now –in a word, low–waiting for that magical 20% might be a huge mistake, since the more time passes, the higher mortgage rates and home prices may go!
All of which means it can be worth discussing your home-buying prospects with lenders at this time. To get a ballpark figure of what you can afford and how your down payment affects your finances, punch your salary and other numbers into a home affordability calculator.
Meeting with only one mortgage lender
According to the Consumer Financial Protection Bureau, about half of U.S. property buyers just meet with one mortgage lender before signing up for a home loan. However, these borrowers could be missing out in a major way. Why?
In actuality, a borrower taking a 30-year fixed rate conventional loan can get rates that vary by more than half a percent, the CFPB has found. So, getting an interest rate of 4.0% rather than 4.5% on a $200,000, 30-year fixed mortgage translates into savings of about $60 a month, or $3,500 over the first five decades.
So to make sure you’re getting the best price possible, meet with at least three mortgage lenders. You’ll want to begin your search early (ideally, at least 60 days before you begin seriously looking at houses ). When you meet with each lender, get what’s called a good-faith estimate, which breaks down the conditions of the mortgage, including the interest rate and fees, so you can make an apples-to-apples comparison between offers.
Getting pre-qualified rather than pre-approved
Mortgage pre-qualification and mortgage pre-approval may sound alike, but they are completely different. Pre-qualification entails a basic summary of a borrower’s ability to secure financing. You provide a mortgage lender with information–about your income, assets, debts, and credit–but you do not need to produce any paperwork to back it up. In return, you will get a rough estimate of what size loan you are able to afford, but it’s by no means a guarantee that you’ll really get approved for the loan when you go to buy a home.
Mortgage pre-approval, meanwhile, is a comprehensive procedure that involves a creditor running a credit check and verifying your income and assets. Then an underwriter does a preliminary review of your budget and, if all goes well, issues a letter of pre-approval–a written commitment for financing up to a certain loan amount.
Bottom line? If you’re serious about buying a house, you need to be pre-approved, because many sellers will accept supplies just from pre-approved buyers, says Ray Rodriguez, New York City regional mortgage sales manager at TD Bank. Here’s how to start the process of mortgage pre-approval.
Moving money around
To find pre-approved, you need to show you have sufficient cash in reserves to afford the down payment. (Presenting your mortgage lender with lender statements is the simplest way to do this.) Nonetheless, your loan still needs to go through underwriting while you’re under contract to your loan to be accepted. Because the underwriter will check to see that your finances have stayed the same, the last thing you want to do is move money around while you’re in the process of buying a house.
So, don’t let the credit inquiries accumulate.
Applying for new lines of credit
“Worse than the real hit on your credit rating is any pattern of attempting to borrow more cash all at once,” says Glenn Phillips, CEO of Lake Homes Realty. Translation: Applying for many lines of credit as you’re buying a house can make your mortgage lender think that you are desperate for cash –a signal that could change your mortgage conditions or even get you denied altogether, even in case you’ve got a final date on the books.
Mortgage lenders like to see at least two years of consistent revenue history when pre-approving a loan. Consequently, changing jobs as you’re under contract on a house can create a large issue in the eyes of an underwriter.
Your best bet? Try to wait until after you have closed on your home to change jobs. If you’re forced to switch before closing, you should alert your loan immediately. Based on the lender, you might just have to offer a written confirmation of employment from your new employer that says your job status and income, states Shashank Shekhar, the founder and CEO of Arcus Lending in San Jose, CA.
Mortgage Mistakes Homeowners Regret Making
Big banks are not always best
Don’t blindly trust a big-name bank for your mortgage. Also be sure to seek out local banks, especially in the event that you have unusual financial circumstances. Community institutions are more acquainted with the local market and give the opportunity to meet face to face with decision-makers, giving you an opportunity to clarify your situation. You may have the ability to have a better loan with more careful service than at a national bank.
Act fast to secure a good rate
Lock in a great rate as soon as you can.
If you can ante up a little extra today for a mortgage, it can add up to a lot of savings later. So if a windfall comes your way–via a tax refund, an inheritance, or even a great weekend in Vegas–put that money toward your principal.
Sometimes 1 mistake is just too many
Always pay your credit card on time, particularly when you’re about to make major moves with your mortgageeven one late payment may drop your FICO score by 60 to 110 points and remain on your report for seven decades.
In addition to late payments, any changes to your credit behavior–such as opening a new credit card or increasing your balance–can affect your score, so don’t do anything out of the ordinary if you’re looking to apply for or refinance your mortgage.
Don’t ever stop watching rates
Though it may be a hassle and cost you tens of thousands –in the form of fees from the bank, lawyers, an appraisal, and title insurance–refinancing your mortgage can mean serious savings for the long term.