How To Apply For A Mortgage
So you've researched and you've been observing the rates and you're feeling you're finally ready to apply for a mortgage. Good for you but before the whole process is completed you need to know a couple of things that will make this easy.
When you decide to go with a certain lender and are close to signing a purchase contract, you need to get an actual credit approval to verify your income, liabilities as well your ability to repay the loan.
Majority of loan applicants will remember to go for their loan interview with a signed copy of house purchase contract. This purchase contract for the house shows the amount of your down payment as well as the price you will pay for your house, and the proposed closing date. Once you go to apply for a mortgage, your lender will use all these data to figure out if the house you want to buy can work as collateral for the amount of money that you hope to borrow to finalize your purchase.
Naturally, your chances of obtaining a mortgage really depends on all the information that will be contained in the credit report. So, its a good idea to get your credit report, before you apply for a mortgage, and correct errors. If there are any inaccuracies you don't know about, this could cost you thousands of dollars in extra interest or even cause a denial of credit. According to professional sources close to 50% of all credit reports contains errors that are significant enough for an individual to not be awarded a loan.
To make sure that your mortgage application will be processed as quickly as possible, it's important to bring all the proper information to your loan application interview. Check with your lender for a list of documents that will be required in order to process your application.
Most likely you will complete something called the Uniform Residential Loan Application - this is widely used in the mortgage industry, during the first interview. Remember that probably you will be required to pay a small application fee as well as credit report fee and possibly something called an appraisal fee when you submit the mortgage application.
Once you apply, your lender will start to verify all the information youve provided. This is a loan approval process and it can take one to eight weeks, depending on the type of mortgage your choose and other factors that will affect your approval such as fulfillment of contract contingencies.
What You Should Know
Once you apply for a mortgage you should be informed about the following - this will not only show your lender that you're an educated and respectable client but will also save you a lot of money and hassle:
· Most lenders offer a lock-in policy that should guarantee the quoted interest rates since most rates fluctuate on daily basis. The points should not chance for a number of specified days. You should have time to be able to organize your documents and compare other available loans before applying. If you pay a one time lock-in fee you should save thousands if the interest rate go up during the time your plan is locked in.
· A point is calculated as one percent of the loan amount. Points that you get charged are additional to the interest rate that is charged on the loan and the point charges varies from lender to lender. A lender often makes his fees by charging points or by negotiating a lower interest rate. Make sure you ask about this when your loan has a suspiciously low interest.
· The interest rate and the annual percentage rate for your mortgage should be presented to you by allowing you to compare the loan costs of your particular mortgage with other loans you may compare against. Your loan average percentage rate is figured by combining the interest rate plus points and other fees that are divided by the loan's term to give you annualized rate. A high interest rate with low points will cost you thousands more than low interest rate and high points.
· The processing of your mortgage starts as soon as you submit your application till the time your loan is approved. The time it takes to process a loan will be different for different loan types and it depends on your particular lender. Usually loans should be funded within 7 to 10 working days, unless there's a holdup with your application.
· If you can't put a 20% down payment on your new home, you will be charged insurance premium to protect the lender in case you are unable to pay back the loan. Once you are charged this, find out if it's possible to add the insurance premiums into your financing.
· The total closing costs should be confirmed in writing within 3 days of applying for the loan. If they can't provide this within 3 days this means that the lender has broken the law. A list of closing fees has to be provided and you need to be sure you understand each fee. Occasionally the lenders will tack on unnecessary fees to increase their profit. Lenders charge fees for the services that are relevant to the application process and closing of your mortgage. Also, make sure the closing costs that were presented to you in the beginning match the closing costs presented at closing.
· Sometimes there's a prepayment penalty when lenders apply it to your loan if you decide to pay off your loan early. This is important, since you may really want to consider pre-paying your loan in order to reduce the costly interest overpayments. Majority of lenders don't charge a pre-payment penalty, so there is no point to choose a lender that does.
· Be sure and ask your lender if he / she uses something called Rapid Loan Approval Software. This software allows lenders to determine a your credit risk instantly. This should allow them to be able to tell you about your mortgage loan approval as soon as possible - within hours! See if you can find a lender who this software as it will save you valuable time especially when you're looking for the best interest rate
· Since buying a house isl most likely be the largest single purchase you will ever make, it's important you understand the actual process of a mortgage to insure you capitalize on your investment.
· It is very important to research your mortgage company before dealing with them. Don't be afraid to ask any questions you feel necessary and if anything strikes you as odd make sure you comment on it. Make sure you ask for references from satisfied customers.
· Ask your lender what percentage of their mortgage applications are denied - if there are more than 10%, look elsewhere. Find out what their average turn around time for processing a loan is. Majority of modern mortgage companies should be able to approve your loan within hours or even minutes. Additionally, they should be able to fund your loan within 7-10 business days.
· Perhaps you already know that there are many different types of loans that suit different types of situations and different lifestyles. Some people require a 30-year mortgage while some would rather have a 15-year term. Since not all lenders have a wide range of products, make sure to get a list of loans a lender has and have him or her sit down and explain the pros and cons of all the ones that are of interest to you. It's common sense that you should choose a lender with the widest selection of loans so that you get the best loan possible.
· It is essential to take the time and understand all your loan options since the amount of money you place on a down payment will directly affect your monthly payment, your mortgage term and your interest rate. In the past it was common for a person to put 10% down, however presently there are many different programs that are available for different situations. Some programs will allow you to put less than 10% down or even 0 down. Keep in mind that the less you put down, the longer your mortgage term will be and your monthly payment and the interest rate will be bigger as well. Try to make a down payment that is larger than you can afford.
· Try not to make large purchases before you apply for your loan such as a car or a boat - this will definitely affect your credit.
· When you contact multiply mortgage companies for a quote this is called 'over-shopping'. In order for a mortgage company to give you an accurate quote, it's necessary for them to pull your credit report. If your credit report is pulled more than 2-3 times in a six-month period, you will decrease your credit score. Why? The fact that the credit is pulled frequently may actually affect its rating - it looks suspicious (it doesn't show up on your credit rating why it was pulled only that it was pulled). This could keep you from obtaining the best possible rate and loan term.
· It's crucial you are honest and up front about your personal financial information with your broker, even if you have had some problems in the past. It may be hard to discuss issues such as this to a stranger but it's best to present and explain these matters right away. Your loan process will be slowed down if you try to hide past financial difficulties. Remember that your mortgage broker is most likely used to dealing with these issues so it's important to work together to overcome negative financial history.
· It's important that all credit card balances should have very low balances or none at all before applying for a mortgage. If there are large outstanding amounts you won't be allowed to get the best rate and loan terms. You should also have a good history of paying your bill on time, especially in your most recent history.