Before sitting down to fill out a mortgage application, be sure you have the following information handy: * your income, past and present; * a list of your assets; * a tally of your regular expenses and existing financial obligations; * an accounting of your employment history
Mortgage applicants will also need to provide the following records or documents: * the past two year's W-2s; * pay stubs for the month leading up to submitting the application; * statements from all the applicant's bank accounts - checking, savings, retirement, investments, etc. * proof of current outstanding debts that show both the current balance and minimum monthly payment on each (ie. credit cards, car loans, student loans, other home mortgages, child support, alimony, etc.)
If you are self-employed or you own a share or more in a business, you will also be asked to provide copies of your federal income tax returns.
The preceding is not the only information a lender may require of you, but it is a partial listing of the information that any and all lenders will most assuredly require.
After you've submitted your application, the lender will order a property appraisal (paid for by you), and will have your credit checked. Oftentimes, a potential borrower might choose to have the property appraised independently before submitting an application, just to make sure that the property value merits the offer made. Potential borrowers may also check their own credit first before applying for a mortgage so that they may take the initiative to fix or correct any negative items remaining on their credit report before the potential lender takes a look at it. The 3 major credit reporting agencies - Experian, Equifax, and TransUnion - now allow all consumers to receive a free copy of each of their credit reports once per year.
Lastly, prior to applying for a mortgage, consider hiring a licensed inspector to examine the property for defects and potential problems. Whether or not a home inspection is contractually required by the lender or the homeowner's insurance it is nonetheless advisable that any person considering buying a home protect themselves from costly headaches and heartaches later on by ordering an inspection regardless. Any halfway-responsible offer to buy will include a contingency that relieves the would-be buyer of an obligation to purchase should the inspection reveal any information about the home previously unknown to the buyer that the seller is unwilling to pay to take care of prior to closing.
Once a mortgage application is submitted, it can take several weeks to several months to be approved or denied. Once a mortgage application is approved, the next step is to schedule and prepare for closing. If, however, an application is denied by one lender, it doesn't mean another lender might not approve a buyer's application. In these cases, it helps to know why the first lender denied the application so that the buyer may try to remedy the problem before submitting a subsequent mortgage application elsewhere.
So, you're about to get a mortgage? Take a deep breath. Prepare to spend a little bit of time doing your homework. Three or four hours of effort may end up saving you thousands of dollars now, and tens of thousands of dollars over time. Home financing can be intimidating, but it's not rocket science. A few basic considerations can make a world of difference.
Let's get started
Educate yourself. Get several quotes. Mortgage brokers will generally offer a better deal than a bank, but it doesn't hurt to call a bank or two for comparison as well. A good loan originator will spend as much time with you on the phone as you need. And a truly professional loan originator will ask enough questions to understand your goals. If you don't feel good about a conversation, trust your instinct; cross them off your list and move on.
Get everything in writing
Make sure to ask for Good Faith Estimates. There can be quite a few costs associated with getting a mortgage. You want to see every one. Comparing Good Faith Estimates can be challenging because different mortgage lenders often use different terminology. Don't let that stop you. It's also a good idea to ask the mortgage broker if there are any additional costs that are not shown on the estimate.
Ignore the APR
APR, or Annual Percentage Rate, was originally designed to help borrowers compare mortgages. I won't go into the mathematics involved, but in principle APR was a good idea. In practice it has turned out to be useless. Lenders do not all use the same inclusion methods in calculating APR. To add to the confusion, adjustable rate mortgage calculations are notoriously misleading. But that's okay! APR involves two variables, note rate, and closing costs, and all you need to see is on the Good Faith Estimate.
Points versus rate
I've been a Florida mortgage broker since 1989. My company is also licensed in Georgia, Massachusetts, and Virginia. We talk to lots of people about home financing. It's my experience that when people are shopping for a mortgage they often fixate on the interest rate, and overlook the points. Interest rate and points are inversely related. Unless you specify that you don't want to pay points a lender is likely to price your loan with one or two points. This will make your rate lower, but it may not be a better deal. If the lower rate saves you fifty dollars a month on your payment but you pay an extra five thousand dollars in points, it will take you eight years to catch up with the cost of the points. Do the math.
The margin trap
Many adjustable rate mortgage programs now offer a variety of margins for you to choose from. This means that you may have an opportunity to control your future interest rate. Sooner or later all adjustable rate mortgages adjust to an interest rate that is equal to an index plus the value of your margin. You have no control over the movement of the index. But if you can get a lower margin you will have a lower rate (once your loan starts adjusting) for as long as you have your loan. Your good faith estimates should all indicate the margin for your loan. Call the individual mortgage brokers and tell them you are interested in a lower margin. Don't be shy. It's your money!
Pre-payment penalties; Good and bad
As a Florida mortgage broker licensed in several states I discuss financing with many people every day. Most people are averse to considering a loan with a prepayment penalty. But it is worth looking into. Adding a prepayment penalty to your loan may reduce your interest rate significantly. Prepayment penalties typically expire after three years, but recently many lenders have started offering a choice of one, two, or three year penalties. Will you still be in the home past the expiration of the prepayment penalty? If you outlast the penalty you have reduced your monthly payment for as long as you have the loan. That can add up. And it didn't cost a penny!
Choose wisely
There are an amazing number of mortgage programs to choose from these days. You can select a fixed or an adjustable rate mortgage. Or you might choose one of many hybrid fixed period adjustable programs designed to give the comfort of a fixed for a predetermined number of years before starting to adjust. Interest only options are available now on both fixed and adjustable rate programs. When selecting your mortgage program think about yourself. Any decision only makes sense if it makes sense in the context of your life.
Copyright ? 2007 James W. Kemish. All Content. All Rights Reserved.
Both Daniel Riley & Jim Kemish are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Daniel Riley has sinced written about articles on various topics from Real Estate, Mortgage and Mortgage Insurance. has been in business since 1979. Whether you are looking to refinance your mortgage, consolidate your debt, improve your home, we c. Daniel Riley's top article generates over 6600 views. to your Favourites.
Jim Kemish has sinced written about articles on various topics from College Student Loan, Credit Loans and Free Credit Report Score. Jim Kemish is the president and founder of Power Mortgage, a company based in Delray Beach, Florida. Jim is also the President of Sky Blue Credit, a n. Jim Kemish's top article generates over 301000 views. to your Favourites.