Mortgage payments are a big deal. Usually you are committing to a payment for 15-30 years, and that’s a long time! So you want to make sure you are looking for the best mortgage lenders out there. Not sure about the whole lending thing? There are several different types of lenders to choose from.
Credit Unions - Member owned financial institution known to offer lower interest rates to shareholders.
Mortgage Bankers - They work for a specific financial institution and package loans for consideration for bank underwriters.
Correspondent Lenders - Usually local mortgage loan companies that have the resources to make your loan, however they often rely on other lenders that immediately buy your loan.
Savings and Loans / Mutual Savings Banks - Also called a “thrift institution,” these are usually local financial institutions that can be owned by its depositors and borrowers. There is a larger emphasis on residential mortgages and they are known to be competitive.
Now that you have an idea of what you’re looking for, you need to prep for what a lender is looking for!
Credit Score
This is important in the adult world. Make sure yours is in the best shape it can be in! This will give you more negotiating power. Some credit tips:
- If your score is under 580, you will experience difficulty qualifying for most mortgages
- Check your credit report for errors. Equifax, Experian, and TransUnion are required to provide you a free copy of your report once a year.
If your score is low, you can improve it by:
- Paying your bills on time
Keeping your card balance low. Lenders usually like to see utilization ratios of 30% or less
- What’s a utilization ratio? Glad you asked! It is the amount you charge your card divided by your total credit limit.
- Pay off high interest debt first
- Pay off as much debt as possible to improve debt to income ratio
- Only apply for and open new credit counts as needed (this can create too many hard inquiries on your credit report) Also, there’s always more temptation to spend more money!
Preapproval
Get preapproved for your mortgage (this will drastically increase the chances of having your offer accepted.) Buyers without a preapproval don’t seem serious, more like window shoppers. You’re not shopping for windows, you’re shopping for a whole house! Show sellers you mean it by getting preapproved.
What sorts of things will you need for this preapproval, you ask? Lenders typically ask for your social security number, bank and investment account information, outstanding debt, last two years of tax returns, salary, and how you are covering your down payment. If they ask for your firstborn you have gone to the wrong place. Essentially they need information that helps them determine how much house you can actually afford.
Try getting preapproved by more than one lender so you can compare Loan Estimate forms and pick the one that offers you the best rates and terms! When you compare rates and terms, you have more negotiating power to find the best mortgage for you. You deserve it.
Read the Fine Print
Find out about requirements, fees, and costs beyond principal and interest payments. Did that sentence stress you out? Here are some questions to ask that will put your mind at ease:
- How does the lender communicate with clients? If you like texts every day and the lender prefers an email once a week, there could be a disconnect!
- How long are their turnaround times for preapproval, appraisal, and closing? If you need to close on a house fast, is this something your lender can do?
- What lender fees will you need to cover at closing? (Including but not limited to loan origination, appraisal, credit report and application fees)
- Can fees be waived? Doesn’t hurt to ask!
- What are the down payment requirements?
This brings us to downpayments! Plan on a downpayment of 3-5%. Different loans require different percentages, but as you gear up to find a loan, have this range in mind (and in your bank).
We told you how to find a mortgage lender and navigate the process, but what about things to AVOID? Well, we have a list for you! Give us a call today to avoid making huge borrowing mistakes. 630.984.4701.
TTFN,
McCann