What To Provide To Your Lender Or Mortgage Broker
Before preapproving you, a lender or mortgage broker will look at:
- your assets
- your income
Youll need to provide the following:
- identification
- proof you can pay for the down payment and closing costs
- information about your other assets, such as a car, cottage or boat
- information about your debts or financial obligations
For proof of employment, you may have to provide:
- a proof of your current salary or hourly pay rate
- your position and length of time with the employer
- notices of assessment from the Canada Revenue Agency for the past 2 years, if youre self-employed
Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.
Your debts or financial obligations may include your monthly payments for:
Consider A Mortgage Contingency
Once you get to the bidding stage, you want to make sure nothing can upend your deal.
One way to create a little wiggle room is to ask for a mortgage contingency in your purchase agreement. These contract clauses can give you an out if, say, rising rates make it no longer possible to purchase the house with 80% financing, or if mortgage rates move outside a certain range.
This might make it easier to sleep at night, says Shaun Pappas, a partner with Starr Associates, a real estate law firm in New York.
Still, he points out there is a risk: In a hot sellers market, many sellers will look at non-contingent deals over contingent, even if the price for the contingent deal is a little better. Sellers want firm deals with no way to cancel.
Learn The True Cost Of The Mortgage
Low advertised interest rates can distract borrowers from the actual cost of a mortgage. In comparing interest rates from different lenders, the figure to focus on is the annual percentage rate, or APR.
The APR, which will be higher than the basic interest rate, represents how much you’ll pay for the loan, including any additional fees charged by the lender. It is calculated on the assumption that you’ll keep the loan for the entire term, so costs are averaged over that period.
Another consideration is “points.” While this term sometimes refers to additional fees that are accounted for in the APR, it can also refer to what are known as discount points. Discount points are an optional upfront payment you can make in return for a lower interest rate. Each point is equal to 1% of your loan amount.
In general, people who plan to live in a home for 10 or more years may want to consider paying points as a way to keep their interest rate lower for the life of the loan . On the other hand, paying a large sum of money for points makes little sense if you expect to move after a short period of time.
Knowing the real cost of a mortgage is not only important for comparing different lenders’ offerings. It can also give you a better idea of how much you can afford to pay for a home without stretching yourself too thin. One very general guideline is that your mortgage payment, property taxes, and insurance usually shouldn’t exceed 28% of your gross income.
Also Check: How To Prequalify For A Home Mortgage
How Do You Compare Mortgages
You may be able to plug your numbers into an online mortgage loan comparison calculator to help you see the differences between loans. Lets suppose that youre considering a 15-year loan vs. a 30-year loan when mortgage shopping.
If you elect to go with a 15-year loan, the total cost of the loan can be reduced by tens of thousands of dollars. Youll pay more each month, but the benefits can be many. In addition to the savings, youll also have paid off your home in half the time.
Golden 1 Credit Union: Nmls#669333
Min. credit score
Golden 1 offers conventional loans with as little as 3% down.
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Why we like it
Golden 1 offers a cost-saving real estate agent program, plus a range of loan types, including jumbos.
Pros
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Offers a variety of purchase and refinance loans, including jumbo mortgages.
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Has a preferred real estate agent program that can save a borrower some money on closing costs.
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Offers some flexibility on guidelines for loan qualification.
Cons
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Does not offer VA or USDA loans.
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Products available only to California residents.
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Make Your Mortgage Loan Selection
After receiving a response from your lenders on negotiations, its time to compare the final offers again and decide on which mortgage to go with. After selecting the best mortgage for you and your budget, contact the lender and let them know that youre ready to move forward and sign the deal. Theyll put together a timeline and typically work with a title company to build out a closing statement and get you into your new home.
Because buying a home is one of the biggest investments youll ever make, having expert advice in your corner can make a serious difference. Our guide for first-time home buyers can help shine a light on each of the steps involved in purchasing a home.
Know The Mortgage Basics
Whats a mortgage?
A mortgage is a loan that helps you buy a home. Its actually a contract between you and a lender to lend you money to buy a home. You repay the money based on the agreement you sign. But if you default , the lender has the right to take the property. Not all mortgage loans are the same. This article from the CFPB explains the pros and cons of different types of mortgage loans.
What should I do first to get a mortgage?
How do mortgage brokers work?
A mortgage broker is someone who can help you find a deal with a lender and work out the details of the loan. It might not always be clear if youre dealing with a lender or a broker, so if youre not sure, ask. Consider contacting more than one broker before deciding who to work with or whether to work with a broker at all. Check with the National Multistate Licensing System to see if there have been any disciplinary actions against a broker youre thinking about working with.
A broker can have access to several lenders, so they may be able to give you a wider selection of loan products and terms. Brokers also can save you time by managing the loan approval process. But dont assume theyre getting you the best deal. Compare the terms and conditions of loan offers yourself.
Can I negotiate some of the terms of the mortgage?
Also Check: How To Choose A Mortgage Refinance Lender
How Do I Find The Best Loan Available When Im Shopping For A Home Mortgage Loan
Shopping around for a mortgage loan will help you get the best deal. Start with an internet search, or contact banks, credit unions, and other lenders and brokers in your area.
The internet is a good place to start your search. By doing a broad online search for mortgage rates in your area, you will get a good sense of the market.
Next, contact banks, credit unions, or other lenders and mortgage brokers in your area. Ask each lender or broker you call for:
- A list of current interest rates for their available mortgage loans and whether the rates being quoted are the lowest for that day or week.
- What fees the lender normally charges for each loan product.
- Each loans annual percentage rate . The APR tells you the yearly cost of the loan based on the interest rate as well as points, broker fees, and certain other charges that you may be required to pay, including certain closing costs.
- Whether the rates given for various products are fixed or adjustable, and what points or fees go along with different rates. Sometimes you can get a better rate if you pay points or additional fees. But make sure that you actually get a lower interest rate in exchange for the extra points you pay.
With all of the options out there, it is important to shop around and take the time to understand the terms of the different loans offered to you. Its a good idea to request loan estimates from at least three different lenders and compare them to choose the best loan for you.
Fixed Vs Adjustable Rates
The fixed-rate mortgage is the most popular home loan type. It gives homeowners a stable principal and interest payment that never changes for the term of the loan. The most common fixed-rate loan terms are 10, 15, 20, 25 and 30 years.
Adjustable-rate mortgages offer a temporary low rate for a set time period ranging between one and 10 years, and then adjust based on the margin and index tied to the ARM program you choose. For example, with a 5/1 ARM, your rate is fixed for the first five years, and then adjusts every year for the remainder of the loan term. Make sure you review the caps with ARMs so you know how much the interest rate and payment could go up over time.
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No 1: Don’t Comparison Shop By Apr
There are lots of ways to shop for a mortgage, but comparison shopping by APR is among the worst of them.
It’s a government-mandated figure meant to show the “true cost” of financing a home over a period of 30 years. However, “true cost” is really equal to your loan size plus the interest paid over 30 years , plus closing costs required for the loan.
To Recap Here’s How To Shop For Mortgage Rates:
- Get your finances in order
- Determine how much of a mortgage you can afford
- Contact different lenders
- Compare your offers to find the best one
Whether you’re a first-time home buyer or you’re an experienced refinancer, it pays to do some mortgage shopping before accepting an offer. Follow these steps to increase your chances of coming away with the best mortgage option for you.
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No : Be Prepared To Answer Some Questions
- How large is your down payment? Interest rates vary according to your loan-to-value ratio.
- Are you buying a single family home or a condominium? Martucci says a borrower purchasing a condominium with a loan to value above 75 percent will pay a one-quarter percent higher interest rate.
- Are you purchasing? Interest rates may be higher on a refinance, especially if you are taking out cash which could raise your rate by one-eighth of one percent.
- Do you intend to waive escrow and pay your taxes and insurance yourself? If so, your mortgage rate could be one-eighth of one percent higher because that’s considered a riskier loan, says Martucci.
Get Your Credit Score In Check Before Mortgage Shopping
Before you begin to consider purchasing a home, you should check in on your credit score. The higher your credit rating, the better the odds of receiving affordable mortgage terms and a competitive interest rate. Youre allowed one free credit report per year, so check in with the major credit bureaus and download yours before applying for a mortgage.
Also Check: What Does A Mortgage Attorney Do
Check Your Credit Score At The Right Time
You may already know that you should monitor your credit score in general. However, you might want to make a specific point to do so prior to applying for a mortgage or as soon as you think you might want to buy a home.
While you know that you should only apply for and open new credit accounts as needed, know that viewing your own credit information will not affect your FICO® scores. In fact, doing so removes all traces of doubt that your personal and account information remains correct. You may also find that you head off potential cases of identity theft.
Check your credit score just prior to launching the mortgage shopping process so you know the ins and outs of your credit score and can get any errors corrected quickly.
No : Contact A Mix Of Financial Institutions
Interest rates fluctuate constantly for a variety of reasons, including the occasional promotion of a particular loan product by a financial institution. For example, some lenders who are eager to generate more purchase loans might offer the best mortgage rates for homebuyers rather than refinancing homeowners, says Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C. Sometimes a credit union or bank will introduce a new loan product and offer better mortgage rates in order to entice borrowers, says Craig March, a branch manager with Inlanta Mortgage in Janesville, Wisconsin.
“It’s best to diversify and try a mix of places such as a direct lender, a regional bank, a credit union, a community bank and a national bank,” says March.
Read Also: Are Points Worth It Mortgage
What Is A Mortgage Preapproval
When youre shopping for a mortgage, you can compare options offered by different lenders.
Mortgage lenders have a process which may allow you to:
- know the maximum amount of a mortgage you could qualify for
- estimate your mortgage payments
- lock in an interest rate for 60 to 130 days, depending on the lender
The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders have different definitions and criteria for each step they offer.
During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they likely run a credit check.
This process does not guarantee your approval for a mortgage.
Mortgage Life Disability And Critical Illness Insurance
Optional mortgage insurance products include life, illness and disability insurance. These optional products are different from mortgage loan insurance.
They can help you make your mortgage payments, or help pay off the balance on your mortgage if you:
- lose your job
- become critically ill
Your lender might offer you optional mortgage insurance when you get a mortgage. You dont need to purchase the insurance to be approved for a mortgage. The lender adds the cost of these optional products to your mortgage payment.
There are important limits on the coverage that optional mortgage insurance products provide. Read your policy carefully and ask questions about anything you dont understand before purchasing these products.
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Be Skeptical Of Mortgage Loan Ads And Offers
Should I choose the lender advertising or offering the lowest rates?
Maybe not. When youre shopping around, you may see ads or get offers claiming to have rates that are very low or fixed. But they may not tell you the true terms of the deal as the law requires. The ad may feature buzz words that are signs that youll want to dig a little deeper. For example:
- Low or fixed rate. A loans interest rate might be fixed or low only for a short introductory period sometimes as short as 30 days. Then your rate and payment could increase dramatically. Look for the APR: under federal law if the interest rate is in the ad, the APR also should be there. Although it should be clearly stated, you may instead need to look for it buried in the fine print or deep within a website.
- Very low payment. This might seem like a good deal, but it could mean you would pay only the interest on the money you borrowed . Eventually, though, you would have to pay the principal. That means you would have higher monthly payments or a balloon payment a one-time payment that is usually much larger than your usual payment.
Find out your total payment. While the interest rate determines how much interest you owe each month, you also want to know what you must pay for your total mortgage payment each month. The calculation of your total monthly mortgage payment takes into account these factors, sometimes called PITI:
- homeowners insurance
Use A Mortgage Calculator
A mortgage calculator estimates what your monthly payments might look like based on inputs you provide. Try different scenarios to find your optimal mortgage, with monthly payments you can comfortably affordand total interest costs you can live with. For example, you might find that you could swing higher payments with a 15-year mortgage if you make a larger down payment.
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Look At Smaller Lenders
In addition to considering a mortgage from the big banks and online lenders, research smaller, lower-profile players such as credit unions and community banks.
Search online with the name of your home state and terms like community bank mortgage, S& L mortgage, and credit union mortgage.
We found some competitive options this way. Not too far from Consumer Reports Yonkers, N.Y., headquarters, Maspeth Federal Savings in Maspeth, N.Y., was showing an annual percentage rate of 4.008 percent for a conventional 30-year fixed loan. Cleveland-based Third Federal Savings & Loan was showing a 30-year fixed-rate conventional loan with an APR of 4.47 percent.
Gumbinger says these smaller lenders typically have better rates for adjustable-rate mortgages and offer better terms and rates to people with variable income streams, like the self-employed. Thats because they often dont sell those loans in the secondary market as larger banks do, Gumbinger says: Because lenders are putting these loans on their books, they can price them any way they wish.
