It is rare to be in a position where you can pay cash for a house. In fact, buying a home is one of the largest purchases a person will ever make. When you don’t have the cash on hand, you will need to borrow it from somewhere. You have a number of options there as well.
Below are some things to remember about getting a mortgage.
Mortgage Broker vs. a Bank/Mortgage Lender
Basically, there are two main ways to get a mortgage: through a broker, who acts as a middle person between banks and the person seeking the mortgage, or directly with the mortgage lender or bank.
There are pros and cons to each and it is worth researching to see which makes the most sense for you.
Some reasons to work with a mortgage broker include the fact that it is easier to get a mortgage from a broker. Banks have strict rules and they are often less willing to take a risk for a mortgage. Depending on the broker, rates can also be lower. A con is that you usually do not have an existing relationship with a mortgage broker like you would with your bank. This can lead to issues in the mortgage process.
Banks are usually larger institutions that you recognize or already use for a number of services including credit cards, savings accounts and checking accounts. Banks can offer very competitive rates for those who qualify. But banks are also bureaucratic juggernauts and this can result in a lengthy, frustrating process.
Again, it is important to check with a number of mortgage options before you choose and commit to a specific course of action.
Prepare Your Questions
Don’t go into this process blind. Prepare a list of questions that you want answered from your lender. Ask each institution you are considering the same questions and compare them. Start developing a list of questions that you will want to ask. Important questions include:
- What are the repayment rules? For example, can we make early, or extra, payments without penalty?
- What type of loan suites me best? FHA? Conventional? Variable Rate?
- What documents do I need for Pre-Approval?
- What interest rates will they provide?
Getting pre-approved is an important first step in the mortgage process. This is a preliminary check based on your financial history, taxes, employment history and credit score to calculate how much you can reasonably afford. Most lenders will approve you to spend a certain amount on a house given certain conditions. Others will work with you to help determine a monthly payment that you can afford. Either way, before you start searching for a home and make an offer on any, you will need a pre-approval. Most agents and sellers will not consider your offer serious unless they have proof that you can afford their home in the first place.
Be Prepared for Paperwork
As you can imagine, there is a great deal of paperwork involved with getting a mortgage. Before you have an offer accepted, you will need to provide a number of documents to the lender including W2s and tax returns. Once your offer on a house has been accepted, you begin the official mortgage application process.
This is a process that can take a long time and if you miss a deadline, it can be very bad. The contract to buy a house details timelines that applications and approvals must occur by. It is important to work with a lender who is really on top of things and won’t let this pass.
Don’t Make Any Big Purchases
After you apply for a loan it is crucially important that your finances stay as close to the same as when you applied as possible. After you make an offer on a house and it is accepted, many people get understandably excited. We have worked with people who have gone out and bought tens of thousands of dollars on new furniture to put in their new house, only to have the bank deny the loan later because their debt-to-income ratio has changed significantly!
We are more than happy to provide references to lenders that we trust. Contact us so we can talk about your options!