Informative Mortgage Tips and Your Lenders Expectations

Finding a lender that makes you comfortable is only the beginning when you are seeking funding for that new or current residence. Be prepared with documentation that supports your recent personal finances and plan to talk with a few lenders until you are satisfied with the mortgage terms and interest rate that they are offering. The tips listed below act as a starting point for what you might expect during the application process for a home loan and how one might plan for the experience.

  • In general, creditors like potential borrowers to have at least three credit accounts, whether they are credit cards, loans, car installments, or even cell phone bills. This helps them establish your payment habits and history to determine whether you are creditworthy.
  • Are you preparing to apply for a mortgage? To simplify the process, plan to come prepared. The lender typically asks for two of your most current paystubs and bank statements, tax return, 401(k) statements, and records from any child support or alimony you may take. It is also a good idea to make sure that your name and address, as well as any account numbers are accurate on these statements. The easier the process, the less stress you will have in the long run.
  • Is your down payment coming from an inheritance or gift from a family member? It is important that you document this transaction appropriately. This prevents the lender from thinking you were given the funds unlawfully. You may receive this documentation from the estate trustee, or by producing a letter explaining the details of the gift. Similarly, if your down payment is coming from a loan against your 401(k), this will also need proper documentation.
  • When applying for a mortgage, your lender may question any gaps in your employment history, salary changes, or career changes. In general, it is best to have a stable employment history for two years prior to applying for the loan. If there are inconsistencies, the lender may ask you to wait another year to apply to ensure stability.
  • Would you buy a car without negotiating with the salesperson? Do the same with your potential mortgage lender to attempt to receive better financing terms. While they have to right to say no, it is worth asking, especially considering how money can accumulate throughout the term of the mortgage.
  • Are you preparing to have your home appraised? Doing research and providing it to your appraiser may help you get the best value for your home, especially if your appraiser is not from your area. Research the local real estate market, as well as the appraised value of homes similar to yours that are also within your area.
  • Did you know that the government offers subsidized loans that may offer lower rates and better financing terms? The VA and FHA offer such loans, which you can apply for online or with an approved lender. Requirements and restrictions apply, so be sure to visit the Buying a Home page on the U.S. Department of Housing and Urban Development website to learn more.
  • Do you have more cash on hand than is required for your minimum down payment? Paying a larger down payment, assuming that it is feasible, can help in the long run by making your interest rates and monthly payments lower, and may even require fewer points at closing.
  • Most mortgages have a life of 5-8 years, assuming that many people move after this period of time. Keeping this in mind, why invest in a 15-year fixed rate mortgage? Adjustable rate mortgages (ARMs) typically have lower interest rates than fixed ones, saving you thousands of dollars over the years.
  • Did you know that the down payment on your mortgage refinance might not be tax deductible like your mortgage interest is? Before paying a large, lump sum up front, consider whether the non-deductible payment will be worth saving a few dollars each month.
  • Not sure how much of a mortgage payment you can afford comfortably, without being burdened by it? Having a payment that is too costly for your finances is the quickest way of getting yourself into serious debt and leading the way to foreclosure. Find a mortgage payment calculator online to help you determine what you are capable of affording.
  • Unsure if you can afford that new home you are interested in purchasing. More than just the monthly payment and interest rate need consideration when buying a home. For example, are there major home repairs or upgrades that need completed before taking possession? Perhaps the space is much larger than you have experienced in the past, which could mean that the utilities will be more costly.
  • Are you buying a new home or interested in refinancing your current mortgage? It is a good idea to do your research before talking to a lender. For example, learning about the different types of mortgages, jargon, and current interest rates is the best way to prevent yourself from being confused or taken advantage of by your lender throughout the process.

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