I think it is fair to say that obtaining a mortgage loan is a stressful process. It is especially true if it is your first rodeo, but a veteran can also run into issues with the sale of a current home, multiple home ownership and other complications that occur during a real estate transaction. So today I thought I would address the top ten concerns in the mortgage loan process and see if I can ease some fears.
1) Will I be approved? This stands out as the number one question that I receive from first time buyers. For many this is the first time they have realized the importance of credit scores, a savings pattern, and stable employment. Once a loan originator has the chance to go through all the documentation we have a pretty fair idea of whether or not the loan will ultimately be approved. I am not always right but most of the loans we originate close. The ones that don't are seldom surprises. A good originator will be sure the borrower knows where the pot holes in the road are and what it takes to get around. over, or through them.
2) Is my credit good enough to obtain mortgage financing? 95% of the time the answer to this is clear from the beginning of the pre-approval process. However, the issue can be more of if the credit is good enough for one particular loan type over another or even whether it is acceptable from lender to lender. We work with lenders that will not accept a score under 640, but we also work with lenders that do-so no across the board generalization can be made. Nor is it about credit score alone. A borrower can have a great credit score over 700 but not have any credit open, or only one or two credit accounts open. Sometimes even thought the score is good there isn't enough history reporting to guarantee loan approval.
3) I have to be on my job for two years before I qualify for a mortgage loan, right?
While two years on your job is a plus, it is not necessarily a requirement. Depending on your past job history, it may be perfectly okay to have only thirty days on your new job. If you have just begun a new job your employment history for the past two years will be examined. Do you job hop every few months or were you working for one company and received a higher paying opportunity doing the same type of work at a new company? Is there a probationary period? Is this your first job since graduating from college or a technical school? Are you working at the subject you majored in while at school. All of these factors come into play when discussing job history. If you just graduated high school and have only been on your job for a month or two it is fairly safe to assume that the lender will want at least a year of job time to show that you can maintain steady employment.
4) How much house can I buy? It is a good idea to speak with a lender before you go out looking at houses not only for pre-approval purposes, but also so you know what your price range is. Many first time buyers gauge what they can afford based on their current rent. While this may be accurate in some cases, in many cases it is not. The lender will take a look at your total monthly consumer debt and your gross income to determine what you would be approved for. Sometimes what you can be approved for is more than what you want to spend and sometimes it is less than you thought. It is all in a calculation known as debt to income ratio.
6) Will my loan be a fixed rate loan? If that is what you want that is what it will be. While adjustable rate mortgages still exist, very few people are using them. Part of this is that interest rates are low, but even when they aren't, adjustable rate mortgages work best if a borrower doesn't intend to keep a property for very long.
7) Will there be a pre-payment penalty fee? There are no loans in existence offered by banks, credit unions, mortgage bankers or mortgage brokers that require penalty fees to pay off early. There are a few private investors that do loan mortgage money that may charge them-but these are private loans, not loans acquired through normal channels.
8) How much money will I need at closing? The amount of money needed at closing is a function of how much down payment is required by your loan as well as whether nor not you have seller paid closing costs, and any credits for tax pro-ration. Your loan originator should be able to give you a good estimate of how much you will need when they do your pre-approval.
These are the top eight questions that I hear when people call to inquire about mortgages. However there are a couple more questions they should be asking.
1) How much money will I need upfront prior to closing my loan? Typically anywhere from $800 to $1000 to cover the cost of inspections, earnest money, and appraisal all of which are paid up front.
2) I live from pay check to pay check. My credit is pretty good. I don't like the idea of throwing my money away on rent, is it time to buy a house? While I have closed loans for folks that have little in the way of savings because they qualify for either VA or USDA loans, it is always with misgivings. The difference between home ownership and renting is that where you rent, you have a landlord and the land lord is responsible for repairing the property. When you own a house, you are responsible for repairs and maintenance. So just because your lease is coming up for renewal does not necessarily mean that buying a home is the best choice. Save a little money to have put back in case of emergencies.
3) I have found a house for $30,000 that I want to buy. Can I get a mortgage? It is a rare house in our area that is in habitable condition if the asking price is $30,000. It may cost $30,000 up front but have $60 or $70 thousand needed in repairs. Due to government restrictions it is impossible for most lenders to legally lend on purchases this low. Most properties in this price range are sold for cash.
With a little financial planning many people can put themselves in a position to purchase a home. We hope to take your call soon.
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