You have the option of shopping around for the best terms you can obtain. Generally, a mortgage acceptance requires 15-30 days for conventional, 30-45 days for VA and FHA from application to approval. In some cases, loans may be approved more quickly.
Shop Smart for Mortgage Money
There is much competition among lenders, and smart borrowers shop carefully to find the financing that best suits their circumstances and needs. Here is where to shop:
Mortgage Lenders - Mortgage lenders issue mortgages to borrowers. They then process and sell the mortgages to large investors or into the secondary mortgage market
Mortgage Loan Brokers - Some individuals or groups charge a fee (usually to the borrower) to match borrowers with lenders. Sometimes they make direct loans. An advantage of working with mortgage brokers is that they often represent many investors and can provide you with many more financing alternatives, usually at the same price as the mortgage banker.
Financial Institutions - Mutual savings banks, savings and loan associations, insurance companies, and some commercial banks are the traditional sources of mortgage loans. Savings and Loans often grant favorable terms to their own account holder.
Private Lenders - Individuals (often home sellers) and groups (sometimes seller's employers-if the seller is being transferred) lend money. This source is especially helpful in arranging second mortgages, but can also assist with first trusts, wrap-arounds, and other mortgage plans.
Credit Unions - Federal credit unions can write 30-year conventional and government insured mortgages. Some will make loans; others may not. This may be a good source for credit union members.
Finance Companies - To compete with the more traditional lenders, some finance companies promise quick service and some do not charge mortgage points or pre-payment penalties.
Questions Most Lenders Will Ask You
Here's the information most lenders will need:
- The amount of money you wish to borrow and the length of time you will need the money.
- Property hazard insurance agent's name, company and phone number.
- Names, addresses, phone numbers and exact dates of employment with ALL employers over the past two years.
- W-2/1099s from all employers for the past three years.
- Signed personal federal tax returns including all schedules.
- Most recent pay stubs.
- If self-employed, signed company federal tax returns including all schedules for the past three years.
- If self-employed or commission, current (within past three months) Year-to-date Profit and Loss Statement and Balance Sheet, reviewed and signed by an accountant without audit.
- Award letter(s) or most current amendment for Social Security or retirement benefits.
- Include proof of payment (direct deposit or check stub).
- Copy of Note income - must have five years or more remaining.
- Rental agreements/leases (FHA requires one-year lease) for all tenants of real property owned.
- Schedule of Real Estate on all real property owned, to include property address and ZIP codes, property type (SFR, TH, condo, etc.), mortgage type (FHA, VA, conventional, private, etc.), date mortgage originated, mortgage balance, mortgage payment, rental income and net income earned (positive and/or negative) on each property.
- Proof of consistent receipt of child support and alimony if considered as part of qualifying income.
- Two months of current statements for all bank, credit union or savings accounts showing balances, account numbers and complete address of the lenders.
- Stock and bond account statements including brokers' names, addresses, account numbers, number of shares and value.
- Life insurance face amount - cash value, if any.
- Year, make and estimated value of all vehicles.
- Gift letter - funds in borrower's account will be verified.
- Names, addresses, balances, monthly payments and account numbers for all vehicle loans, charge accounts, credit cards and any other financial obligations.
- Lender names, addresses, balances, monthly payments and account numbers for all mortgages. Include a copy of annual statement, a 12-month payment history and the type of loan (FHA, VA, conventional and/or private), for each loan.
- Letter explaining any slow pays, collection accounts, judgments or other credit problems.
- Bankruptcy paper (petition, schedule of debts and discharge) and a letter of explanation.
- Addresses and dates of occupancy for all residences for the past two years.
- Names and addresses of all landlords within the last two years.
- Copies of Social Security cards and driver's license (photo ID is required for each borrower).
- If divorced, provide divorce decree and stipulations.
- Name and address of nearest living relative.
With this information in hand, here are the steps the lender will take to process your application:
- Verify the facts.
- Get a credit report.
- Make a property appraisal.
- Review your application.
- Decide whether or not to make the loan.
Some Questions You Should Ask Most Lenders
Here is how to shop; a few of the questions to ask a lender:
- Are both fixed-rate and adjustable mortgage loans available?
- What is the interest rate?
- What are the points?
- How long can I lock-in the financing at the current interest rate?
- What are the other fees a lender may charge me in conjunction with my loan?
- Are funds for a second mortgage available?
- On adjustable loans:
- How often will the interest rate be adjusted?
- Is there a maximum limit on each rate change?
- How often will the monthly payment be adjusted?
- Is there a ceiling on payment adjustments?
- Can the term of the loan be extended?
- Is there a pre-payment penalty clause? This involves extra charges for paying off the loan before maturity. About 80 percent of all loans in the United States are paid off early.
- Is there an open-end clause? This clause in a mortgage allows you to borrow in the future for home improvements or other purposes, up to the amount of principal you have paid off.
- What is the grace period? How late can a monthly payment be made before a late charge is assessed? What will happen if a payment is missed?
- If you sell your house, will the new buyer be able to assume your mortgage at the same interest rate?
- Do you have to pay points to get your new mortgage? Usually lenders charge points for the cost of giving you a mortgage loan. A point is 1% of the loan.
- Will the lender require mortgage insurance?
Slicing Interest Rates
It is important to keep the tax advantage in mind when considering whether to rent or buy. A mortgage payment of $1,500 could result in a lower overall cost than a $1,200 rent amount after you consider tax advantages.
Remember a buyer may not realize this tax break until tax time comes around unless withholding taxes are decreased in anticipation of increased interest payment deductions. Please contact your tax advisor for more information.
Next go to Negotiating the purchase what happens until your offer is agreed.
