Shopping for a mortgage is the first step toward owning a home
and perhaps the most daunting, especially if you are not prepared.
Once a simple task that meant comparing fixed rates from among
perhaps a dozen or fewer savings and loan companies, the mortgage
hunt today is like finding your way through a maze.
There are dozens of loan types and hundreds of loan programs
available through thousands of mortgage brokers, bankers, lenders,
finance companies, credit unions, even stock brokerage firms.
Contrary to popular belief, finding a mortgage doesn't begin
with an application.
Education is a better first choice. Mortgage information
sources are as vast as the number of mortgages available. Web
sites, topical newspaper articles, mortgage books, consumer
seminars and workshops, financial planners, real estate agents,
mortgage brokers and lenders are all available to assist you along
the way.
First and foremost, you must determine how your mortgage
payment will fit your current budget and, to some extent, your
future obligations 15 to 30 years down the road.
If you discover too late that you can't afford your mortgage,
you'll not only face the possibility of losing the roof over your
head, but you could also damage your ability to purchase a home
later.
Step 1: Examine Your Finances
If you can afford to buy a home, you must then determine how much
mortgage you can afford. Lenders are apt to put your loan
application in the best light and qualify you for as much as they
are willing to lend, which can be more than you can afford.
It's up to you to take stock of your income and expenses, both
current and projected to determine what you can comfortably manage
each month. Along with your mortgage payment, don't forget related
insurance, taxes, homeowner association dues and any other costs
rolled into the mortgage payment.
Step 2: Shopping For a Loan
When you are ready to shop for a loan you have two basic types of
mortgage stores to shop -- direct lenders and mortgage brokers.
Direct lenders have money to lend. They make the final decision
on your application. Brokers are intermediaries who, like you,
have many lenders from which to choose. Lenders have a limited
number of in-house loans available. Brokers can shop many lenders
for each lenders' store of loans. If you have special financing
needs and can't find a lender to suit them, an experienced broker
may be able to ferret out the loan you need. Mortgage brokers,
however, are paid with a slice of the amount you borrow, some more
than others some less. Internet brokers today perhaps receive the
smallest cut, sometimes none at all, and can prove to be a real
bargain.
Along with shopping the source, you'll also have to shop loan
costs, including the interest rate, broker fees, points (each
point is one percent of the amount you borrow), prepayment
penalties, the loan term, application fees, credit report fee,
appraisal and a host of others.
Step 3: Apply For a Loan
The application process is the easy part -- provided you've
gathered documents necessary to prove claims you make on the
application.
The application will ask for information about your job tenure,
employment stability, income, your assets (property, cars, bank
accounts and investments) and your liabilities (auto loans,
installment loans, mortgages, credit-card debt, household expenses
and others).
The lender will run a credit check on you to take a look at
your credit status, but you'll have to supply additional
documentation including paycheck stubs, bank account statements,
tax returns, investment earnings reports, rental agreements,
divorce decrees, proof of insurance, and other documentation. If
the lender deems you creditworthy, it will likely hire a
professional appraisal to make sure the value of the home you are
about to buy is truly worth your loan amount.
