It’s easy to understand why the concept of buying a home is a feel-good notion. In fact, nearly all — 94 percent — of prospective home purchasers think they’re making a smart investment by buying a residence, per the results of a recent poll commissioned by Discover Home Loans.
And yet, home shoppers are often vexed by mortgage math and suffer from financing information overload. Consider that, among respondents of the same Discover Home Loans poll, 48 percent haven’t calculated what their expected monthly payment may be, and 63 percent feel overwhelmed by the amount of mortgage information available.
But obtaining home loan financing doesn’t have to be a distressing and paralyzing process if you know what to expect and prepare properly, say the experts. Follow these four easy steps when shopping for a mortgage:
1. Get Your Financial House in Order
Evaluate how much you’ll need to have saved for a down payment — salting away at least 20 percent of the home’s price is recommended if you want to avoid having to pay additional private mortgage insurance.
Clean up your credit. Visit annualcreditreport.com to view your credit report for no charge, and correct any inaccuracies you see there, pay off any outstanding balances on credit cards, and continue to pay your bills on time.
Substantiate all sources of income via paycheck stubs, recent tax returns, W-2 forms and bank statements.
“A lender will ask to see two months of bank statements at the time of application. If there are large deposits on the statements, you will have to document the source of the funds and provide a paper trail,” says Joe Parsons, senior loan officer with PFS Funding, a mortgage banker based in Dublin, Calif. “You should gather all this documentation before starting the application process.”
2. Find a Qualified Mortgage Professional
Find an expert you feel comfortable with, and be honest and up front with the lender. Provide everything your lender requests as soon as possible to prevent delays.
“Ask experienced agents and real estate professionals for recommendations, and work with this lending professional in advance so you will have the best possible credit options,” says Debra Kroon, brokerassociate/ Realtor with Yosemite West Real Estate, Inc., in Oakhurst, California. “Good loan officers will assist you in resolving any current credit or qualification issues.”
Erin Lantz, vice president of mortgages at Zillow in Seattle, says it’s wise to get at least three loan quotes from three separate sources and compare them on an apples-toapples basis.
“Before you move forward with a lender, read their ratings and reviews to get a better idea about their level of customer service and ability to close on time,” Lantz says.
When comparing lenders, be aware that typically there is very little difference in rates and requirements between them. Focus instead on finding an experienced professional who will personally handle your loan transaction — an expert with whom you feel a rapport and who is clear, informative and responsive to your questions and requests.
3. Determine What You Qualify For and What You Can Afford
“Take a careful look at your finances to determine your home affordability, and perform a thorough assessment of what your mortgage needs are,” says Valentin Saportas, CEO of MortgageHippo in Chicago.
Next, learn from the lender what kind of credit you qualify for, what your monthly payment is likely to be, and the actual cost of the mortgage loan in writing — not just a rate quote, but the lender’s charges, thirdparty fees, closing costs and total interest to be paid.
4. Get Preapproved for a Loan
Finally, it’s important to get preapproved from your chosen lender before you start home shopping, says Don Zender, vice president/ branch manager for Evergreen Home Loans in Bellevue, Wash.
“Preapproval means the lender will review your credit, the funds needed to close and verify your employment so you have a firm loan commitment in your hand,” Zender says. “You can then present this preapproval letter to real estate agents and sellers, showing them you’re serious about buying a home.”