Whether it is a refinance or a purchase, the mortgage application process has become more difficult than ever. The applicant is required to submit a significant amount of paperwork to substantiate his or her ability to pay back a Note and Mortgage. The essentials in determining your eligibility and the lowest interest rate you can obtain will depend on your credit scores and work history. Funds you have in savings are also important. Recently, one of my clients was even required to submit her college transcripts.
If you are thinking of buying a property or refinancing, start preparing. Gather your last two years of federal income tax returns and save all your bank statements, as you will be asked by your lender to provide at least 3 months. If you take money from one account and put it into another or receive a bonus, keep good record trails. Keep your credit card balances down—try to stay below a 30% balance of what you could charge on each card. Do not incur additional debt; for example, if you plan on buying a car, wait until after your closing to buy the Maserati or the Kia. A client of mine was denied a mortgage on a refinance because of a car purchase after submitting their application. Bottom line: make sure you have good records and do not incur additional debt.
There are many places to shop for a mortgage—word of mouth, the internet, a mortgage broker, directly with a bank, or applying to the institution holding your investment accounts. There is also your brother’s best friend’s sister who can give you the best deal in the world! If you’re purchasing a home, be wary of your realtor pushing their agency’s mortgage company – it might not be the best deal around. Be smart and ask around—even if you have a relative or friend who may be a mortgage broker.
I have worked with all of the above and have had both good and bad experiences. I have worked with great mortgage brokers and great lenders. I have found that Wells Fargo and People’s United run a smooth and tight ship. I just did a transaction with Quicken Loans and the process exceeded my expectations. I am working with Merrill Lynch and they are on their game.
Here are my top tips to use when shopping for a Mortgage:
1) Ask what type of mortgage products a lender may have for that week. One lender may have great 30-year fixed rate mortgages, but a not-so-great 15-year rate, while another lender may have a great 7-year fixed/1 year adjustable but horrible fixed rates.
Figure out what works best for your long-term plans. How long do you realistically believe you will live in your new home? Your age, children, empty nest, work situation, investment strategy—these factors all play into the type of loan you should apply for.
Also, remember the rates change weekly and many times, daily.
2) Ask about the application process and how long it will take to receive an UNCONDITIONAL mortgage commitment. This is different from a pre-approval letter. A pre-approval letter states that based upon your credit score and your current income, you can afford a mortgage in a certain amount. There is also a difference between an UNCONDTIONAL mortgage commitment and a CONDITIONAL mortgage commitment. A CONDITIONAL mortgage commitment is not good enough to waive the commitment in the contract.
3) If you are in a coastal community, find out if you will need flood Insurance. The flood insurance maps have changed dramatically. Properties that were never thought to be in flood zone are now designated in flood zones. Your lender is going to require you to have flood insurance. This could affect the amount of mortgage you will be able to borrow. Acquiring flood insurance can slow down the process; you will be required to get an elevation certificate—which can take 45 days—to determine your flood insurance. The issue becomes: who is responsible for paying for the elevation certificate? Ask these questions before you sign a Binder of Sale.
4) Once you have submitted your loan application and supporting documentation, hold on—you will be asked for more. Be prepared to be asked for more supporting documents until you receive a “CONGRATULATIONS” letter to which you will be indebted to for life!!! In all seriousness, after you receive your commitment letter, please do not charge anything out of the ordinary on your credit cards. All lenders will run a credit check and work verification on you again 1 – 3 days before the closing. If you go over your ratios, the lender will not loan you the money. This is becoming a very serious problem because you received a mortgage commitment, the commitment has been waived and now the lender will not close the transaction—you put your down payment at serious risk!!!!
1) Shop around
2) Gather all your financial documents
3) Make sure you don’t need flood insurance or if you do what the premium will be.
4) Don’t make any credit card purchase out of the ordinary or any big expenses until after the closing!
5) Stay employed.
After your first purchase you will be a pro! However, if you have not purchased a property in the last 3 years be prepared—the process is completely different from what you may be accustomed to.