Today’s mortgages are not “one-size-fits-all.” That means you’ve got lots of options out there that could fit your budget and finances. This is good news for many home buyers!

However, you do need to do your homework first so that your mortgage application can be processed properly and with success. The lending environment can be complex and complicated at times. Lenders, underwriters and mortgage insurers must all complete certain steps before they can have your financing in place.

It’s important to try and keep things going smoothly by taking on a few steps of your own, and knowing what needs to be done next. This preplanning will help get your mortgage and financing all figured out. That way you can avoid any snafus when you least want them to appear!

Once your mortgage situation is all set, you’ll be in a much better position to negotiate with the sellers and move forward on a purchase. Here’s what you need to keep in mind:

1. Evaluate your affordability and don’t forget about monthly budget.

Do you truly know how much mortgage you can afford and how lenders determine it?

Lenders and mortgage insurers look at a variety of factors, but the two most important are your monthly mortgage payment and your total debt load, relative to your gross income. You may hear a lender call this your “debt-to-income ratio.”

But wait, let’s hit pause first and ask this question instead: How much are you actually comfortable spending on a mortgage payment each month?

This is a much better way to determine your affordability.  It’s better to determine  what your monthly budget is for housing, NOT just the purchase price that your lender will approve you for!

Many of you will want your monthly housing expenses to be much lower than what a lender is willing to lend you. This topic was covered in detail in Do the Math – A Mortgage You Can Afford, the fourth article in this series. Go back and review if you need a refresher.

This article makes you carefully look at your monthly budget, including current expenses and future ones as a homeowner.

2. Shop around and interview lenders to find the best fit for your needs.

I always suggest a team of lenders that I work with as they knew what my expectations are of the service I give my clients and they are willing to work in that scope. I know they are available 7 days a week for when we need them. Local lenders are always favored with sellers and sellers’ agents, as well, as they understand Delaware and it’s first time buyer tax credits in certain areas and the first time home buyer programs available. You can, of course, also talk to several lenders of different sized banks.

Different banks can offer different programs, especially in today’s market.  [Provide an example if you have one] True example in my business: We’ve seen clients save over $200 a month on their mortgage payments just by talking with another lender that had a loan program the first bank they spoke to wasn’t able to offer!

3. Discuss your loan options with lenders and your agent.

Deciding which types of mortgage loans are best for you depends on your personal situation, your financial scenario, and your future plans. It’s something you’ll discuss during your lender interviews.

For example, if your down payment isn’t large enough to qualify for a conventional loan, an FHA mortgage can be an excellent option. Alternately, you may qualify for an attractive first-time home buyer program offered by a local jurisdiction.

Mortgage programs are always changing. You need to sit down with your lender to understand the different options out there that could work for you and the type of home you most likely will purchase. And don’t forget that your agent is a good resource who can help guide you on your decision.  They know what has worked for other buyers who may have similar finances.

4. Get pre-approved (not pre-qualified) by your lender.

Plan to complete a loan application with one or more lenders.  Make sure to take it one step further from getting pre-qualified and get pre-approved instead.

By doing this you will know exactly what loan amount you will be approved for by the lender. (Remember, stick to your monthly budget no matter what you get approved for!) But this does give you the go ahead to look at homes in a certain price range.

To start this process, you will need to supply information to the lender along with your application. Once the application is filled out they will require documents (all lenders will need these documents) such as paystubs, tax returns, W-2s. To get pre-approved, the lenders will perform an extensive check on your financial background and credit rating. You will be notified in writing with the amount they are willing to lend you for a home purchase.

This process is an important step that must be done before we go and look at houses. Your pre-approval signifies to sellers that you are a committed buyer who has financing secured. When you make an offer, it won’t be contingent on obtaining a mortgage.

5. Commit to a lender once you’re under contract.

As soon as you are under a contract to purchase a home, you must “lock-in” and commit to working with one lender to complete your mortgage application. This needs to happen immediately upon going under contract to meet the deadlines you’ve agreed to in your offer.  Show your lender that you are serious about working in partnership with them by submitting all the required documentation as quickly as possible.  At this point they also will be “approving” your home and will await its appraisal to determine if they will lend you money. You want the appraisal to come in at or above the sales price.

As you can see, there are certain steps you’ll need to take to get a mortgage. And, the best way to know what you should do is to talk to an expert.  Email me and I’ll review your options and connect you with a couple of great local lenders who have the lowest rates and best loan programs for first time home buyers. 

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