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Frequently Asked Questions About the Mortgage ProcessThe following FAQ (frequently asked questions) will help you understand the mortgage process and make those important decisions involved in buying a home.
When should I start the mortgage process?
How much of a down payment will I need?
How do I pick a mortgage program?
What should I ask a prospective lender?
What documents will be required of me to have my application processed?
How long does the whole process take?
What can I expect my costs to be for getting a mortgage?
When should I start the mortgage process?
Many people are surprised to learn that the best time to look for a mortgage is BEFORE you look for a house. Beginning your adventure with the search for financing gives you plenty of time to pull together records you will need to get a mortgage when you finally find the home you want to buy. It's a big advantage to get familiar with mortgage lenders in your area in the early stages of your house hunting project. There are also two valuable things you can carry away from your visits with lenders that can help make your home search a little easier.
- Pre-Qualification
Pre-Qualification consists of a verbal or written statement of the maximum amount of mortgage you should be able to receive based on the financial information you've provided. This helps you and your real estate agent narrow your home search to houses available in your price range. There should be no charge for a Pre-Qualification.
- Pre-Approval
A Mortgage Pre-Approval is a formal letter from your lender which indicates to a seller and his or her real estate agent that you have had your credit reviewed and are "credit worthy." It also shows that you have been approved up to a certain loan amount.There are many benefits in having a Mortgage Pre-Approval, not the least of which is that it can eliminate a great deal of potential anxiety since you do not have to wonder about your credit rating or how much of a mortgage you're approved for.
There are other benefits as well. Your offer to buy can be taken more seriously once you have finally found your dream home. Many offers today are made with contingencies, such as mortgage qualification, the sale of another dwelling, etc. When you indicate to the seller of the home you want that you have been "pre-approved" for a mortgage, your offer becomes more attractive. The seller knows that it's likely that a sale to you will "go through" and not result in costly and inconvenient delays.
Closing on your new house will likely be faster and easier. The pre-approval process includes some of the steps that would be taken in the regular mortgage process. Since you will have already gotten those steps out of the way, your mortgage can be closed faster.
There is typically a modest charge to obtain a Mortgage Pre-Approval. This covers the cost of the lender obtaining and reviewing your credit report. To get a Mortgage Pre-Approval, contact your mortgage consultant.
How much of a down payment will I need?
- Fannie Mae and Freddie Mac will allow as little as 5% down.
- The community homebuyer program allows 3% down .
- The Farmers home loan program allows zero down, but it is only for specific geographic regions.
- Some lenders will do an 80% loan with the seller carrying the other 20%; Therefore allowing you to purchase with nothing down.
- FHA will allow roughly 3.5% down, however, all of that 3.5% can be a gift from a family member.
- VA is a true 100% loan to value loan, and the seller can pay all the closing costs. This means you could purchase a home with nothing out of your pocket.
How do I pick a mortgage program?
- If you think you may be in the loan for 3 years or less you might want to consider a 3 year or a 5 year adjustable rate mortgage.
- If you are not sure how long you will have the loan you might want a 7 or 30 year fixed rate mortgage.
What should I ask a prospective lender?
The following are good questions to ask a mortgage lender:
- How long have you been in the mortgage business in this area?
- If I get my mortgage here, how likely is it that my mortgage will be serviced here or sold to another lender for servicing?
- About how many days will it take to get my mortgage processed?
- Would you please provide me with a written "Good Faith Estimate" outlining closing costs and interest rates if I were to get a mortgage from your company today?
What documents will be required of me to have my application processed?
In order to process your mortgage, your loan consultant will need several pieces of information regarding your income, debts, and residency. You may be asked to provide other information such as the previous two years federal tax returns or specific financial documentation, particularly if you are self-employed, own rental property, or have income such as commissions and bonuses.
There's nothing like preparation to help take some of the anxiety out of the mortgage application process. An hour or two spent "pulling together" financial information can save many days of delays down the road.
Don't forget to use our Checklist of Items which is provided to help you ensure smooth sailing during the application process.
How long does the whole process take?
- The absolute fastest would probably be a 2 day closing from start to finish. These are very rare and can only happen if you have a just about perfect loan.
- The typical time frame is usually 2-3 weeks to obtain loan approval and then another week to close.
- Some loans can literally take months to close. For example, construction loans with all the permits that are required can take a long time. Likewise, a foreclosure loan can sometimes take a long time just due to the extra title work needed.
- If you make application before you buy your home and have your loan pre-approved, you can save yourself 2-3 weeks.
What can I expect my costs to be for getting a mortgage?
- Origination fees
- Commitment and processing fees
- Discount points ("points")
- Attorney's fees (if you retain one to examine the paperwork)
- Title insurance fees
- Surveys
- Costs for recording documents, prepayments of real estate taxes and insurance premiums held by the lender. The seller will sometimes help the buyer pay some of these costs.