I recommend buyers connect with a good mortgage professional as soon as possible. This is the first major to-do item on the path towards home ownership. Not only can a great loan officer help you set your budget, they can also tell you what your approximate fees and monthly payments will be. Great loan officers, like the ones I regularly work with, also have the experience to help you tailor your financing terms to maximize your chances of winning in a competitive offer situation.
Pre-Qualiﬁcation v. Approval v. Underwriting Pre-qualifying for a loan is the lowest rung of the loan approval process and only represents a loan officer’s opinion of what you can afford. Approval means your loan application has been taken through a more rigorous procedure. Your credit report is reviewed and many of your financial documents are provided to your loan officer. Approval saves you the time of looking at houses outside of your budget. Nearly all sellers will want prospective buyers to prove their financial qualifications by providing a pre-approval letter at the time an offer is made.
I recommend buyers obtain an even higher level of loan approval when possible, which is pre-underwriting. For well-qualified borrowers, my loan professionals can run your entire file through initial processing and underwriting. This means that by the time you find a home, make an offer and have it accepted, your time to close may be a couple of weeks shorter than someone who only has a standard loan approval. Having your file pre-underwritten could be the game changing advantage that gets your offer accepted.
A Quick Note about TRID TRID went into effect in late 2015 and replaced older borrower disclosures, while adding new consumer protection elements. TRID is also commonly known as the “Know Before You Owe” regulation and is intended to give buyers a straight-forward and clear understanding of the various costs and terms associated with their home loan. The TRID disclosure from your loan officer must be sent to you at least 3 days before you can sign documents at escrow. Most reputable mortgage professionals are used to working with these deadlines and will ensure your documentation is in order for an on-time closing. With that said, people get busy and things can slip through the cracks, so you and I will work together with all of our various partners throughout the transaction to make sure everything happens when it’s supposed to!
Mortgage Broker vs. Bank Loan Officers A broker may have access to several lenders or bank and may be able to offer you a wider selection of loan products and terms. Some mortgage brokers also have access to funds from an affiliated bank. Traditional loan officers work at banks and their primary source of funding is through their associated bank. Some banks offer loan products that are only available through their own loan officers.
What are the terms of the loan? All the terms of a loan matter, not just the interest rate. You’ll want to get a complete picture and break down of what a given loan proposal means to you on a monthly basis, as well as how much money you’ll be spending over the life of the loan.
Type of Loan There are many different types of loans and many specialty products. Recent medical school grad with a bunch of school debt? They’ve got special physician’s loans for that! Non-citizen borrower with no credit history? Some of our local banks can work with these types of borrowers, too! And how about the duration of the loan? The good ol’ 30-year fixed loan is still the most common loan product offered by banks. But if you’re not planning to live in your home for that long (or if the current interest rate has a high chance of falling in the the near-to-mid term), you may want to consider a loan with a shorter term, which may come with a pretty advantageous rate. Definitely let your loan officer know what you’re thinking so they can make good recommendations for your situation.
The Down Payment / Private Mortgage Insurance The largest upfront cost in purchasing a home is the down payment. Most traditional lenders expect borrowers to put at least 20% of a loan’s total amount down. Borrowers who are unable to do so are required to purchase Private Mortgage Insurance (PMI). This insurance protects the lender in case of default by the borrower. Some lenders have other ways to work around this requirement, such as pre-paying the PMI or getting a second loan via a line-of-credit.
Let’s move on to the next section about Making an Offer.