Apply For A Mortgage Loan – After setting a budget and deciding what type of mortgage is right for you, home buyers will want to follow some of these tips to help the application process go as smoothly as possible. The pre-approval letter you receive from the lender is not an official loan guarantee. Applying for a mortgage can be a long and difficult process to navigate, but understanding the options available to home buyers will help!
The mortgage rate is not specified in the pre-approval letter, so make sure you know what may affect the changes and avoid (literally) at all costs the things you have control over. Here are some things home buyers should know when shopping for a mortgage.
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Know the lenders! Before you sign any loan, be sure to do your home buyer’s due diligence (or due diligence) on lenders. Some of the steps you should take to decide if a lender is right for you include:
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If a lender has a high rejection rate, that’s a bad sign. People who are on the verge of qualifying for a conventional loan may find it difficult to get a mortgage from a lender with a lower approval rate.
Getting a quote and getting a loan is fast and easy today thanks to mobile applications that put the options right in your hands. But don’t be too quick to pull the trigger. This is a big decision and every first home buyer should take their time.
Finally, every home buyer should shop around for the best mortgage rate and make sure they are comfortable with the loan amount. Keep your budget and don’t be convinced to buy a more expensive house with a larger loan than you can afford, hoping real estate will always appreciate. While this is likely to happen, it is better to have a smaller mortgage that can be managed in good and bad economic times than a large mortgage that you could lose in a foreclosure.
After submitting your application to your preferred lender, you will receive a pre-approval letter. This will confirm the exact amount of your mortgage to borrow.
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Even if the terms of the loan can change, it is an integral part of starting the home buying process. Only those who are ready to make an offer pass through this first round.
A pre-approval letter does not lock you into a deal with a lender, but it is a great way to set yourself apart from other home buyers. Aside from the pre-approval letter, you should also familiarize yourself with the loan estimate and closing disclosure, which are important lender documents to help you keep track of closing costs. The infographic below explains how each of them fits into the home loan process.
At this point, you have not yet applied for a formal loan. This is not a loan commitment and without a signature, it is not a legally binding document.
Until the underwriter receives your income verification documents and provides a loan estimate, also known as a mortgage commitment letter, it is possible that the number on the pre-approval letter will change. This process doesn’t happen until you make a formal offer and send the pre-approval letter along with a Purchase Agreement to the seller.
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Each lender differs in the type of documents required for a mortgage pre-approval, but sometimes you may need to provide the following:
In the pre-approval stage, make sure you don’t throw away any of these documents until your first letter expires and you need an update. Even if the lender does not initially ask for these documents and simply uses your credit report for the initial pre-approval letter, be sure to save these documents so they are ready.
Until the pre-approval letter reaches the underwriter, there should be no fee associated with it, and many banks also waive the initial application fee.
Pre-approval letters are usually issued to lenders within 24 hours. But the letter itself has a time limit. It’s usually only good for about 90 days, so be sure to check the letter for the expiration date. The letter will have two dates: when the letter was issued and when the pre-approval expired.
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A lot can happen within three months, and lenders need to have the most up-to-date information about your financial situation to give home buyers a realistic idea of what they’ll be approved for.
Don’t worry, even if you don’t find the right home within that time frame, updating your pre-approval letter is usually a simple task. Your loan officer will ask for an up-to-date pay stub, a bank statement, and may refinance your credit.
You don’t need perfect credit to get pre-approved, but it’s important to know how starting the pre-approval process affects your credit history.
Your credit must be drawn to receive pre-approval. This is considered a difficult search. Unlike a soft inquiry, a hard inquiry can reduce your credibility. Typically, if there is a hit, it is only a handful of points, but several hard requests can be a bad sign for lenders.
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Your window of time to shop before you start collecting inquiries can be anywhere from 14 to 45 days. Be sure to ask the lender what scoring model they use.
Additionally, FICO scores ignore any hard mortgage applications in the 30 days prior to scoring, so if you go to a second lender a week after your first approval, your first hard application won’t be reflected in your score. still again
This gives home buyers a full window of time to gather all pre-approval information from multiple lenders to get the best deal.
Your pre-approval is based on the information you provide to the lender at that time. If anything in your financial situation changes between then and when you close on the house, you run the risk of changing pre-approval terms or getting rejected outright by that lender.
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After pre-approval, you can monitor your credit score using a free website like Credit Karma. Be sure to keep an eye on it for any major fluctuations.
After pre-approval, make sure you exercise strict financial will, continue to save money in case your closing costs are higher than originally estimated, and start getting serious about finding and making an offer on the right house. Do it with your budget.
Remember, if you initially go with one lender and later decide you prefer another, you will not be locked into loans that have already been approved.
This is a snapshot of the loan estimate. Signature is to acknowledge receipt, not a binding agreement and terms. You can see a complete sample loan estimate on the CFPB website.
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If the terms of the loan estimate and subsequent disclosures do not meet your expectations, you may change lenders prior to closing. People who buy for a loan can see tremendous savings over the life of the loan. A chart from LendingTree shows that a great savings a borrower who requests 5 offers can save up to $68, $871.60! It is worth the time and effort to do it!
Remember, if your final disclosure is not what you expected, be sure to ask your lender for clarification or correction before proceeding with the transaction. If the conditions are not what you expected, you do not have to close with that lender. These other offers mean you can call another lender. Be aware of all these documents and follow up on issues as soon as possible to avoid closing chaos.
Amanda Farrell is a digital media strategist at . He loves being part of a team that gives consumers peace of mind as they make one of the biggest purchases of their lives. She lives in Sarasota with her bunny Buster and enjoys painting, playing the guitar and mandolin, and yoga. When you apply for a mortgage, the lender will need several documents to process the mortgage application. All banks and mortgage brokers require the same documents on mortgage applications (and pre-approval) because mortgages must meet federal lending guidelines.
Make sure you have a driver’s license or government ID for all applicants. The lender may also request a copy of your Social Security card for each applicant and co-worker.
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Applying for a mortgage can be a bit daunting for a first-time home buyer or a boring and monotonous process for someone who has applied for a mortgage before.
The best way to get your mortgage application approved quickly is to gather all your personal documents and have them ready when you apply for a mortgage.
When you apply for a mortgage, the lender will ask for all of your W-2s from the previous two years. The lender also needs the name, address and phone number of the employer.
Payment slips for the past thirty days must be provided to the lender. Do you have your tax returns for the last two years? If so, bring them to your mortgage application. It will not hurt you.
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The loan officer will apply a debt-to-income calculation to see if your income and monthly debt match.
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