Figuring Out the Mortgage Process (Part I)

Previously,  we discussed tips on how to prepare for buying your first home. Now, we’ll go a little bit deeper and talk about the most important part of buying a house, the mortgage. I don’t know the first thing about it so I enlisted the aide of Jorge L. Rivera, Executive Mortgage Broker with William Raveis Mortgage in Darien, CT.

What is a mortgage?

It’s a long-term loan (usually 15-40-year period) you get from a bank, online lender, independent mortgage broker or the property seller. You’d use the house and the land it sits on as collateral. At closing, which just means when you make all the final payment arrangements and sign all official papers, you’d sign documents allowing the loan officer to take a lien on the house. So in the event you do not pay back the loan, as agreed, they can foreclose on your butt.

What did you just say to me?

There is going to be some real estate jargon that you are not going to comprehend. A mortgage broker (loan officer) will take the time to break down the process to you, help you fill out the application, explain all the options and programs available to you and then shop around for the best rate.  They act as a liaison between you and many different lending institutions. “The mortgage broker processes the file, submits to the lender, obtains approval conditions (requests from the lender for more information/clarification concerning the borrowers application), and obtains legal work from the attorney in preparation of closing. The mortgage broker works hand-in-hand with the borrowers’ chosen realtor, attorney, and insurance agent,” says Rivera.

You could apply for a loan online or go to the bank to get a mortgage loan but Rivera says, “Most retail bank loan officers cannot compete with a good mortgage broker when comparing apples to apples. There are even situations where a mortgage broker can go to that retail loan officer’s own bank and deliver a better rate and fee structure. This is because they (mortgage broker) are dealing with the wholesale side and have pricing freedoms that the retail loan officer does not have on the retail side.”

The Bad and The Good

Unfortunately, there are some lenders who are out to swindle you. They prey on those with lower scores by charging ultra high interest rates, claiming it is because of low credit scores. Another con artist mortgage broker may try and get you to refinance the mortgage and then charge you high closing cost and add that to the monthly mortgage payment. Or they may give you a loan knowing you can’t afford it so when you default on the loan they can seize the property and sell it.

A legitimate lender makes money by charging interest and not from foreclosing on homes. That is why I’ll say, it is imperative for you to shop around before deciding on a broker. “I am a firm believer in trusting one’s instincts. While shopping (for a mortgage broker), it is important that you make sure the broker is comparing the same rate and fee structure i.e. 30-year fixed, $250,00 loan amount, 20% down payment, full income and asset verification, no points, 60-day rate lock. You should check references and ask for quotes in writing. A good broker will also be affiliated with a number of lending institutions. An established company with a good reputation will get courted daily by institutions after certain clientele – great credit, high-net-worth, sub-prime, etc. That is not to say that the broker with the most affiliations is the best but the number of available lending institutions is a good indication of how established the broker is,” says Rivera.

Preparation

Before you even get the mortgage loan you have to be pre-approved. According to many loan officers and realtors, it is best to get pre-approved rather than pre-qualified (we’ll discuss this later) for a mortgage before you start looking for a home. This will allow you to focus on searching for your new home in an affordable price range without wasting your time looking at the property you can’t afford. To get pre-approved, a mortgage broker takes a look at your income and outcome and determines how much house you can actually afford. When completing the application be prepared to supply your W-2’s, bank statements and so on. This will give the lender an idea of your financial situation and if you can pay the loan back, and helps the process move much faster.

If you are a recent college grad, you can still get a mortgage. Your credit would need to be stellar and you’d have to have a job. What if you were not working yet but had a job offer letter? You can still get a mortgage but you would have to be working prior to closing for at least 30 days.

Are you self-employed, you too, can get a mortgage. You would have to show two years of tax returns, financial statements, projected earnings and possibly your marketing plan, and more.

I think that is enough for you to digest today. Next week, we’ll discuss the difference between pre-qualified and pre-approved and learn about debt-to-income ratio.