Mortgages are acquired through your local banks, credit unions and mortgage companies, as well as savings and loan associates. Here is a step-by-step look at the process.
Here are the basic steps through the mortgage process:
Find a suitable bank or financial institution that provides mortgage services. Prepare to present proof of income, certificate of employment and ownership of assets and overall debts. A meeting is then scheduled.
A background check for the authenticity of declarations made by the borrower (you) is made by the lender (bank, financial institution), and an overall assessment is made of the buyers capability to pay the mortgage.
- Approval or denial
Decision would be made by assessing the borrower’s financial history, current assets and debts, and market value of the house to be mortgaged.
Here are steps you can take to improve your chances for approval:
1. Make sure you have a good credit standing
Interest rates are assessed on mortgages are based on your credit standing. If you possess a good credit report you will present a low risk client for the bank, hence you’re given lower rates. Make sure that credit reports made are authentic and reflect your true credit standing regarding debts or liabilities. An error made with this document may cause your bank to deny you the loan. If you are not in a great or good credit position, it is wise to continue or pursue the loan when your credit standing has greatly improved. In addition, applicants who possess good credit reports are in a stronger position to negotiate terms and rates.
2. Check your finances and make an assessment of what type of house fits well within your price range
Planning to buy a house does not stop with having your loan approved. A careful assessment of your income and expenses are vital too. A long term outlook, job security and the amount of savings you have to support yourself in the event of job loss must be considered in order to ensure that payments will be made.
3. Consider all the charges which will add up to monthly payments that comes with your loan
Make sure you are account for all of the factors that add up to the total amount of monthly payments to be made. Additional payments such as taxes, insurance and the loan payment itself should be totaled to give an accurate picture.
In choosing a home, it is important to consider these additional charges as they can greatly reduce your capability in making monthly payments. More often than not, these simple additions are taken for granted as a house is assessed for its value, but when monthly payments come in, borrowers are suddenly overwhelmed by the true cost of purchasing the house.
4. Another key factor for lender approval is your capacity to make payments
If your bank determines that you have a high risk in not making the payments, this translates to higher interest rates. It is mainly based on your monthly income and whether or not it is sufficient to pay for your loan against your monthly expenses. Another important thing to consider is your credit history; have you incurred default payments or were you able to make the payments? It is important to settle these credit histories for the bank to know that you are willing and able to make payments.
5. What is the maximum available cash you can provide as down payment?
A 5% downpayment of the market value of the house and mortgage insurance is usually required by lenders. Government programs allow borrowers to put a lesser amount of downpayment if they qualify. Remember that the greater the amount of downpayment made, the lower the interest rate that is offered. This is because a far lesser amount is to be financed by the bank and a lesser amount can be charged for interest. It is important to decide on the most flexible and affordable downpayment you can give.
Another great way of lowering the monthly costs for your loans is avoiding mortgage insurance. A downpayment of 20% for the house is required in order to avoid the obligatory mortgage insurance. One way of providing for this 20% is to put your old home as partial payment and additional provide an additional down payment.
A 20% down payment on the value of the house is required to avoid mortgage insurance and for closing costs around 3-7% of the home purchase price.
6. Strengthen your negotiating position with the home seller by pre-qualifying for a loan
Pre-qualifying for a loan does not oblige you to continue with the mortgage. Strengthen your position by showing the seller that you are in a position to make the deal and are merely negotiating the final price for the house. A lower selling price means that you have a lower down payment and interest rates will be also lower since you will need a lesser amount of financing. When you do get to lower the market price, you can then check out other financial institutions that offer greater flexibility and more competitive rates.
7. Brush up on those technical terms
A brief overview on some technical processes and understanding on how the mortgage system works gives you a better understanding and better decisions when the time comes. This will leave you in a better position when dealing with financial institutions or banks, as you’ll understand what they’re offering and the best deal offered.
8. Choose the best option for going about your mortgage and that which meets your financial objective
There are a number of types of loans available, fixed rate loans, special financing loans, adjustable loans are just a few to mention. Having knowledge on the different loan types allows for better decision making.
9. Stay updated with the latest numbers
Information on mortgage rates and bank deals are readily available. The internet is a great source of information and is generally free. A quick look at credible business sites tell you where the rates are and where they’re going.
10. Check out your local financial institution and submit your application
After going through the different steps, you are now in a position to make the best decisions and find the best deal that works for you.