Get a Mortgage
The American dream has never been easy but being prepared when you get a mortgage can save you a lot of money. Everyone wants to save money when they get a mortgage and only those who learn the whole mortgage process can leverage money saving techniques.
Get a Mortgage Pre-Qualification
The first question on a mortgage application has always been the same, how long have you worked at your current employer. You will need a minimum of 2 years. Sometime it will be ok if you changed employers within the same profession or changed profession for better wages. You will also need 2 years of good rental history paying rent equal to or above your desired mortgage payment to get a mortgage. Next we have the three Cs of lenders to get a mortgage: Credit, Capacity, and Collateral. Know your credit score, all three of them to get a mortgage. When you apply to get a mortgage, your credit will be pulled from all three credit bureaus. They are allowed to use your middle score when you get a mortgage. Credit scores of 770, 750, and 745 would give you a score of 750. You want your score to above 700 and not below. If you have a credit score under 660, you will need to consider getting a government backed mortgage like FHA. How to improve your credit score. You will need to prove that you can repay the loan. You will have to show proof of income and identity with copies of several documents. You have figure out your DTI (debt-to-income-ratio) to make sure you have the capacity to repay the loan. Excluding insurance, utilities, rent, and miscellaneous expenses you will need to add up all your payments from banks, credit cards, financial companies, and any alimony or child support payments. Take your gross income from last year’s tax return and divide it by 12. Now divide your total monthly bills by your monthly gross income. Example: $75,000 yearly income / 12 months = $6250 gross monthly income. Total monthly payments of $625 / $6250 will give you a DTI of 10%. This is known as your front DTI. It is a good idea to keep your front DTI under 10%. Your back DTI, which is important to lenders, includes your house payment, including insurance and taxes to get a mortgage. You want your back DTI to be 22% or less. Lenders will generally want your back DTI to be no more than 28% with a mortgage payment around 10% of your annual gross income. You will need to put down 20% as collateral to get a mortgage. Yes, there still are programs for first time home buyers who don’t have the 20% down payment.
Get a Mortgage Pre-Aprroval
You will need to get a mortgage pre-approval letter from a mortgage company or bank for a real estate agent. Agents want to know that you are approved before they spend time helping you find a new home. The pre-approval doesn’t mean you are guaranteed to get a mortgage. You will show them that you have taken all the necessary steps to prove income and identity. Please gather the following information before you apply for a mortgage pre-approval. All payment information for your creditors (names, addresses, account numbers, payment amounts, total loan amounts), W-2s from the last two years, bank statements from the last four months, check stubs from the last two months, Driver License, Social Security Card. This applies for a co-borrower too. Once you have your letter you will be able to start looking for a home in your price range. It is a good idea to shop for home that is priced a few thousand dollars lower than you qualified for.
Understanding the new GFE
You will receive a copy of the GFE (Good Faith Estimate) within three days of applying for a mortgage. The new GFE is very easy to understand to get a mortgage. This will have all charges of service for your mortgage. It will also have your total loan amount and interest rate. If you notice a charge for an origination fee, be sure to tell the mortgage professional that you want the points to be paid by the lender. You will know if the charge in up front because the top of the GFE will read, no YSP. YSP is “yield spread premium” and it is paid by the lender to the originator when you get a mortgage. This will raise your interest rate a little but save you from paying the fee yourself. Don’t worry about the escrow fees because they are necessary to have for insurance and tax payments to get a mortgage. Notice on page two line ten you have interest put into escrow until the first payment is due, this is a standard fee to get a mortgage. When you sign the GFE, you are only agreeing to the estimate. The mortgage is not final until you sign the closing documents and you can back out of the deal at any time before closing.
Mortgage Process Review. Get a mortgage.
Knowing your credit scores from all three bureaus will help you determine your FICO. If you feel the rate being offered is too high simple apply for a quote from another lender to get a mortgage. Having two lenders compete for your business will always save you money when you get a mortgage. Making copies of all your financial and personal information will save you time when you get a mortgage pre-approval letter. After you have completed the mortgage process you can relax and enjoy your search for a new home.
By Chris Waller
