The Ten Step Process to Obtaining the House of Your Dreams
_ Step 1: Find a mortgage that’s right for you.
The most common types are 30-year and 15-year fixed mortgages where the interest rate is fixed for the term of the loan. Other types include Adjustable Rate Mortgages (ARMs) where the interest rate can vary over time, hybrids ARMs, jumbos, assumables and seller financing.
_ Step 2: Determine how much house you can afford.
Consider: equity in your current home (if you own), amount you can put down, monthly payments you can manage, real estate taxes, closing costs and insurance (definitely homeowners insurance and probably Private Mortgage Insurance – PMI – if you put less than 20% down). Monthly payments on debt obligations including items such as credit card bills, child support and student loans should not be more than 36% of your pre-tax income.
_ Step 3: Check your credit.
A potential lender will check your credit report immediately. It’s best to clear up any credit problems before you apply for a mortgage.
_ Step 4: Pre-qualification and pre-approval.
If you haven’t found a home yet, consider getting pre-qualified (a lender will review your financial history before you find a home) or pre-approved (a lender will check your credit and provide you with a letter stating that you’ve been pre-approved for a certain amount).
_ Step 5: Gather the necessary paperwork.
• W-2 forms from the previous two years
• Federal tax returns from the previous two years
• Recent paycheck stubs
• Documents showing other sources of income, which could include second jobs, overtime, commissions and bonuses, etc..
• A complete list of your creditors, such as credit cards, student loans, car loans and child support payments, along with minimum monthly payments and balances
• Investment records including mutual fund statements, real estate and automobile titles, stock certificates and records of any other investments or assets
_ Step 6: Find a lender.
Remember that the lowest rate doesn’t mean it’s the best loan for you. In addition to the rate, check on points (pre-paid mortgage interest which will increase your upfront costs), APR, and other fees associated with a given loan. Compare mortgages and talk to several lenders before you apply for your loan.
_ Step 7: Assess your potential home.
Hopefully you’ve found your dream home by this time. Be sure to thoroughly evaluate the home to make sure it’s what you really want. An appraisal is part of the mortgage process and will ensure that you’re paying the appropriate price for your home.
_ Step 8: Prepare for closing.
Make sure the closing is scheduled before your loan commitment and any rate lock-in will expire. And be sure there is enough time to finish any loan documentation and complete any home inspections or repairs.
_ Step 9: Closing day!
At the closing you will have to sign legal documents and pay closing costs (these could include surveying, taxes, insurance, attorney fees, agent fees, points, loan origination fees, PMI and balance of down payment).
_ Step 10: Servicing the mortgage.
At closing, your mortgage lender must tell you who will be servicing or administering your mortgage loan. Traditionally, the mortgage banker would service the loan for the life of the mortgage loan. This can also be handled by a third party in some cases. Whatever company services your loan will be the company that you send your payments to. They are also responsible for dealing with any questions or problems that might come up with your loan and will keep tabs of you payments.
About the Author: Rich Sunset is an active mortgage professional in the New York Mortgage Business and has provided just the right loan to the right customer for the perfect fit.