Obtaining a home mortgage is one of the most substantial financial transactions that most families will ever negotiate. The mortgage loan process can take 60-90 days from the signing of a Contract of Sale on a purchase through closing. The loan application and related paperwork can be hopelessly confusing. So, how do you obtain the expertise for the one, two or maybe three times in your life that you'll buy or refinance your home? Options for finding a mortgage include:
- Calling your local retail bank
- Going on a website like www.BankRate.com or www.LendingTree.com
- Asking friends and family for a recommendation
- Consulting with a residential mortgage broker
Regardless of your approach, every home buyer needs to know the following before looking for a property:
Income: What is your current monthly income? What income amount were you taxed on in the past 2 years?
Basic assets: How much is in your major accounts? This includes stocks, bonds, mutual funds, and retirement accounts. How much is liquid?
Liabilities: What are your monthly expenses; what other obligations do you have?
Your credit score: Do you know your credit score? Do you expect it to be good or bad? Subscribe to www.myFico.com for all three.
Your property: What are the details on the property you are looking to finance. Get a reality check on values at www.Zillow.com.
Calling your local retail bank
Your local bank may be an excellent source for home financing. This is especially true if you have a personal or long term relationship with your lender. Your financial picture may be well known to a bank officer. This may enable him/her to pre-qualify you and determine the feasibility of obtaining a loan. And, a letter on bank letterhead may help your sales broker move you up in a bidding war. In addition, if you have a strong relationship, the bank may agree to waive certain fees or closing costs to get your business.
However, when seeking a mortgage, there are definite pitfalls in only consulting one lender. First off, are residential mortgages their mainstay business or just a service to get you in the door to open more lucrative accounts? And, how service oriented are they? Will they assist you in filling out what is best a cumbersome application process? Most important, do they offer an array of products to fit your circumstances? Your retail lender's loan size parameters may be insufficient, rates may not be most competitive, and prepayment penalties may be onerous. In short, their lending parameters may lack the flexibility to suit your requirements. It is also possible that they will restrict their lending to only certain types of properties, i.e., no coops.
In addition, if you already have a first mortgage loan that you would like to refinance, and your property is also encumbered by a second mortgage or home equity line (HELOC) loan, your local lender may require that you negotiate with the second by yourself. Ultimately, if you are denied credit, you will have to start the process all over again with a new lender. Calling on your local bank may be best for small, uncomplicated mortgage loans where there is a strong personal relationship with the bank.
Web sites such as www.Bankrate.com or www.Lending Tree.com
Web sites such as BankRate and LendingTree can provide some valuable information when you are seeking a mortgage. However, it may not be a good fit for your individual circumstances. This is especially true if you are financing a coop or condo property in markets in the Northeast. These websites should be considered as a tool or advertisement. This is because the information is not updated daily, does not apply to all property types. In short, this information cannot be 100% trusted.
Friends and family
Friends and family may offer good advice when you are seeking a mortgage loan. Certainly, they offer good anecdotal information and can help point you in the right direction. More specific information may be out-of-date, and therefore cannot be relied upon for accuracy. Also, everybody's financial and property information is different. Your interest rate will be solely determined by your own FICO score, type of property, and loan to value. Family and friends should be relied upon strictly for referrals to lending institutions and other mortgage experts.
Consulting a residential mortgage broker
Residential mortgage brokers have extensive knowledge about a variety of mortgage products in the U.S. for homebuyers and residential investors. By consulting a mortgage broker, applicants gain access to the numerous wholesale divisions of agency and portfolio lenders who use mortgage brokers as their loan officers.
Mortgage brokers act as an intermediary having professional knowledge of the lending institutions in the area. They will research the market for each applicant thereby saving you time and effort in your search for a mortgage loan.
The first step with a broker will involve pre-qualifying your property and your financial situation. Pre-qualifying determines each applicant's permissible price range by reviewing four basic characteristics: Income/Debt, Assets, Credit and Property for mortgage options that include Fixed Rate, Interest Only and Adjustable Rate Mortgages (ARMS). If the applicant is buying or refinancing a coop or condo, the broker will also determine the acceptability of the building which must also meet mortgage lender guidelines. Pre-qualification helps save you the time and expense of running your own credit report and will provide valuable information for your real estate agent.
Once you are pre-qualified, applicants must provide financial information, i.e., asset account statements, tax returns, and monthly property bills to the broker for the preparation of your application. Your broker will assemble your information and will "shepherd" the loan file from beginning to end for the lending institution offering the most compatible fit for your financial situation. The broker will also coordinate with all parties (real estate agents, bank underwriters, attorneys, building management and lenders) to ensure that each client receives a commitment letter clear of contingencies in a timely fashion. In terms of coops, the broker will ensure that each applicant submits a completed board package for coop board approval.
The mortgage loan approval process generally takes 60-90 days from the signing of a Contract of Sale on a purchase through closing. At closing, the broker does not charge the applicant points or fees for its services. For the benefit of applicants, Lenders offer lower rates to their wholesale mortgage brokers. Mortgage brokers are paid directly by the lender in a yield-spread premium that can range from 1%-2% depending upon the lending institution. If a mortgage broker has a good reputation and closing ratio with lending banks, this translates into preferred rates for applicants and preferential treatment of their submitted loan files. The result for applicants is an interest rate and monthly payment that is generally less than what you get using your local retail bank.
The four fundamental goals of every mortgage loan transaction:
- Provide applicants with the best service and counsel them on the product that best fits their needs
- Supply every applicant with the lowest possible rate and point structure
- Present every applicant with an acceptable commitment letter in a timely fashion
- Offer every applicant the widest array of products in the industry
