by guest contributors Cindy and Samantha Smolin of Loan Depot
One of the key parts of the home purchase process is your home loan. This can be a daunting process for both first-time and experienced home buyers, as the loan industry is constantly evolving. We’ve put together seven key pieces of information below that can help guide your conversations with a loan officer and make the mortgage application process simpler.
For more information on the process, speak with Cindy Smolin, a licensed loanDepot loan officer, at 312-217-1270.
1) Length of Process
The process is dependent on the type of loan and the lender, and there is no cookie-cutter formula to get through it. It is important to select a loan officer/lender up front and work with them through the entire purchase – from submitting an offer with a pre-approval letter to closing on your new home. Being able to close a loan quickly can make a huge difference in a competitive bid environment. Be sure to talk to your loan officer early to set realistic expectations on closing timeline, and what you can do to speed the process.
2) How to Qualify
Every borrower is unique, but the main factors that affect qualifying for a mortgage are your: (a) credit score, (b) property value, and (c) ratio of monthly debt payments to monthly income. Your loan officer can run scenarios for you at various purchase prices to help understand what you can afford and what you can expect to pay each month. There are several “tricks” to help enhance your ability to qualify, including using a co-signer and asset depletion. Many people who are self-employed or do not have a long income history may be nervous about qualifying, but this is extremely common and something that most lenders are able to underwrite.
3) Mortgage Cost
In addition to the monthly loan payments, there are some upfront costs associated with closing a mortgage, including lender fees, local municipality transfer taxes, title fees, and escrows. The majority of the fees at closing are third party fees. The government requires that every lender provide you with these loan estimates in advance of closing.
4) Necessary Documentation
The best way to get through the loan process without any headaches is to organize all your paperwork and provide it quickly. W-2 employees do not need much documentation and the process will be fairly quick and easy for them. Borrowers who are self-employed or have a limited income history may need additional documentation, including tax returns and additional schedules. The information varies for each individual situation, but asking these questions upfront and providing the information early on will avoid any confusion or stress once your offer is accepted and you are ready to move into your new home.
5) Choosing the Best Loan Program
Your loan officer/lender understands that every borrower is a unique individual with unique circumstances. As such, there are so many different mortgage options that can be tailored to suit your unique needs. Talk to your loan officer about the benefits of putting more or less money down up front, as well as choosing a fixed rate or variable rate mortgage, among other options. The more that your loan officer understands your goals, the more they will be able to cater your mortgage to your needs.
6) Future Re-Financing
At loanDepot, all borrowers get a re-finance certificate, which will cover the lender and appraisal fee on a future re-finance. If you end up with a variable rate mortgage, or think you may want to re-finance down the road, it is important to understand if your mortgage has any pre-payment penalties which could make this cost prohibitive or more expensive than it needs to be.
7) Monthly Payments
Many people make the mistake of overly focusing on the interest rate. A small change in the interest rate does not have a large impact on your monthly payment, and it can be a mistake to get too concerned about 5-15 bps in interest rate savings between lenders. Some unscrupulous lenders capitalize on this concern by offering a lower interest rate in exchange for upfront hidden fees. By the time you pay these hidden fees to lower your interest rate, you’ve actually given up all your savings in your monthly payments. It is important to work with your loan officer to understand what you want your monthly payment to be and to minimize upfront costs, without worrying about minor variances in rates among lenders.