Learn how to get a mortgage
Getting a mortgage is easier than many home buyers expect. Once you get started with a lender, your loan officer will walk you through the process step by step.
But getting started can be the hard part. How do you find a lender and apply for a mortgage? And how do you know which mortgage is the best?
To give you some guidance, loan consultant Ivan Simental explained how to get a mortgage in a recent episode of The Mortgage Reports podcast. Here's what you need to know.
Confirm your new plan (January 13, 2022)
Hear Ivan on the Mortgage Reports Podcast!
Step 1: Set your budget
Before you can even start buying a mortgage, you need to set your home buying budget. That means knowing what you can afford up front (i.e. down payment and closing costs) as well as what you can afford monthly for your mortgage payment.
You can use our Mortgage Affordability Calculator and Down Payment Calculator to get an idea.
Once you get the numbers together, Simental says to keep that budget in mind throughout the loan purchasing process.
"It will help you keep your goals on track," he says.
Remember, mortgage calculators can only give you an estimate. To know your exact budget, you need to contact a mortgage lender and get pre-approval. So finding a lender is your next step.
Get matched with a mortgage lender (January 13, 2022)
Step 2: Determine the type of lender you want to use
Next, you need to consider what type of lender you want to work with. There are several types to choose from including mortgage brokers, large banks, online lenders and small, local lenders and credit unions.
These all offer slightly different advantages and disadvantages:
Large banks may be able to process your loan faster. Local banks and credit unions may offer more hands-on help and guidanceonline lenders can often be more convenient due to their digital processes and applicationsmortgage broker can take a lot of the stress out of you by doing much of the shopping and application process for you
You can certainly consider more than one type of lender in your search, but having an idea of what type you want to work with can help you shop in your installments and make the process more efficient.
Simental also says you should exercise caution when considering an online lender.
"Be very wary of online lenders who advertise super, super low interest rates," says Simental. “Most of the time they have these hidden fees and very, very fine print that you have to read with a magnifying glass. Nine times out of ten, that amazing interest rate isn’t free.”
To learn more about comparing rates and terms for your mortgage offers, see How to Buy a Mortgage: Tips for Comparing Offers and Rates.
Step 3: Get lender recommendations
Now ask your social environment for lender recommendations. As Simental explains, "My first recommendation would be to ask family and friends, 'Hey, who helped you buy a house? And how was that experience?’”
Then, if they were particularly happy with their lender's service, ask for the name and contact information of their loan officer or banker. You can then shortlist them and consider them when shopping.
Make sure you only ask people whose opinions you really trust (and would risk money for). "You want to ask your family, your friends, co-workers and people you trust and care about," says Simental.
You can also check out online reviews and ratings once you have a few recommendations.
"Go to Google and look at the reviews there, or go to Yelp," says Simental. “So you can see, alright, they have 100 reviews. And out of those 100 reviews, they have 4.7 stars or 4.5 stars. That's pretty good in my book."
Just remember that the best lender for a friend or family member isn't necessarily the best for you. Lenders adjust their interest rates and fees to each borrower, which is why it's important to shop around for the best deal.
Step 4: Get a credit estimate
Next, you need to get a quote from each of the lenders you are considering. This usually requires some background information about your credit history, income, and the price at which you wish to buy.
Once you have completed the lender's application, you will be provided with a Loan Estimate – a detailed breakdown of all the costs and fees associated with the loan offered to you.
"Be very, very careful when the lender gives you an estimate," says Simental. "Look at your loan proposal and go line by line and get an explanation of what the items are and what the fees are and what's involved in the cost of the loan because sometimes they have hidden fees."
You should also compare your estimates line by line to ensure you're picking the best possible offer from the crowd.
Compare offers from multiple lenders. Start here (01/13/2022)
Step 5: Ask questions
Finally, ask lots of questions to the lenders you are considering. Make sure you feel comfortable with them and that you have confidence in their skills, knowledge and abilities.
"This is probably going to be the biggest purchase you'll make, so ask questions," says Simental. "Ask, ask, ask."
Simental recommends inquiring about fees, closing deadlines, the underwriting process, and more.
You should also ask for pre-approval. Is it just a pre-qualification or do they offer it? fully signed pre-approval that can ensure a smooth deal (and give you a head start on the negotiations)?
You should also discuss communication styles. You want a lender who will communicate with you the way you want them to. Do you answer the phone? What if you prefer SMS and email? Get an idea of what response times you can expect and how available they are for questions.
Step 6: Shop around
It may seem daunting to contact multiple lenders and get credit estimates and information from each of them, but doing so could bring you significant savings up front and in the long run.
It also impacts the service you receive and your overall experience during one of the most important transactions of your life. So be prepared to use a little muscle to find the right fit.
According to Jon Meyer, loan expert and licensed MLO of The Mortgage Reports, in today's competitive real estate market, finding the right loan officer is especially important.
"When looking for a loan officer for a purchase, I truly believe it's more important to find one who is knowledgeable and efficient who can close as quickly as possible than one who can save you a fraction of a percentage point," says Meyer.
He adds, "Speed of closing will be a big issue that the sell-side will consider for non-cash only offers."
Therefore, when shopping, be sure to ask potential lenders about their closing time and how reliably they can meet those deadlines.
Step 7: Complete and complete your application
At this point you have set your budget, received pre-approval, compared interest rates and selected a lender. Assuming you also have a signed deed of sale for the home you intend to buy, the rest of the process should be fairly easy. With the guidance of your loan officer, you will:
Complete your mortgage application Submit all required paperwork Have the home inspected Have the home appraised (your lender will commission the appraisal) Wait for your lender to finish signing the loan Receive final approval Sign Your closing papers Pay the closing cash (down payment, closing costs, and all other prepayments)
As a final piece of advice, it's wise not to make any major financial changes when you're in the mortgage process.
For example, don't quit or change jobs, take out new credit, open new credit cards, or make large purchases before closing. These types of movements can alter your financial profile and potentially jeopardize your mortgage approval.
Stick to the status quo and follow your loan officer's advice for the best chance of a smooth and timely mortgage process.
Start your mortgage process
Are you serious about buying a house? Then now is the right time to get your finances in order.
First, contact at least three lenders. Apply for pre-approval from each one, then carefully compare the plans, terms, and fees they offer you. Then you can select the lender with the best deal for you and proceed with a complete application.
Ready to start?
Confirm your new plan (January 13, 2022)