Before buying a home it’s important to understand your finances to buy a home. Often friends and family can be a great resource for finding a local lender for a home loan. Here is some advice and how to find the best lending pro to help you purchase a home if you are using a loan to buy.
When you buy a home, you’re in it for the long haul. You’ll have a mortgage payment for 15, 20 or 30 years, so it’s smart to understand what you need, the process, and picking the best loan officer to help you get a loan for your home.
How to Look for a Lender/Loan Officer
Finding a mortgage lender involves more than just getting a good interest rate; you want to work with the best mortgage companies, staffed by professionals who will guide you through the process. However ultimately you want to work with a loan officer/loan professional that you trust, can communicate effectively, and answer all you questions.
Before you start the search for your personal banker/lender/loan officer, you will need to do some work.
The Home Loan Journey
To get a jump-start on the mortgage loan process, use these tips to help you find the right lender and the right loan for you.
1. Review Your Credit and Income
Not everyone can qualify to buy a home; you have to meet certain credit and income criteria to assure mortgage companies you can repay the loan. The first step is to look at your credit score which is currently a feature in a lot of banking apps like Wells Fargo, Chase, Bank of America, etc
A low credit score signals that lending to you is risky, which means a higher interest rate on your home loan. The higher your credit score and the more on-time payments you make, the more power you’ll have to negotiate for better rates with potential lenders. Generally, if you have a score under 580, you’ll have a tough time qualifying for most types of mortgages. Don’t be discouraged by your current credit score if you think its too low. A good lender will have local resources to help you improve your credit score through “credit repair.” At this point just know what your approximate credit score is.
The lenders will look at your monthly bills and payments you make every month. There are ratios called “debt to income’ that need to be looked at to make sure you can afford to make the payment. Next, try to pay off high-interest debts and lower your overall level of debt as quickly as possible. the lower the “debt to income” the more credit worthy you are for a home loan. Paying off credit cards and recurring loans before you buy a home will also free up more money for the down payment.
2. Know the Types of Home Loan Lenders
Understanding the major players will help you navigate the crowded lending field. Here are the most common types of home lenders:
- Credit unions: These member-owned financial institutions often offer favorable interest rates to shareholders. Most like.y you will have to join the credit union if you obtain a loan through them.
- Mortgage bankers: They work for a specific financial institution and package loans for consideration by the bank’s underwriters.
- Correspondent lenders: Think local mortgage loan companies that have the resources to make your loan, but rely instead on a pipeline of other lenders, such as Chase, to whom they immediately sell your loan.
- Savings and loans: Once the bedrock of home lending, S&Ls are now a bit hard to find. But these smaller financial institutions are often community-oriented and worth seeking out.
- Mutual savings banks: Another type of thrift institution, like savings and loans, mutual savings banks are locally focused and often competitive.
3. Find the Right Lender and Loan Officer to Work With
It’s easy to get a rough idea of what the home loan rates are by simply Googling “30 year home mortgage rates.” It’s also to find a “home loan calculator” to see what you can roughly afford for the budget for home. You can spend time on search looking for the “best rate for home loan.” Just be aware the rate offers out there are usually for a perfect buyer with excellent credit, 20% down, etc… In the end until you go through the credit application, credit check, and funds available for down payment and closing costs you won’t have an accurate picture of the actual cost of owning a home with a loan.
I recommend you connect to friends and family to find a good local lender and loan officer to work with. If you have a agent for buying a home they can provide a solid recommendation for a local lender to help you. The world of lending is ultra competitive and the best rates are often available to any lending professional to get you the best loan for your home buying.
It’s more than just the rate and terms for your home loan, it’s important that your lender is used to working with buyers like yourself for a home loan. Whether you are a first time buyer, a person with undocumented income, self employed, etc it helps to use a loan officer who can package you up for the best loan for your home buying situation.
4. The Right Questions to ask Your Lender and Read the Fine Print
Once you have some names, it’s time to ask:
- How do you prefer to communicate with clients — email, text, phone calls or in person? How quickly do you respond to messages?
- How long are your turnaround times on preapproval, appraisal and closing?
- What lender fees will I be responsible for at closing? (Fees may include commission, loan origination, points, appraisal, credit report and application fees.)
- Will you waive any of these fees or roll them into my mortgage?
- What are the down payment requirements?
5. Get Ready to Home Shop With a Pre Approval Letter
Once you find a great lender, you need to get a pre approval letter to go home shopping. Getting a mortgage pre approval letter before you start looking at houses will tell Seller’s you can buy a home when you make an offer. The letter shows the seller that you’re a serious buyer whose loan is likely to close. It’s evidence that a lender has evaluated your finances and figured out how much you can afford to borrow, and therefore how much house you can afford.
Getting preapproved now will also save time later. When you’re ready to make an offer on a home, lenders will already have the information they need to process your home loan.
To get pre approved, you’ll have to provide your lender your financial information. Here’s a list of what a lender will typically ask you for:
- Social Security numbers for yourself and any co-borrowers
- Bank, savings, checking, investment account information
- Outstanding debt obligations, including credit card, car loan, student loan and other balances
- Two years of tax returns, W-2s and 1099s
- Salary and employer information
- Information about how much of a down payment you can make, and where the money is coming from
Once you get pre approved always ask what could help you get a lower payment. Also ask if this is the best rate they can provide? Ask if you should lock the rate and if its costs you anything to lock the rate, and how long the lock is good for.
Principal and interest payments on a mortgage aren’t the only costs of buying a home; you should ask your lender about others, including closing costs, points, loan origination fees and other transaction fees. If you’re unsure of something, ask for an explanation. I recommend prior to shopping for home you understand the total cost of owning a home on a monthly basis.
Although there are a tremendous amount of resources on the internet for “how to” and “learn more” about buying a home with a loan. Don’t forget to rely on family, friends and real estate agents to help you get started to find the best loan officer to work with you. Rates are in general very competitive and you should be able to determine if the rate and terms of your home loan is fair. However working with a loan officer who communicates well, answers your questions along the way, works hard for you goes a long way to help you succeed in your goal of owning a home.