There’s a lot that goes into buying a house. Think about the amount of time you’ve put into looking for that perfect abode. And don’t forget about all that effort that your real estate agent has dedicated to helping you find a home, wheel and deal with the seller, and draft up that detailed purchase agreements.
But there are other professionals working diligently to help you realize your dreams of becoming a homeowner: your mortgage specialist. These professionals are tasked with assessing your finances, gathering up all the necessary documentation, finding the right mortgage product for you, and dealing with various lenders that they’ve submitted your application to. Their jobs become exponentially more challenging when they’re working with borrowers who have sub-par credit scores or shaky financial backgrounds.
As the borrower, you can make their life a little easier if you knew a few things about what they can do, and what you should do.
They’re Not the Ones Who Actually Approve Your Mortgage
It’s a common misconception that mortgage brokers are lenders, but they’re not. They’re actually the middlemen between borrowers and the lenders that extend the loans needed to finance home purchases. As such, they are not the ones who are responsible for approving your mortgage or denying it.
The role of a mortgage broker is to provide you with the guidance needed to secure the best home loan for you, get all your documents in order, help you complete a mortgage application, and do the legwork of communicating and negotiating with various lenders. Mortgage specialists are simply doing their very best to not only help you get approved for a mortgage, but to get one with the best terms possible.
Don’t Make Any Major Financial Changes
After the mortgage process has started, the worst thing you can do is make large purchases on credit. Whether you’re thinking about taking out an auto loan or financing brand new living room furniture, you’d be well advised to wait until after everything has been settled with your mortgage application process before making such major financial moves.
Why? Any large purchases on credit will affect your credit score and have a significant impact on your debt-to-loan ratio that plays a key role in whether or not a lender chooses to approve or deny your mortgage application. At the very least, such a move could delay closing.
Don’t Make Changes in Your Employment Status
Similar to putting a hold on making major purchases until after closing, it’s recommended to do with same when it comes to your job. Your employment status, position, and income play a crucial role in the mortgage process. Brokers are working with the information you’ve provided about your job and the amount of money you bring in.
If you make any changes – such as starting a new job or quitting altogether to start a business – this could throw a big wrench into the process. At the very least, it will just postpone your closing date. And the worst case scenario? You could be flat-out denied a home loan.
Be Prepared to Supply a Lot of Documents
When you’re applying for a mortgage, get ready to submit more documents than you ever had to before in your life. From pay stubs, to tax returns, to information about your investments, almost nothing is off limits. While you might feel very exposed by handing over paperwork with such pertinent information, it’s all part and parcel of the mortgage application process. Having all this paperwork easily accessible will make both your job and that of your mortgage broker much easier.
Have at Least a 5% Down Payment to Put Towards the Purchase
Sure, there are programs out there that allow borrowers to put down as little as a 3.5% down payment, but you’d be better off coming up with at least 5% towards the purchase price of your home. Conventional mortgages call for a minimum of a 5% down payment. The more money you can come up with, the better the odds of getting approved for a mortgage. Not only that, you’ll have a smaller loan amount to have to pay back.
It should also be noted that you will need to come with at least a 20% down payment in order to avoid paying private mortgage insurance (PMI) which essentially protects the lender should you fall short of making your monthly payments. PMI usually costs anywhere between 0.5% to 1% of the entire mortgage amount annually.
You Should Call Them First
There’s no sense in pounding the pavement in search of a home in the $500,000 range when you can only realistically afford a home in the ballpark of $300,000. By paying a visit to your mortgage broker first, you’ll be able to identify what this number is so you can focus on homes that you can afford. Not only will this make your real estate agent’s job easier, it will also help you avoid getting disappointed when you fall in love with a home that’s way out of your price range.
Pre-Approval Doesn’t Necessarily Guarantee Approval
Getting pre-approved for a mortgage before you start your search is always a good idea. Not only will it help keep you focus on homes that you can afford, it will also show sellers that you are serious about buying and have taken the extra step towards a successful home purchase.
However, a pre-approval doesn’t mean that you’re guaranteed to be approved for a mortgage. The actual mortgage process starts after you’ve signed a purchase agreement. That’s when your lender and mortgage insurance company will review your mortgage application in great detail and consider it for approval. Anything can happen until you get an actual stamp of approval.
Budget For Closing Costs
In addition to your mortgage and down payment, there are plenty of closing costs that you will be obligated to pay, including fees for title insurance, mortgage application, property taxes, and home inspections, among others. These can add up to be anywhere between 2% to 5% of the purchase price of your home, so be sure you budget accordingly.
The Bottom Line
Your mortgage specialist will work diligently to help you get approved for a mortgage with the best terms possible. But there are things that you can do to help make their jobs a little bit easier. After all, you’re a team that’s working together towards the common goal of helping you achieve homeownership.