Getting Started

Start a Green File

A green file should contain all of your important financial documents. Regardless of the loan type, lenders will need information about you. Make copies of financial statements, bank accounts, investments, credit cards, auto loans, recent pay stubs, and two years’ tax returns.

Check Your Credit Rating

Credit scores range between 400 and 800. 620+ is considered “good.” A score of 680+ is considered “premium” and may help get you a lower interest rate.

Below you will find the contact information for the 3 major credit reporting agencies to help you determine your credit rating. Ask your lender how to improve your credit score if you need to. Going forward, treat your credit like gold.

Equifax	http://www.equifax.com	(800) 685-1111
Experian	http://www.experian.com	(800) 392-1122
Trans Union	http://www.transunion.com	(800) 888-4213

Steps to Secure Your Mortgage

Shop for a Loan

How to Find a Lender

Today, lenders can be found through a variety of sources. In addition to calling on ads in the newspaper, you can also find and apply to lenders over the internet and through referrals from your REALTOR. We would be happy to suggest lenders we have used successfully, who have proven themselves competitive and capable, even with problem properties or poor credit.

Choosing the Right Lender

Interview several lenders to evaluate the following:

Ability to explain things clearly and return your phone calls in a reasonable time period.
Competitiveness of interest rates, costs & fees.
Availability of loan programs that suit your credit profile and desired property.
Access to a local loan approval committee that understands the kind of property you are buying.

Choosing the Right Kind of Loan

Today, there are so many types of loans on the market that it is beyond the scope of this page to list or explain them all. Your lender is the best person to help you select a loan program to suit your needs. Below is a summary of the three most popular loan types we see in practice; for more detailed information, click the link at the end of this page.

Fixed loan: The fixed-rate loan assures your monthly payments will stay the same over the life of the loan, which is typically between 15 and 30 years. Fixed-rate loans may be best if you intend to hold the property for a long period of time, say, over 7 years.
ARMs (adjustable-rate mortgages): ARMs may be suitable if you plan to sell or refinance your home within the next few years. The starting interest rate is typically lower than that of a fixed-rate loan, saving you money initially. However, it is important to understand the index, the readjustment interval, the capitalization rate, and the downside risks of an ARM before making a final decision to use this type of loan.
Intermediate ARMs: Also called Hybrid Loans, these loans can offer fixed interest rates for the first 3, 5, 7, or 10 years, after which the interest rate adjusts with the market every 6 months or year thereafter.

Know the Numbers

Credit Report

Typically, it costs under $50 to check your credit. With your permission, the lender will order a review of your outstanding loans and your repayment history from a third-party credit agency.

Application / Processing Fee

This cost, typically a few hundred dollars, is charged to cover the lender’s work to evaluate your ability to repay the loan. Some lenders will credit this back to you upon closing.

What is APR?

The APR, or annual percentage rate, is the total of all your borrowing costs expressed as a percentage interest rate charged on the loan balance.
For example, after fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, where the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the length of the loan term (for example, 15, 20, or 30 years).

Indexes

The interest rates on variable loans readjust periodically based on changes in an index. Typical indexes include the Federal Funds Rate and the Treasury Bill.

Points

When mortgage companies are competing by offering lower interest rates, they may charge you a one-time prepaid interest payment calculated as a percentage of the loan. Called points, this may range from 0.25% to 2% of the loan balance and is usually paid up front. Points are tax-deductible; consult with your tax advisor.

Appraisal Cost

Lenders hire experienced, often independent appraisers to evaluate the property’s purchase price, condition, and size compared to similar recent neighborhood sales. This helps ensure the purchase price is not too high and gives the lender more confidence in getting repaid in the event they are forced to sell the property if the borrower defaults. The appraisal costs vary depending on the property, type of appraisal, and region.

Miscellaneous Fees

Expect to see various charges incurred in the processing of your loan, which might include notary, courier, and county recording fees.

Prepayment Penalties

These vary widely, so be sure you know in advance if your lender will charge a penalty if you refinance or sell, and the period during which the penalties apply.

Get Pre-Approved

Does it help to be pre-qualified by a lender?

The pre-qualification process can be completed fairly quickly, based on less information than is required for getting pre-approved. While it is fast and it does help, a pre-qualification letter is an opinion from a lender of the maximum amount of real estate you can qualify for. In a competitive seller’s market, an offer from a buyer with a pre-qualification letter could lose out to a person who is pre-approved.

Get Pre-Approved by a Lender

There are several benefits to going the extra mile and getting a pre-approval letter. Firstly, you will know exactly how much real estate you can afford. When you find a property you want to buy, your offer will be in a better position than someone less prepared. Finally, being pre-approved is more efficient; it reduces the amount of time it will take your lender to fund your loan. Be prepared to provide comprehensive documentation, which the lender may independently verify, including but not limited to:

Job and career status
Income
Monthly debt payments
Cash available
Total assets and debts

Applications & Processing

Mortgage Brokers and Lenders – Who Does What?

The mortgage broker is the person or company who is your main contact throughout your loan. They are often able to work with several lenders, who actually provide the funds for the loan. Typically, the lender pays the mortgage broker a fee for acting as the intermediary and providing all the customer service.

Filling Out the Application

There are standard forms to be completed when applying for a loan. Some mortgage brokers keep these on their websites so you can fill out and submit the forms online. The information will be verified and used to qualify you for your loan, so take the time to answer questions accurately.

Documentation

The mortgage broker will need copies of the documents you began gathering in the first phase of the loan process, including:

Either 2 years of W-2 forms from your employer or 2 years of tax returns if you are self-employed
Recent pay stubs
3 months of bank and money market statements
Brokerage, mutual fund, and retirement account statements
Proof of other income sources (alimony, trusts, rental income, etc.)
Credit card statements
Auto/boat/student / miscellaneous loans
Driver's license or form of ID
If you’re not a US citizen, then a copy of your green card or visa
Copy of any existing mortgage debts if you are applying for a home equity line of credit or another mortgage

Stay in Communication

The lender will have an analyst, usually called an “underwriter,” crunch your numbers and verify your documentation to confirm your ability to repay the loan. Once you are in contract on a property, there may be one.

Also be a loan approval committee, which will meet to review the underwriters’ conclusions regarding your creditworthiness and to evaluate the property on which they are lending. This is called the underwriting process, and includes questions.

are bound to arise. Be sure to return your mortgage broker’s calls promptly to keep the process moving forward smoothly. Check in with your broker periodically.

Funding

The Signing

When the lender is ready to “close” your loan, or “fund” it, your real estate agent and your mortgage broker will have you sign the final loan documents. Signing will typically take place in front of a notary or an escrow officer. Ask your mortgage broker if there is anything you need to do to prepare for this, such as bringing a photo ID or perhaps a cashier's check if you are purchasing real estate. Allow yourself enough time to review the documents for accuracy.

If funds are being wired: “Wiring instructions” direct the electronic transfer of money between financial companies. If possible, arrange to have the wiring instructions in place ahead of time and checked for accuracy by both the sender and recipient of the wire. These instructions must be exact, and even so, delays are all too common.

Congratulations!

Your mortgage broker will probably call you to confirm that the money has been transferred and the loan has closed. Always follow up with a phone call to confirm that your loan funds went where they were supposed to go. It is a good idea to keep records of this critical phase of the transaction once completed.