Mortgage 101

If you’ve been renting, or even if you’ve been in your home for several years and are looking to refinance, undergoing the process of securing a mortgage loan can seem overwhelming. Like any industry, the mortgage business has its own language, but we also have our own inside tips for ways to make the process less intimidating. At F.C. Tucker, we’re sharing these tips to make your home buying or refinance experience as seamless as we think it should be.

  1. Begin the pre-approval process before you go house hunting

Sellers want to know you have the ability to purchase a property, and being pre-approved for a mortgage loan is the best way to provide them with that assurance. Your real estate agent will help you secure pre-approval with the mortgage company of your choice. Once you’re approved, you’ll realize a number of advantages. You’ll have greater legitimacy with sellers who see that you have a lender committed to backing your offer. You’ll have the edge over other buyers who aren’t pre-approved, which can work in your favor when there are multiple offers on a property. And you’ll be better able to focus your search on properties that match your financing abilities.

  1. Being pre-qualified is not enough

Be sure to get pre-approved, and not just pre-qualified for your mortgage loan. Pre-qualification simply means a lender will ask you some questions regarding your income, assets, and debt, then they may pull your credit. The lender will run numbers for you, but your file will not be reviewed by an underwriter.   With a loan Pre-Approval, the lender will not only ask questions about your income, assets, and debt, they will pull your credit and verify your income and assets. Then, your loan file will be reviewed and pre-approved by the lender’s underwriter.  You will receive a pre-approval letter from the bank that you can show to sellers and to real estate agents to indicate you are a good risk.

  1. Bank or broker, what’s the difference?

Borrowers have several options in their search for mortgage loan sources. It’s best, when searching, to compare specific kinds of loans, such as a fixed rate mortgage or an adjustable, so you are comparing apples to apples. You may choose to work with a lender such as a mortgage bank, commercial bank, community bank or credit union. If you have a long-term relationship with a lender, you could be offered more favorable terms on your loan and be offered more loan options. A mortgage broker who is not employed by a specific lender may be able to shop for a wider range of loan options on your behalf, but brokers typically can’t provide quick turnaround on loan applications, but some banks can. Save yourself the broker fees and extra steps and frustrations by working directly with your real estate agent to search for a lender.

  1. Ask for a loan application checklist

When applying for a mortgage, your loan officer will require certain information, such as your full name, date of birth, social security number, and residence and employment history for the past two years. You will also have to provide paystubs, W2’s/1099’s, bank statements and other documentation. Your real estate agent can provide you with a checklist to guide you through the loan application process.

  1. Know the “do’s and don’ts” of applying for a home mortgage

Any time you expose your credit history to a lender, you want to make sure your employment, lifestyle, payment history and credit history are stable and don’t raise any red flags. This means holding off on a job or career change, and not making any major purchases such as a car, boat or furniture. Don’t take out new loans, apply for new credit or transfer balances from one account to another. Discuss paying off any debt with your lender, and most important, be completely honest and up front with your loan officer.

  1. Know what types of loans are available

Whether you’re a first-time buyer or are looking to refinance to lower your payment, lessen your term, access equity or rid yourself of mortgage insurance, there are several types of mortgage loans that can meet your needs. These options vary by institution, and may include fixed rate, adjustable rate and government-backed mortgages. If you are a United States veteran, you may have access to a loan that does not require a down payment or mortgage insurance. Ask your lender about these options.

  1. Take care in how you access funds for your down payment

Lenders want to know how risky it would be to loan you money, so they look at your credit , income and assets to assess that risk.. Your lender will require you to document all large deposits, other than income.  Large deposits, can be gifts, not loans and the gifts will have to be verified. You can do this by documenting the amount of the gift with the date the funds were transferred, and providing a signed statement from the donor that no repayment of these funds is expected. You should have a good relationship with any gift donor, because that person may be expected to provide the bank with additional documentation.

  1. Ask your agent for appraisal “do’s and don’ts”

A home appraisal determines the value of the home and is an important part of the loan process. You’ll want to make sure you do everything possible to make sure your home is ready for inspection. Write down any improvements or major repairs and the dates these were performed. Be prepared to discuss any comparable properties in your neighborhood that have sold for a lower price due to personal factors that should not reflect poorly on your property. On some loan types, the appraiser will look in the attic and crawl space, and inspect the appliances, utilities, well and septic, so be sure all these items are accessible and in good working condition. For a full list of do’s and don’ts, ask your real estate agent.

  1. Take advantage of credits and mortgage deductions

Homeowners may be able to take advantage of the homestead credit and property tax deductions to lessen the impact of property taxes. Certain tax deductions are available to homeowners with low or moderate incomes, those over at 65, disabled veterans and persons with disabilities. It’s important to remember that each time you refinance, you will need to refile for your mortgage deduction.  Some title companies will handle this for you.

  1. Consider the benefits of refinancing

As a homeowner, you can use refinancing in a variety of ways: to lower your payment, lessen your term, access your home’s equity or rid yourself of mortgage insurance. Refinancing your home may lower your payment if your interest rate is higher than the current mortgage rate. You may also be able to pay the house off more quickly. Some homeowners opt to access the increased equity in their homes to pay off debt or finance home improvements at a lower interest rate. Home prices are continuing to rise, and it pays to consider refinancing, especially when you can do so without substantially increasing your current payment. Ask your real estate agent for details.