You will sign dozens, possibly hundreds, of documents and disclosures before it’s all through. You’ll also have to provide certain documents relating to your financial background.
The lender will start asking for these items soon after you submit your application. If you start gathering them now, the process will move more quickly later on. I recommend that start a mortgage file or folder to keep your documents together.
Before you apply for a mortgage loan, you should be familiar with the average interest rates being offered by lenders
Note: Make sure you give your lender photocopies or faxes of the original. Do not give away your original documents when you apply for the loan. Keep the originals in the mortgage file I suggested earlier. The lender will need the original versions of any of their documents you’ve signed, such as the application form. But you should keep the original version of your documents (tax returns, bank statements, etc.). Of course, there are exceptions to every rule. But this is generally how it works.
This is the only way to know if the lender is offering you a good rate. Are they offering the average rate? Is it better than average? Or is it below average? Obviously, this is something you want to know.
If we had chosen the first or second one, we would have paid more interest and faced a higher requirement for cash reserves
Mortgage rates fluctuate constantly, like a rollercoaster with no end. Following the weekly trends will suffice. You can find this information online. Freddie Mac publishes a weekly survey payday loans AL of the primary mortgage market. This survey shows you the average rates for the most popular loan categories — 30-year fixed, 15-year fixed, 5-year ARM and the 1-year ARM.
You’ll also notice that the rates usually descend from highest to lowest across those categories, and in that particular order. The 30-year fixed mortgage usually has the highest rate, because it gives you the most predictability over time. You’ll pay a premium for that stable rate. The 1-year ARM loan usually has the lowest rate, but with the highest risk for borrowers.
I recommend that you apply for a mortgage loan through at least two different lenders. How else can you spot the best deal? Here’s a true story that illustrates the importance of shopping around:
When we were buying a home in San Diego, we narrowed it down to three different lenders. One was the builder’s preferred lender, Bank of America. We were surprised to find that BofA offered us the best rate. They also required a lot less money in cash reserves, which helped a lot. But this was the third lender we applied with.
You’ll find out about the lender’s requirements in step #6 below, when you get pre-approved for a mortgage. Steps 5 and 6 overlap a bit. You can get pre-approved by several lenders at once. Rate shopping doesn’t hurt your credit the way some people think. So don’t be afraid to apply for a loan through multiple lenders.
If you’re buying an existing home, you could use any number of lenders. Are you a member of a credit union? Ask them about their current mortgage options. The same goes for any local banks you have a relationship with.
- What interest rate are they willing to give you?
- How much of a down payment will you need?
- How much do they estimate your closing costs to be?
- Do they require you to have cash reserves in the bank? If so, how much?