Acquiring a Mortgage

Once you have decided to buy, located the house you are interested in purchasing, and made an offer, the time has come to acquire a mortgage. This is no longer the simple procedure it used to be, largely because there are so many more options today. Now more than ever a good realtor can help you find your way through this process.

Now there are dozens of loan types and a whole host of lenders to choose from. Your realtor may have a special relationship with a certain lender, and should be aware of the rates and availability of loans in the area, but you can also do your own research, daunting and confusing as it sometimes can be. Lenders typically include commercial banks, savings and loan associations, and mortgage brokers. Mortgage brokers are really “intermediaries,” as they usually, in very short order, sell the loans they originate to banks or other organizations that hold many such loans, so the broker keeps up with the current best rates from a variety of sources and charges you a fee for his expertise and for acquiring the loan for you. And finally, there is even the possibility that the seller of the house will owner finance the loan for you if you have a substantial down payment.

Acquiring the right type of loan that fits your needs is crucial. Shorter term loans usually have lower interest rates compared to longer term loans (so the total cost of the home including all interest will be less), but the monthly payments will be higher. Your real estate broker can help you decide which is best for you.

Generally speaking, there are three types of mortgage loans: fixed rate, graduated payment, adjustable rate.

The fixed rate loan (usually for a term of 15 or 30 years) has a fixed payment and a fixed interest rate. Monthly payments are usually lower for the 30 year loan than for the 15 year loan, but the overall total interest paid in the full course of the loan is higher. When interest rates are low, this type of loan is very affordable; when interest rates peak, it may not be the best way to go. However, the higher interest rates actually increase the amount the home owner can deduct from federal income taxes. This loan is always by far the safest because it is the most predictable of the three types of loans. Since the rate is fixed, you are protected because even if interest rates go up dramatically sometime in the future, your rate says the same.

The graduated payment mortgage has a fixed rate but a variable payment schedule (sometimes including a large “balloon payment” at the end of the term of the loan, something one should be aware of and be well prepared for).

The adjustable rate mortgage has a variable rate and a variable payment schedule. It may carry the lowest interest rates, but also it has the most risk to the buyer as interest rates may be higher later during the term of the loan. There is therefore no way of knowing at the outset just what the cost of the home will be or how much your monthly payments will be.

Before applying for a loan, you should have get copies of your credit report from all major credit reporting agencies, such as Experian, Equifax, TransUnion, and others. You want to verify that the report they issue on you is correct (often it is not!), so that a lender will have accurate information when your credit is checked. If there are errors on the credit report, you can contact the reporting agency and get a correction made. The report will show your credit history for the past seven years, sometimes more. The aspects of the credit report that lenders pay attention to, in order of importance, are late and delinquent payments, bankruptcies, outstanding debt, length of credit history, other current applications for credit, and types of credit in use.

When you, with the help of your realtor, select a prospective lender to apply to for a loan, the next step is to fill out a loan application.

By far the most efficient way to proceed is to have all needed information already collected ahead of time and ready to show the potential lender when you fill out a loan application. The application will want to know about your employment history (looking for stability and tenure), your assets (such as bank accounts, investments, cars, boats, etc.), your liabilities (debt, to include credit card debt, car loans, already existing mortgages, etc.), and your legal status. You’ll need to document all this information, so be sure to have available bank account statements, tax returns, paycheck stubs, legal documents such as divorce decrees, rental agreements, etc. Be sure to tell the truth, as it is illegal to lie on the application, and while the lender may not sue, the loan could be called up and you could lose your home and your investment. Anyway, the lender will run a credit check on you to verify much of your information. Your realtor will help you determine what information you need.

Now you are ready to fill out the loan application. If you’ve done your homework ahead of time, you can usually feel pretty confident while you wait for approval. So, after submitting the application to the lender, you can get on with the things you need to do before the final sale is completed.

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