Find a Lender & Get Pre-Approved
Unless you have to move in a hurry, it makes sense to take some time to study the real estate market to decide which area you wish to live in and how much you're willing to pay for the homes that are located there. That means you have a little bit of time to find a lender and get pre-approved.
Copies of Your Credit Reports
Next you should have your credit reports and scores from all three major reporting agencies. Take those printouts with you on your first visit to a bank or mortgage broker. The loan officer can give you a fairly good idea of your home-buying options by looking at the figures and talking with you about your income.
Remember, when you pull your own credit file it isn't counted as a request from a potential lender--because requests lower your credit score. So use those printouts as long as possible instead of allowing multiple banks to pull your credit. When you select a lender, the loan officer will obtain your reports from their credit bureau.
Pre-Qualification vs. Pre-Approval
Pre-qualification is a general look at what you can afford, not a true approval or analysis of your buying capabilities. Agents in some parts of the U.S. are accustomed to pre-qualifying buyers for home loans.
In other areas, the specifics of the qualification process are between you and your lender, but the agent will likely want written verification that you can indeed purchase a home in the price range you are interested in.
Lenders usually require that the home appraises for the amount of the sale or the amount of the loan.
Lenders may have other requirements associated with the appraisal. They usually want to see an appraiser's opinion on how long it would take the house to sell in a normal market. They might look at location.
Lenders vs. Mortgage Brokers
Lenders provide the funds used to pay the seller at closing. Banks are a common example of lenders that individuals deal with.
Mortgage brokers shop around to find a lender who will make the loan.
Mortgage brokers typically deal with banks, individuals and groups of investors.
Truth In Lending Act
The Federal Government requires that lenders give you specific information about the costs associated with a loan, so that you understand the costs and can make comparisons. You will receive some disclosures when you apply for a loan and others before the loan closes.
- The amount being financed and the annual percentage rate
- Any points or fees associated with the loan
- Your due date and terms
- Whether or not the loan is assumable
- Details about service fees and prepayment penalties
Browse mortgage-related articles to learn more about home loans.
How to Shop for a Mortgage
- Get recommendations from people you trust...your Realtor, attorney, friends and colleagues.
- Find out if the mortgage company has a good track record. How long have they been in business?
- Look for "competitive" interest rates. Watch rates for several weeks to see who is consistently competitive rather than in and out of the market.
- Know the total fees being charged. The rate may be lower, but it's no bargain if the fees are so high they offset the interest rate savings.
- If an interest rate seems too good to be true, it probably is! Find out if you are paying for that great rate in extra points and/or fees.
- Be careful of "bait and switch." That's where a company advertises one rate, but when you go to apply, it's another, or they talk you into another program completely.
- Have the mortgage company pre-approve or pre-qualify you. Make sure they send you a Good Faith Estimate of closing costs.
- Find out how and where your loan will be processed. Many companies simply send your file to a processing center. If you like personal service, look for local processing and underwriting.
- Find a loan officer and staff that returns your phone calls promptly.
- The mortgage process can be complex. You need a loan officer with experience, patience and understanding. Make sure you are comfortable. After all, you're the customer!