We recommend our buyers connect with a really good mortgage professional as soon as possible. This is the first major to-do item on the path towards home ownership. Not only can a great loan officer help you set your budget, they can also tell you what your approximate fees and monthly payments will be. Great loan officers, like the ones we regularly work with, also have the experience to help you tailor your financing terms to maximize your chances of winning in competitive offer situations.
Pre-Qualification v. Approval v. Underwriting Pre-qualifying for a loan is the lowest rung of the loan approval process and only represents a loan officer’s opinion of what you can afford. Approval means your loan application has been taken through a more rigorous procedure. Your credit report is reviewed and many of your financial documents are provided to your loan officer. Approval saves you the time of looking at houses you can’t afford. Approved buyers that have a pre-approval letter at the time an offer is made signal to sellers that they are serious and able purchasers. In this competitive home-buying market, some banks can offer an even higher level of loan approval, which is pre-underwriting. For well-qualified borrowers, our loan officers can run your entire file through initial processing and underwriting. This means that by the time you find a home, make an offer and have it accepted, your time to close may be a couple of weeks shorter than someone with the standard loan approval. Having your file pre-underwritten could be the game changing advantage that gets your offer accepted.
A Quick Note about TRID TRID went into effect in late 2015 and replaced older borrower disclosures, while adding new consumer protection elements. TRID is also commonly known as the “Know Before You Owe” regulation and is intended to give buyers a straight-forward and clear understanding of the various costs and terms associated with their home loan. The TRID disclosure from your loan officer must be sent to you at least 3 days before you can sign documents at escrow. Most reputable mortgage professionals are used to working with these deadlines and will ensure that the documentation and process are in order.
Mortgage Broker vs. Bank Loan Officers A broker may have access to several lenders and may be able to offer you a wider selection of loan products and terms. Some mortgage brokers also have access to funds from an affiliated bank. Traditional loan officers work at banks and their primary source of funding is through their associated bank. Some banks offer loan products that are only available through their own loan officers.
What are the terms of the loan? All the terms of a loan matter, not just the interest rate. You’ll want to get a complete picture and break down of what a given offer means to you on a monthly basis, as well as how much money you’ll be spending over the life of the loan.
Type of Loan There are many different types of loans and many specialty products. Recent medical school grad with a bunch of school debt? They’ve got special physician’s loans for that! Non-citizen borrower with no credit history? Some of our local banks may be able to work with these types of borrowers, too! And how about duration of loan? The good ol’ 30-year fixed loan is still the most common loan product offered by banks. But if you’re not planning to live in your home for that long, you may want to consider a mortgage offering with a shorter term, which may come with a pretty different and advantageous rate. This is definitely worth chatting about with your loan officer.
The Down Payment / Private Mortgage Insurance The largest upfront cost in purchasing a home is the down payment. Most traditional lenders expect borrowers to put at least 20% of a loan’s total amount down. Borrowers who are unable to do so are required to purchase Private Mortgage Insurance (PMI). This insurance protects the lender in case of default by the borrower. Some lenders now have other ways to work around this requirement, such as pre-paying the PMI or getting a second loan via a line-of-credit.
Let’s move on to the next section about Making an Offer.