3 Easy Steps to Getting a Mortgage
Examine your finances and shop around before you apply
Shopping for a mortgage is the first step toward owning a home and
perhaps the most daunting, especially if you are not prepared.
Once a simple task that meant comparing fixed rates from among perhaps
a dozen or fewer savings and loan companies, the mortgage hunt today is
like finding your way through a maze.
There are dozens of loan types and hundreds of loan programs available
through thousands of mortgage brokers, bankers, lenders, finance
companies, credit unions, even stock brokerage firms.
Contrary to popular belief, finding a mortgage doesn't begin with an
Education is a better first choice. Mortgage information sources are as
vast as the number of mortgages available. Web sites, topical newspaper
articles, mortgage books, consumer seminars and workshops, financial
planners, real estate agents, mortgage brokers and lenders are all
available to assist you along the way.
First and foremost, you must determine how your mortgage payment will
fit your current budget and, to some extent, your future obligations 15
to 30 years down the road.
If you discover too late that you can't afford your mortgage, you'll
not only face the possibility of losing the roof over your head, but you
could also damage your ability to purchase a home later.
Step 1: Examine Your Finances
If you can afford to buy a home, you must then determine how much
mortgage you can afford. Lenders are apt to put your loan application in the
best light and qualify you for as much as they are willing to lend,
which can be more than you can afford.
It's up to you to take stock of your income and expenses, both current
and projected to determine what you can comfortably manage each month.
Along with your mortgage payment, don't forget related insurance,
taxes, homeowner association dues and any other costs rolled into the
Step 2: Shopping For a Loan
When you are ready to shop for a loan you have two basic types of
mortgage stores to shop -- direct lenders and mortgage brokers.
Direct lenders have money to lend. They make the final decision on your
application. Brokers are intermediaries who, like you, have many
lenders from which to choose. Lenders have a limited number of in-house loans
available. Brokers can shop many lenders for each lenders' store of
loans. If you have special financing needs and can't find a lender to suit
them, an experienced broker may be able to ferret out the loan you
need. Mortgage brokers, however, are paid with a slice of the amount you
borrow, some more than others some less. Internet brokers today perhaps
receive the smallest cut, sometimes none at all, and can prove to be a
Along with shopping the source, you'll also have to shop loan costs,
including the interest rate, broker fees, points (each point is one
percent of the amount you borrow), prepayment penalties, the loan term,
application fees, credit report fee, appraisal and a host of others.
Step 3: Apply For a Loan
The application process is the easy part -- provided you've gathered
documents necessary to prove claims you make on the application.
The application will ask for information about your job tenure,
employment stability, income, your assets (property, cars, bank accounts and
investments) and your liabilities (auto loans, installment loans,
mortgages, credit-card debt, household expenses and others).
The lender will run a credit check on you to take a look at your credit
status, but you'll have to supply additional documentation including
paycheck stubs, bank account statements, tax returns, investment earnings
reports, rental agreements, divorce decrees, proof of insurance, and
other documentation. If the lender deems you creditworthy, it will likely
hire a professional appraisal to make sure the value of the home you
are about to buy is truly worth your loan amount.