Getting a mortgage loan may seem overwhelming especially because it’s the largest, and most meaningful, financial transaction most of us will ever make. However, when you work with a reliable partner like Members Trust, we can walk you through the process.
Here’s the expanded version of our recent newsletter article, to help get your ducks in a row for a mortgage application.
- Start saving for a down payment. Depending on the lender and type of loan, the required down payment can range from 2.25% up to 20% of the purchase price of the home. Saving a portion each month will help you put away enough money for your down payment. To make it easy, consider having the money automatically deducted from your paycheck directly into your Members Trust savings account. This will save you time and make it painless to build your savings. Remember, the higher your down payment, the lower your monthly housing costs!
- Know your credit score. Having a good credit score helps you get the best deal on your home loan. It’s a good idea to get a copy of your credit report before starting the home buying process so you can see what your credit profile looks like and take steps to improve your score if needed. You can receive one free copy of your credit report each year from each of the three credit reporting agencies by visiting AnnualCreditReport.com. If you pay a small fee to the reporting agency, they will include your credit score.
- Use a mortgage calculator. Mortgage calculators help you understand how much house you can afford. They are very easy to use and show how much your monthly mortgage payment would be under different home price, down payment and interest rate scenarios. Check out our mortgage calculator.
- Estimate how much you can borrow. Lenders typically use two different debt ratios to calculate how much you can borrow. One version is that your monthly housing payment (including taxes and insurance) should be no more than 28% of your pre-tax income, and your total debt (including your mortgage payment) should be no more than 36%. Some lenders have more generous qualification ratios and some stricter but these are the most common.
- Get your documents in order. When you apply for a mortgage, you will need to provide your lender with a number of financial documents. At a minimum, you should be prepared to provide your last two pay stubs, your most recent W-2, your last two years of tax returns, and current bank and brokerage statements.
- Start tracking interest rates. The interest rate will be one of the biggest factors in determining the cost of your mortgage loan. Mortgage rates change almost daily so it’s helpful to know which way they are heading so you can continue to calculate your costs.
- Get pre-qualified. Many real estate agents want you to be pre-qualified before they will work with you. The mortgage pre-qualification process usually requires financial information such as your income and the amount of savings and investments you have. Once you are pre-qualified, you will have a better sense of how much you can borrow and the price range of the homes you can afford.
- Understand your loan options. Some people get a 30-year fixed-rate loan. Others prefer an adjustable-rate loan. There are a lot of mortgage loan options and every home buyer has their own unique financial situation so it’s important to understand which type of loan best suits your needs. We are pleased to offer our members a variety of mortgage loan options both in-house and through our mortgage lending partner.
- Don’t mess up your credit during the loan processing. It is very common for a lender to pull your credit a second time to see if anything has changed before they close the loan. Be careful to avoid anything that can drag your credit score down while your loan is being processed. So, pay your bills on time, and don’t apply for new credit cards or new loans until your home loan is closed.
- Expect a few bumps in the road. In a perfect world, you would apply for your mortgage, find your home, complete the inspection and show up for loan closing a month later. However, more often than not, there are some bumps along the way. With so many people and variables involved, build in a cushion of time and expect the unexpected.
Members Trust is ready to help you navigate the home buying process. Whether you’re building a new home, found the perfect pre-owned home, or you are refinancing to save money, we can help.
If you are unsure which mortgage program is best for you or would like to learn more, please contact us and we will be happy to answer all of your questions.