How to qualify and shop for a mortgage loan in today’s market
Here are some sample documents you can download figures are based on a home loan to purchase a home for $150,000 using a standard FHA 203b mortgage with 3.5% down. Sample GFE TIL 150K FHA purchase(Letter)
Many professionals with good stable income, savings and excellent credit don’t have to worry too much about qualifying as long as they can document everything and are not loaded up in consumer credit card debt.
Most working class folks do need to learn how to qualify for a mortgage loan. Things have changed since 2005 when anyone that could fog a mirror and apply qualified for something with little down.
Let’s get right to it Here is what you will need to qualify for a home purchase mortgage
- You will want a 640+ credit score go here if your credit needs some help our credit guide shows you what to do step by step.
- gross income (before taxes and deductions) to be three times you total credit report debt along with new mortgage payment including taxes and insurance see this mortgage calculator with taxes for help with this calculation
- two years in the same line of work (there are many exceptions to this)
- At least 3.5% of the price saved up for down payment – think “tax refund” – there are community funds available if you are willing to jump through hoops and red tape
- be able to document all of the above with tax forms, pay stubs, bank statements
Hard Money – Private mortgage lending – home loans for people who do not qualify
There are some exceptions to the above for example if you do not qualify but have a large down payment (30%-40%) you can use a mortgage broker to find a private lender to fund a loan for you. Expect to pay double the market rate and closing costs for this type of mortgage loan. You would be surprised how much private money is in the current real estate market. More detailed information and links can be found here.
Shopping for a mortgage
Many people get really stressed when shopping for a mortgage. Don’t! You have this awesome guide to print out and keep with you. Talk to three brokers and pick the best one – I think it will be us :)
Focus on Best Mortgage Rate and Fee combination
Don’t focus on just rate or lowest closing costs, rates and closing costs are like a seesaw when one goes down the other goes up. Find the loan with the best balance of interest rate and adjusted origination fee.
Request a rate lock in at or within a few days of a complete application.
Get it in writing! Brokers can only issue rate locks on a lender’s behalf – ask to see a copy of broker’s rate lock with wholesale lender.
Easy stuff here recap
Call at least one mortgage lender, mortgage broker and a bank
Get a written quote with interest rate and closing costs (you are looking for adjusted origination fees and interest rate) don’t worry about or become confused by the other closing costs, taxes, or insurance.
Compare both 15 year fixed loans and 30 year fixed quotes with your loan originator once you have found the best lender. Only useful if you can afford to pay a 33% larger payment for a 15 year fixed mortgage. Expect a 30 year loan with a 1000 dollar payment to be around 1300 for a 15 year loan of the same amount.
You can also look at the APR (annual percentage rate), but don’t bank on this number it is a complicated calculation that many lenders do not express nor can they explain it to you correctly anyway.
Don’t forget to get a rate lock as early as possible, you will need a contract and occasionally an actual loan commitment in order to do a “rate-lock-in”.
Keep in mind interest rates change daily , banks not so much because they keep rates stable by staying a little above market. Brokers are typically the least expensive but quotes can change with the market quickly.
Resources
I could have made this guide a lot longer, but then it becomes more confusing feel free to ask any question via email contact form here at c-mortgage.com – this guide was written by a 20 year mortgage veteran who now manages sales and marketing for C & C financial Services Inc.
You can download a universal form 1003 and document checklist which can be submitted to any USA mortgage lender.
Here is the official government guide to Shopping For Your Home Loan HUD’s Settlement Cost Booklet it has example’s of important documents like the Good Faith Estimate and a glossary with definitions of mortgage terms you may have questions about. Just don’t let all of this confuse you and find a good loan originator you can trust.
