Your Complete Step-by-Step Guide to Applying and Securing Your First Mortgage

Financial worries are common among most people. There are moments when making ends meet involve seeking outside lending options. When you’ve arrived at the decision of getting a mortgage, the research associated is vital to understand for a smooth exchange. Often this process is compared to when receiving a home loan. Buying a home is different, but this information on the procedures and requirements will reflect on that of getting a mortgage.

Important documents will need to be gathered and you must make the important decision on your valuable collateral. Getting through the entire mortgage process is done most efficiently with a knowledgeable professional. It is not impossible to understand what exactly needs to be done if you read through our steps and begin filling out the application.

What Is A Mortgage?

A mortgage is a loan taken out by a consumer which is placed over collateral. There is interest charged over the time of the contract. This legal agreement hands the title or deed of the borrower’s property in exchange for the money. Once all terms of the contract are met (the money is repaid) the title is returned.

How To Apply For A Mortgage

Above all, patience will come in handy at this point, this includes not rushing and double checking all paperwork. You don’t want to notice a mistake in the figures months later after you have already signed a binding contract. Since the documents are legally holding, be sure in your decision to apply for the mortgage before finalizing the deal.

Research Lenders

Finding a legitimate lender is one of the most important aspects of applying for your mortgage. A legitimate company is one that wants to work with your situation, but does not promise all who apply for approval. Often those that pre-approve and bog you down with constant ads to get cash now are attempting to take advantage of consumers. A sure way to pick wisely to apply for your mortgage with a well-known bank.

Lenders often have extensive reviews from people who have worked with them in the past. Understand these reviewers are not experts, but taking account of common experiences can help you know what to expect. Choosing a company that is reputable with a preexisting customer base is a good way to prevent being scammed.

Submit Application

The application process is long and needs many different documents. Make sure you have all official documents for the process readily available. Consider creating both a physical and digital folder specifically dedicated to your application. Having everything ready to go can mean the difference between a month’s wait or several. Before touching an application, have the collateral you are using to receive the loan ready, most take a mortgage out on their home.,

Bank statements come in handy to prove where your down payment is coming from. Since this is made with a lump sum, it does need a paper trail. There are other important mortgage application documents needed to prove you are capable to pay your loan back.

Here are some essential items to have at hand:

  • Tax Returns
  • Credit Scores
  • Multiple forms of Identification
  • Employment History (Pay Stubs)
  • References
  • Home Appraisal (recent)

Home Inspection

Having the home examined is not always required, but most lenders at least request an appraisal to know what the home is worth. A Lender will not give a loan in exchange for the title of your property without knowing exactly what is going on with it.

Having a previous appraisal that is recent can expedite this process. There are many reasons to know what your home is worth, not only if you’re applying for a mortgage. You may be able to get a better price and therefore increase your odds of mortgage approval. Since this happens before the loan is finalized, you still have the option to back out if the house is not worth as much as you have previously thought.

Homeowner’s Insurance

If you have rented before, you are familiar with renter’s insurance and how important it can be in the case of an emergency. Mortgage lenders will not let your home go uninsured while they are holding it as collateral. This insurance can be combined with your monthly mortgage payment.

Avoid Accumulating More Debt!

The debt will only make it more challenging to make payments towards your mortgage, and not only because you have fewer funds available. More debt means lower credit and higher interest and fewer options. You will want to update and clear as much debt as possible before applying for your loan to look good to prospective lenders.

Be Patient

Remember, this mortgage process takes time and cannot be accomplished in a few days. Don’t be afraid to shop around to find the best deal for your life situation. There will be multiple different offers if you apply to different lenders. Multiple applications are suggested to find the optimum rates and the amount you prefer to pay as a down payment dictates part of this. The interest that is charged is dependent on your financial history and since reporting agencies vary, different lenders will give you different interest rates.

Secure Your Mortgage

You’ve been approved and chosen the best offer from an established lender. Once more take a look through all of the terms presented and gather all of the final paperwork. It is most important to sign while at the desirable interest rate, which can change quickly.

Lock In Interest Rates

Interest rates can change and it is important to respond in a timely manner to assure you get the deal offered. You don’t want to be subject to surprise changes in the final steps because things have changed. A small difference in an interest rate can be a substantial amount because of the large value of even a small home.

Arrange Down Payment

Having money to spend initially is important. The more you have available for a down payment often the more a lender will be prepared to offer you. This is because your down payment is an assurance that you are serious about meeting the terms of the loan. Though higher down payments can be beneficial, be careful what you offer so you are not stuck in a longer contract than you need or want.

Why Credit Scores Are Important

At this point, you understand a lot is dependent upon your credit score. Your credit score is how your lender gets an idea of who you are and how you have handled finances in the past. It may be important to work on strengthening your credit before applying for a mortgage loan in order to increase possible benefits.

Different Reports

Reports vary depending on which credit reporting companies and methods are used by your lender. Each will build a numerical score out of past financial decisions. Certain things they take into account is how long you’ve had your credit history and how many accounts you have in good standing.

Negative marks on credit scores can scare away lenders. It is best to avoid any choices that will make your credit score suffer before your mortgage application. This includes letting credit cards go past due, keeping high balances on credit cards, and having accounts go into collections.

Use free credit reporting agencies to get an idea about what’s in your credit report before applying for a mortgage. Even hard credit checks affect your score negatively whether the application is approved or denied.

Debt To Income Ratio

Another important aspect looked at is the applicant’s overall debt to income ratio. To determine this simple take all of your monthly debits from your monthly income and find what percentage it takes up. Knowing how much money per month you can allot to home is important to keep your family in good financial standing.

Higher Credit, Lower Interest

When it comes to securing a mortgage, interest can make a large difference in the final amount you’re paying. For those with lower credit, lenders will assume it is less likely they receive their money back timely. This will cause low credit consumers to be subject to higher interest rates since lenders are taking a bigger risk.

It is smart to spend some time building your credit while preparing to apply for a mortgage. Some lenders do work with those with bad credit, but a high-interest rate is undesirable for most. One year of rectifying past credit mistakes can make a large difference and this time will make you more knowledgeable on the mortgage process.

Smooth Mortgage Process

All of the steps associated with receiving your first mortgage may seem endless, but if you keep the goal in mind, you can use your new knowledge to. After preparing all of your documentation and looking into your credit score, apply to multiple lenders to find the best offers in your situation.

Even if you do not have a perfect financial situation, there are ways for your mortgage to become approved. Use research and smart planning to make getting your first mortgage easier than going into the situation not knowing what to expect. Some issues may come up, and some mistakes might be made, but it will only give lessons that can help you when securing a second, or third, mortgage.