Working with a Mortgage Lender

Depository Lenders

Depository lenders include banks and credit unions that offer a variety of products and services such as holding customer funds on deposit through products like checking and savings accounts, loan products for individuals and businesses, and credit card services.

Non-Depository Lenders

Non-depository lenders, like mortgage bankers and correspondent lenders specialize in mortgage lending. They will usually sell the loans to other investors or act as the middleman between the borrower and the ultimate lender who will service the mortgage after closing.

Mortgage Brokers

Mortgage brokers do not directly provide mortgage funding. They usually work with multiple lenders to help borrowers find the best mortgage product to suit their needs.

It is important to choose a lender you feel comfortable with.

Keep in mind that the process of purchasing a home can be stressful at times and you want to work with someone that can help you navigate through it with ease. You also need to be able to trust them with sensitive personal information.

It’s a good idea to initially talk to multiple lenders to get a feel for what it might be like to work with particular Loan Officer A financial professional who helps individuals obtain loans from a financial institution. loan officers (licensed individuals that help you obtain a mortgage loan) and institutions. Be sure to reserve your authorization to order a credit report to only the 1 or 2 lenders you are serious about. You want to avoid the potential negative impact of too many inquiries on your credit report.

Of course, you will want to compare interest rates of the lenders you interview, but here are some other questions you may want to ask:

• What are your Down Payment An initial, partial payment made when purchasing a high-priced item, with the rest of the cost paid later. down payment requirements?
• Do you offer programs that pay the Mortgage insurance (PMI) Private Mortgage Insurance (PMI) is a required fee for conventional home loans when the down payment is less than 20% of the home’s value, protecting lenders if the borrower defaults. mortgage insurance premium if my down payment is below 20%?
• What fees will I be responsible for at or prior to closing?
• Will you waive any of these fees or roll them into my mortgage?
• What mortgage types do you offer? (The next section below will provide an overview of most mortgage types.)
• How long are your typical turnaround times on Preapproved A lender has given providional approval for a loan after a preliminary review of your information. This is not a final guarantee, but it indicates that you are likely to be approved for the offer. preapproval , commitment, and Closing The final step in a real estate transaction where all legal documents are signed, money is exchanged, and ownership of the property is transferred from the seller to the buyer. closing ?
• Do you offer any down payment or closing cost assistance?
• How do you prefer to communicate with clients (email, text, phone calls) and how quickly do you respond to messages?

Generally speaking, a fixed-rate traditional mortgage is the best option for most people, but it is good to know what other products are available. The following is an overview of what products are offered by most mortgage lenders.

• 30-year Fixed-Rate Mortgage – This is a home loan with an interest rate that is set for the entire 30-year term. It is often used by homebuyers that want a lower monthly payment, since repayment is stretched out over a long period of time.
• 15-year Fixed-Rate Mortgage – This has an interest rate that remains the same for its 15-year term. The monthly payments are higher than with a 30-year loan, but the total interest paid is less.
• Adjustable-Rate Mortgage (ARM) – This is a home loan with an initial rate that is fixed for a specified period then adjusts periodically. For example, a 5/1 ARM has an initial rate that is set for the first five years and then adjusts annually for the rest of the loan term. It is often used by homebuyers who don’t plan on having the mortgage for a long time, or who believe interest rates will be lower in the future.
• FHA Mortgage – An FHA mortgage is insured by the Federal Housing Administration. It is backed by the federal government and designed to help borrowers of more modest means buy a home. It is often used by homebuyers who have lower credit scores and a down payment of less than 20%.
• VA Mortgage – A VA loan is a mortgage backed by the Department of Veterans Affairs and is available to military service members and veterans. It is often used by military-qualified borrowers looking for a low interest rate and no down payment requirement.
• Jumbo Mortgage – A Jumbo home loan is a mortgage where the amount of the loan is above the conforming loan limits set by the Federal Housing Finance Agency. Jumbo loan limits vary by county and are adjusted annually. It can be offered as fixed or adjustable rate and often requires a credit score of 700 or above to qualify. This type of mortgage is often used to purchase a higher priced home.

Preapproval

A mortgage Preapproved A lender has given providional approval for a loan after a preliminary review of your information. This is not a final guarantee, but it indicates that you are likely to be approved for the offer. preapproval is a letter from a mortgage lender indicating the type and amount of mortgage you qualify for. The preapproval letter is issued after the lender has evaluated your financial history, including pulling your Credit Report A detailed recored of your credit history, including how you’ve managed loans and bills. credit report and Credit Score A three-digit number that predicts your credit worthiness, indicating how likely you are to repay borrowed money on time. credit score . Getting preapproved by the mortgage lender helps you shop for homes within your means and shows sellers and real estate agents that you are a serious buyer.

Mortgage Application

Once your purchase offer has been accepted, the clock is ticking, and you will want to get your mortgage application process started right away. If you have already received a preapproval from a lender that you like, simply let your Loan Officer A financial professional who helps individuals obtain loans from a financial institution. loan officer know that you are ready to apply. There are several steps in the mortgage process:

1. Fill out a mortgage application – This is done with a loan officer who usually has a vested interest in your loan making it all the way to closing. He or she is your first contact and should be able to help navigate you through the entire process.
2. Provide supporting documentation – The lender will require documents such as paystubs, bank statements, tax returns, W2s, and other forms of income verification.
3. Loan processing – The loan processor verifies and documents the statements that you made on your mortgage application. At this stage, the lender will do a hard credit inquiry, which could lower your credit score, unlike the soft credit inquiry done by a credit counselor. Don’t be surprised if additional information is requested by the processor as they will need to put together a complete package for the underwriter who will make the final determination of approval of your application.
4. Underwriting – Once the loan processor’s job is complete, the application is delivered to the underwriter. The underwriter’s job is to judge the risk of lending you money to purchase the property you selected. If your loan application is approved, you will receive a Commitment Letter A commitment letter is a formal document from a lender stating that your loan application has been approved, outlining the loan terms, conditions, and any requirements that must be met before final closing. commitment letter detailing the terms of the loan and any conditions that you must meet prior to closing.
5. Loan is cleared to close – When your lender has determined that all conditions have been met, you will be sent a notification that your loan is clear to close. The lender is required to send you a Closing Disclosure A five-page form that provides the final, detailed information about your mortgage loan, including loan terms, projected monthly payments, and all final closing costs. It must be provided by the lender at least three business days before closing. Closing Disclosure , at least three days prior to closing, detailing the final costs of your mortgage.

After Applying for a Mortgage

Once you apply for your mortgage, the bank will require that your income and credit are re-verified. It is important to be wise about your credit during this time, as well. Consider limiting or avoiding any changes to your income and credit.

• Don’t apply for a new credit card or line of credit.
• Don’t make any large purchases, like a car.
• Don’t use up the credit you already have.
• Don’t change jobs or quit your job without discussing it with your loan officer.
• Don’t make any large deposits or withdrawals to or from any accounts. If you do need to do this, document where the money came from/went to.
• Don’t apply for a mortgage loan with a second lender. You should have only one mortgage application open at a time.