In the mortgage market today it’s actually easier chose the right mortgage. The reason I say this is that the days of creative loans are largely gone as sub prime loans are now extinct. The mortgage industry today, as of 2009, no longer works in grayscale, it’s now black or white and you qualify or you don’t. It used to be that one lender might accept a lower credit score than another, or one lender would provide a stated income, no income no asset loan, which were examples of sub prime lending.
Today choosing a mortgage is matter of talking with a competent loan officer who is a good counselor as well as honest. Contrary to popular belief, one lender’s interest rates will not vary much from another’s at all, maybe 1/8th of a percent either way. It’s certainly okay to compare but in the end it boils down to who you want to deal with personality wise.
A good loan officer will listen to your situation, ask the right questions pertaining to your financial life and goals, and counsel you on the best ways to go with a mortgage. Most people do not buy and sell homes frequent enough to have an ongoing knowledge of the process, which is why you should chose someone that will educate you on the process.
I mentioned, in so many words, that a lender is a lender, but there is one caveat. Find out if you are dealing with a mortgage broker or a mortgage banker. Both are fine but inherently different is the following way; a mortgage banker is a direct lender, meaning they are more like a credit union or local bank and service their own loans. The mortgage banker can be exemplified as a new car dealer, they have one product and cannot go beyond or outside their product. Smaller banks can have stricter guidelines depending on their standards. A mortgage broker on the other hand is like the used car dealer, they can chose from a variety of products that may be available to them and the guidelines may not be as strict. In other words, they are not stuck with one product or one guideline. I must stress that one is not “better” than the other, but it is good to know which one you are dealing with so you can try both if needed.
The application process is fairly simple but you’ll need your financial records handy. The lender will want to see the last 2 years of tax returns, 30 days worth of pay check stubs, 3 months of bank statements, (they don’t like NSF’s either), and they will run a credit report to assess your pay history and of course check you score. The main thing lenders look for is stable, non late payment history, for one year, sometimes I’ve seen them go back two years. Most lenders I’ve seen are going to, or have already gone to, a 620 credit score.
Know your loans: There are 3 basic loan types, FHA, VA and Conventional. FHA is an insured loan backed by the government and is the least expensive loan to acquire (for non veterans) at 3.5% down. There are hybrids of the FHA loan called a USDA which you may quality for if the home is deemed to be in a “rural” area. VA is a loan guaranteed by the government for veterans and can be acquired for zero down. VA foreclosed homes are exempt from veteran status and any qualified person can buy one. The conventional loan is a privatized loan and requires 5% down for owner occupants borrowers. This is the only loan that can be obtained without “mortgage insurance”, but takes 20% down to do so. Both FHA and VA loans require a monthly insurance and an upfront fee for mortgage insurance. This insurance does not benefit you at all and is not tax deductible so as far as you are concerned it’s for the privilege of obtaining a lesser expensive loan. Mortgage insurance, to further explain, pays the lender back a portion of their loan if you default on the mortgage.
Those are basics, the lender will lead you on the next steps toward closing and closing costs involved with each type of loan. They should also provide you with a good faith estimate of closing costs disclosing their fees and estimated monthly payment. Good luck and happy home ownership!