First time home buyer 101: Lenders and how they help
For most first time home buyers, the challenge is not in finding a mortgage lender, but in sorting through all the paperwork, online lenders, mortgage brokers and other institutions eager to take your loan application. How do you choose which one will offer you the best deal, and also give you the best customer service?
What does a lender do?
Lenders are the ones who give you the money to fund your loan. They will either provide the funds directly or through a third party service.
Which type of lender is right for me?
Mortgage Banks: A mortgage bank is a direct lender, which means that the bank employees review your application and make the decision to lend you money. After this is done, typically, the bank will sell your loan on the secondary market.
- Reliability: You probably know and trust your local mortgage bank. It is regulated by state and federal agencies and likely has strong ties with your community.
- One-stop shopping: You deal directly with the source of your loan.
- Savings: As the loan originator, a bank may save you money in the loan process and/or offer you better terms based on your total assets on deposit with the bank.
- Speed: A bank also may process your loan faster than other providers.
- Limited choice: Mortgage bankers only offer their own programs. To comparison shop, you will need to speak with several lenders.
Mortgage Brokers: A mortgage broker is a middleman who may represent the mortgage loan products of hundreds of different lenders. The broker’s goal is to match you with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the loan originator or their mortgage service provider.
- Variety: By shopping across a range of different programs and lenders, a mortgage broker may find you a better fit than a mortgage bank.
- Qualifying: A mortgage broker can best steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information.
- Savings: You may get a more favorable loan rate.
- Speed: A broker saves you time shopping for a loan.
- Hidden costs: Some mortgage brokers attempt to increase their profit by writing hidden costs into your loan. Best hedge: know the loan process and ask questions.
- Professional oversight: Unlike mortgage bankers, mortgage brokers are not subject to licensing and regulation in all states, although they are in Texas.
*information courtesy of www.bankrate.com
What are the types of approvals I will need to purchase a home?
Conditional Pre Approval: This is the highest level of pre-approval you can bring to the table when you make an offer on a property. This is due to the fact that it involves a detailed review of your finances.
Pre Qualification Letter: A pre-qualification letter is when the loan officer has gone over your credit and income but has not verified everything. This is the most basic way to prepare an offer.
What paperwork do I need to get the process started?
Shown below is a list of the information that will generally be needed to complete a loan application:
- Completed Loan Application with each page initialed or signed
- 2013 and 2012 W-2s, 1099’s and a full month of current pay stubs with year to date figures, social security awards letter if applicable
- Two of the most recent statements (all pages) from each checking, savings, and brokerage, investment and retirement accounts. Only 1 statement if received quarterly.
- A copy of a recent bill, coupon or year-end mortgage statement from any loans or mortgages you may have in addition to the most recent year end mortgage statement.
- Release of liens on properties owned free and clear.
- 2013 and 2012 personal tax returns with all schedules
- 2013 and 2012 business tax returns with all schedules
- 2013 balance sheet and year to date P&L
- Copy of social security card and drivers license
- Executed earnest money contract (for purchases) builder contract, plans and specs (for construction)
- Original blue line survey (refinance only)
- Settlement statement form original purchase of home (refinance only) and a copy of the current note.
- Copy of divorce decree if applicable
- Tax and insurance documentation for all owned properties
- Insurance agent’s name, address, and phone number
- Copy of bankruptcy papers, schedules and discharge notice. Foreclosure papers.
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