Whether you're currently renting or own a home, there is preliminary work you need to do and things you need to know to make the borrowing process easier.
Choosing a Lender
Ask family and friends whom they would recommend. Also ask your Realtor for recommendations as an agent deals with multiple lenders and knows which ones will be easily accessible during the buying process. Interview more than one lender, preferably a mortgage broker, your current bank or credit union and a lender from a national bank. Ask questions such as how long they've been in business, how long they take to close the average loan, and how much experience they have with loans you're interested in, such as FHA or VA, or a jumbo conforming loan. Most lenders won't choose to share their list of fees until you apply for a loan and they know what your qualifications are. Some loan fees are state mandated while others are determined by your credit worthiness..The lender needs your personal information to decide whether to give you the loan and how much to charge you in interest.
Applying for a LoanOnce you apply for a loan, your lender will run your credit. He or she will contact one or more of the three credit reporting bureaus to get your credit report and your credit score. If you have late payments, an account in collections, or a dispute with someone that has resulted in a judgment against you, this will show up when your credit is run.. Your lender could help you fix any derogatory issues. However, some of them may take time to be cleared up.. According to a study by myfico.com, a 30-day delinquency can drop an otherwise good credit score by as much as 90 points. And only top credit scores of 740 or higher get the best interest rates.
Dealing with Credit IsssuesA delinquency stays on your report for seven years, says credit reporting bureau Experian. According to MyFICO.com, the difference between a credit score of 700 and 698 can cost you more than $13,378 in interest on a $165,000 30-year fixed-rate mortgage. That's because a 700 credit score may get you a 4.5 percent interest rate, while the 698 score gets a 4.875 rate. Your lender will know how to help you raise your scores, if your scores are too low to get a good rate, because your rate will also make your monthly payments higher. Once you repair your negative credit problem, take proof of payment or release of lien to your lender. You may have to wait a month or two or three for your credit scores to reflect your improved credit history.
Be RealisticTell your lender all you can about your finances. Don't shave time off your present job or inflate your earnings if you're self-employed. Trying to reach for more home than you can truly afford can be a problem for you now and later. The lender may catch you and decline the loan, or at worst, you could be committing mortgage fraud. Once your lender knows all the problems that could impact the loan, and all the steps you've taken to improve your credit, that's the time to make your application. From there it will take about 30 to 45 days for the loan to close.
Most home buying advice says to apply for a loan before you do anything else, but it's a much better idea to take a few weeks or months in advance to get your credit to the best place you can. That's the best way to afford more home.