Working with Your Mortgage Lender
Investing is like life - nothing ventured, nothing gained. And, purchasing a home may be the largest investment you ever make.
Most lenders require you to complete a mortgage application—a comprehensive financial statement, which can feel overwhelming and complicated. But with the right lender, you'll be able to easily navigate the necessary steps it takes in order to buy your home. The information you provide on your application determines whether you qualify for a loan and how much you can borrow. The key numbers are:
- Your regular income
- The value of what you own
- Your expenses and debts
The application itself is fairly standard from lender to lender, usually because it meets Fannie Mae’s requirements.
Beyond filling out an application, you’ll need to pay for:
- A credit report and an appraisal fee as part of your intent to proceed. The appraisal of the house by the lender will make sure it’s worth the mortgage loan.
- An origination fee to cover the costs of processing the application. The industry standard for this fee is usually about 1% of your mortgage loan, however, LA Financial only charges $850 for origination.
- Any settlement charges - which can include total closing costs, loan and title, and can run 1-3% of the purchase price.
- If your down payment is less than 20%, the lender may require private mortgage insurance (PMI) to guarantee payment if you default on the loan.
The Commitment Letter
If one lender says no, try another one. All lenders use the same basic information, but they may evaluate it differently. Your real estate agent or a mortgage broker can help you find mortgage sources. You can ask if the seller is willing to reduce the price or pay a portion of your closing costs.
What the Application Asks
A mortgage application is the lender’s way of evaluating your credit-worthiness and determining whether to take the risk of lending you money. Although it can be an intimidating document, you’ll be ahead of the game if you keep good financial records. You’ll especially want a complete list of your investments, including money in your retirement plans.
Many experts suggest you can strengthen your application by channeling at least part of what you’re saving to buy a home into a portfolio of investments—including stocks, bonds and mutual funds. That approach can have the double advantage of boosting your net worth, while helping to build your down payment funds more quickly.
Details of purchase asks about how much you want to borrow, how much down payment, or cash part of the purchase price, you have, and where the rest of the money will come from. Borrowing a large amount from another source—even from your family—could disqualify you.
Monthly income is a key figure for lenders. It can include non-salary income, such as earnings on your investments or money you get from rentals, but you’ll have to prove the income is regular. You can also count alimony or related payments to establish your eligibility.
Job information focuses on regular employment so you’ll probably need verification from your employer. If you’re self-employed, you often have to provide more information, including income tax returns, credit reports and profit and loss statements for your business.
Monthly housing expenses show what you are spending now and what you expect to spend in the new house, including taxes, utilities and homeowners insurance.
Your credit history asks:
- Whether you've declared bankruptcy,
- Whether there are any liens or legal claims against your salary or property, and
- If you have outstanding debts.
Net worth is the total value of what you have, or your assets, minus what you owe, or your liabilities. Assets include cash, bank accounts, investments and property. Liabilities include debts and loans, credit cards, leases, alimony and child support. Mortgage loans usually require the numbers as well as the location of accounts, loans and credit cards.
Luckily LA Financial, as a mortgage lender, will help walk you through these steps and requirements so you can secure the property you desire.
Learn more about home loan options and find one that's right for you!
Learn more about refinancing your home
Have more questions? Get in touch with us and one of our Real Estate Loan Consultants will be happy to help you.
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