What is a mortgage? It is a legal agreement between the borrower and mortgage lender. The lender provides money to the borrower to purchase real estate and the borrower agrees to repay the loan plus interest. Mortgages are secured by the real estate (i.e., home) so if the borrower fails to repay the loan, the lender can foreclose and repossess the home.
Most people who buy a home do so with a mortgage. A mortgage is a necessity if you cannot pay the full cost of a home out of pocket. There are some cases where it makes sense to have a mortgage on your home even though you have the money to pay for it. For example, investors sometimes mortgage properties to free up funds for other investments.
So, where do you begin? First, check your credit history and credit score. This will help you and your lender determine if you will qualify for a loan. Second, contact a local lender. You should ask your REALTOR® for a recommendation. It also does not hurt to shop around a bit. Each bank will have different loans, terms, and fees. These are all important things to consider. Customer service is key. Does the lender have online banking? Do they sell your loan or keep it in house?
Once you choose the lender, you need to get pre-approved. This will help you and your REALTOR® when searching for your next home. Pre-approvals look more favorable when making your offer to the seller. Your lender should be able to do your pre-approval over the phone. They may ask for your bank statements, W2’s and to pull your credit.
Let us assume you found a house and you are under contract, do not apply for credit or make large purchases with credit. Do you want to buy new furniture? Your lender will advise you to wait until after closing. In fact, according to most lenders, there are several things you do not want to do before or after applying for a mortgage.
Do not make large deposits or withdrawals from your accounts. Anything out of the ordinary can raise a red flag with the bank. Do not change jobs unless it is necessary. Your lender will want to see a steady income history. If you currently own your home, do not run up a home equity line of credit. This can affect your debt-to-income ratio. Do not close your credit accounts. This can set off a chain reaction reducing your available credit and raising your debt-to-income ratio.
A valuable resource is your mortgage lender. They can guide you to make the right decision for the loan that best fits your needs. Do your research and make sure your credit is in the best standing so you can purchase that home.
Rates are holding at an all-time low during this last quarter of 2021. The average 30-year fixed rate is still below 3%. Is this a good time to buy? Yes! Contact your local lender to get pre-approved and your REALTOR® to find that perfect home!
Have a great week and remember to do good things!
Stephanie Lemley, 2021 MBOR President