So you’re ready to buy a home! Whether you’re looking to explore a new state or are just in need of a change of scenery, before you can hit the open houses comes one important first step: finding the right lender.
By working with a mortgage broker in advance, you can shorten the closing process on the other end of your home buying journey while also eliminating the chance of any unwanted surprises. Believe us: Nothing’s worse than finding out the home of your dreams is suddenly off the table due to a geographic or financial constraint.
Learn more about finding the right lender and how Bungalo® can help simplify the path to becoming a homeowner.
With so many lenders out there, it’s easy to suffer from choice overload. The good news is by learning to navigate each loan option like a pro, you’ll know how to shop around and get the best mortgage agreement possible.
As you begin your search for the right lender, your choices will all pretty much fall into two categories: government-backed or conventional.
Your first step in the loan application process is determining whether you’re eligible for a government-insured loan. Although these loans have more specific stipulations and could narrow your market options, they’re a great way to attain a lower mortgage rate and smaller down payment requirement:
- VA loan: If you or your spouse has served in the armed forces, you may qualify for a loan from the Department of Veterans Affairs. Not only does the VA offer low interest rates, but if you qualify, you’ll be able to purchase without a down payment.
- FHA loan: The Federal Housing Administration provides competitive loans with no minimum salary requirement. However, you will need a credit score of at least 500 and two years of employment history. Depending on your score you’ll only need a down payment of 3.5% to 10%.
- USDA loan: These low-interest mortgages require no down payment and are designed for low- or single-income families. The only “catch” to this bargain? You’ll only be able to buy a home in a designated rural or suburban area.
If none of these scenarios apply to you, don’t stress. For those with higher credit scores, going with a private mortgage broker could lead to an even better deal.
If this isn’t your first home-buying rodeo or you have an established credit history, this is likely the best route for you.
When you hear conventional, just think of your bank or any other financial institution. This traditional type of mortgage loan is an agreement between you and a private business, featuring a payment plan typically centered on a fixed-rate mortgage.
Before we get into the pros, let’s break down some of the cons of going conventional: It’ll require a bigger down payment, a higher credit score and a lower debt-to-income ratio.
If that list made you cringe, take a breath.
Ready to keep going?
OK. So with all of that said, going the conventional route has plenty of benefits despite those somewhat daunting requirements. It can help minimize the paperwork involved on your end compared to a government loan, leading to a faster underwriting process. Plus, if you’re looking to shop around, you have no shortage of private loan types and sizes.
Compare the quotes each mortgage broker provides. Rank your choices based on the loan term in years, the interest rate and your total monthly payment. By going with the shortest loan term available you’ll be on the quickest path to becoming debt free.
The good news is that once you’ve put in the work and found the lender of your choice, Bungalo is happy to work with whichever institution makes the most sense for you.
No one loves hearing the word “no,” so how can you avoid it when it comes time to apply for your loan?
There’s no magic formula that ensures approval 10 out of 10 times, but there are some steps you can take to help ensure you get the answer you’re hoping for:
- Credit score: While government-insured loans have lower credit requirements, most private ones ask for a score of 620 or more. We recommend checking the National Association of Realtors’ guide on how your score is calculated to understand how you can make the biggest impact on your standing.
- Debt-to-income ratio: A mortgage company will compare your debt to your income to determine whether you can manage additional monthly payments. The Consumer Financial Bureau recommends getting your debt down to 43% of your income — or as low as possible — to qualify for a loan.
- Down payment: Go big or go home, right? Offering a larger down payment will help reduce your loan-to-value ratio, giving you a better chance of approval.
Once you hear those magic words — “you’re approved” — it’s time to lock down your loan rate. Rates fluctuate with the market, and typically your lock-in lasts anywhere from two weeks to three months. If you’re getting pre-approved for your home loan fairly far in advance, keeping an on the market and monitoring how rates are changing will help ensure you get the best one possible.
All brokers are not created equal. We mentioned this earlier, but step one is to collect multiple quotes to compare rates and get a clear understanding of the lending landscape.
Step two requires a little bit of detective work.
Before meeting with your mortgage lender, do some research online to see if you can find the following information:
- Do they require a demand feature agreement? If yes, that means the lender can ask at any time that you immediately pay your entire loan balance.
- Do they offer a down payment assistance (DPA) loan program? An eligible first-time homebuyer may be able to receive DPA, reducing the amount you need to save for a down payment.
- What are their closing fees? Lender fees are one of those sneaky expenses that can quickly inflate your total closing costs on the other end of buying a home. Every institution’s total cost for closing will vary, so be sure to factor that in during your lender interview process.
If the answers to these questions aren’t readily available, feel free to bring them up when you meet in-person or over the phone. Additionally, you’ll also want to look into the variety of mortgage products your broker offers, the ease of their application process and any available customer reviews online.
As a borrower, it’s important to not let yourself worry about one or two bad reviews. An influx of negative reviews over a recent period of time, however, should raise some red flags. Don’t be afraid to ask your loan officer about these reviews during one of your conversations and see what (if anything) their organization is doing to right the situation.
As you interview multiple lenders, you’re free to ask as many questions as you want. While it’s important to comb through the paperwork before you sign on the dotted line, getting these answers early on can save you some serious headaches:
- What is your current mortgage interest rate? As we mentioned above, locking in a low interest rate can help minimize your total loan payment for the duration of your mortgage.
- How much time does it take to complete a mortgage? Typically, mortgage agreements last for about 25 to 30 years. Although longer-term mortgages cost less per month, shorter terms can help you pay off the balance that much quicker.
- How long are your turnaround times on pre-approval, appraisal and closing? One of the biggest surprises first time buyers encounter is just how long it takes to fully close on the home. By getting a clear understanding of what the process looks like for each lender, you won’t be left in the dark waiting for move-in day.
If anything doesn’t feel right or you’re uncomfortable with the terms laid out by a potential lender, always feel free to keep looking. Considering the length of most mortgages, it seriously pays off to take the time to ensure you’re fully confident in your decision.
With your pre-approval letter in hand, it’s time to find the home of your dreams!
At Bungalo, we understand that the path to homeownership isn’t always clear one. That’s why we do everything we can to simplify each step, from working with the financial lender of your choice to getting you into one of our certified homes that’s been inspected by an expert.
Once you’ve put in the research and connected with a lender, the fun part becomes: picking out your future home. Learn more about finding the right home at our blog.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.