It can feel like a real jungle navigating the world of mortgages. Here are our top 10 tips for clearing the path to getting a loan.
Originally posted on January 23, 2013
1. Don’t hold out for lower rates and prices
People often ask me if interest rates have hit “the bottom”. By the time we really know the answer to that question, the window of opportunity may be over. Interest rates and home prices are as attractive as ever, so if you’re now in the market to buy a home, get started!
2. If you already own a home, conduct a mortgage check-up
If you haven’t refinanced within the past six to eight months, it make senses to consider doing so. You may be able to lower your interest rate, reduce the length of your mortgage term, consolidate some debt or even increase your term, if appropriate. Still, there’s no “one size fits all” approach to refinancing, so make sure to talk with a trusted advisor who can help you review your current circumstances, future plans and financial goals.
3. You may still be able to buy or refinance even if your financial situation isn’t “perfect”
It isn’t easy to get a mortgage these days, but it isn’t impossible either. The best way to find out if you’re eligible for a home loan is to get a pre-approval. Even if you learn that you’re not eligible right now, you’ll likely become a qualified candidate in the future, as long as you begin following basic employment, credit and savings guidelines.
If you’re renting and on the fence about taking on a mortgage, consider how much rent you’ve been paying and for how long. Chances are you’ve spent a fairly sizable amount of money. For example, if you’ve paid $1,500/month for the past three years, you’ve spent $54,000. That’s money that has no investment value and will never be recaptured.
While there are circumstances when it’s positively better to rent, it’s wise to speak with a loan officer and learn how much you can afford, along with what your monthly mortgage payment would be. You may be pleasantly surprised how much you can buy for the same money as renting.
4. Yes, the paperwork and process can be daunting, but go with it
Getting a mortgage loan has changed quite a bit over the past few years and involves more paperwork than ever before. I’m the first to admit that it’s not fun and can be downright annoying. My best advice is this: Just go with it. Mortgage lenders and underwriters are under enormous pressure to make sure the foreclosure crisis never happens again. As a result, an unprecedented level of documentation is now required. Unfortunately, consumers often become frustrated because providing one document may trigger the need for three more. Again, go with the flow and remember that as tedious as the process may seem, it protects everyone’s best interests. And with today’s low interest rates and savings potential, the hassle is well worth it!
5. Service matters
People often tell us, “ABC bank said they can do a lower rate.” Our general response is, “Read the fine print.” Mortgage rates are basically commodities that vary very little between lenders. If you see a big difference, there are likely conditions with the “great deal” that make it not so great, and you should quickly steer clear of them.
All too often, we’re asked to fix loans that fall apart with other lenders who don’t have the resources, expertise and/or commitment to get the job done. That’s why it’s critical to work with a lender that understands your loan commitment needs and truly knows how to meet them from start to finish.
6. Credit follows you everywhere
Most likely, your credit will be pulled during pre-approval, application AND just prior to closing, so it’s very important that you not take on any additional debt prior to closing. If you must take out a new loan during the mortgage process, make sure to discuss it with your loan officer to prevent it from adversely affecting your mortgage.
7. Be completely honest, we’ll find out everything anyway
People often leave out pertinent details about their finances because they think they don’t matter or, worse yet, because they think they will cause a problem. In fact, the reverse is true. The more we know upfront about your circumstances, the better we can assist you.
8. Paying off your mortgage early isn’t always a good thing
Yes, you can save a lot of interest by accelerating the rate at which you pay down your mortgage. But before you do, make sure to focus on other non-tax deductible debts (such as credit cards, student loans, car payments, etc.) with higher interest rates first. Mortgage loans carry a much lower interest rate than most other debts.
Also consider saving for emergencies, retirement and education before worrying about paying off your mortgage loan.
9. You can buy a mortgage with little or no money down
There are still attractive government insured mortgage programs with little or no down payment required. When I tell people this, they often counter that those types of loans caused the mess we’re now in. To adequately address that thinking is a story for a different day, but in short, highly qualified loans can be made with small or no down payment. Having good credit and a proven ability to repay a loan is the key. Don’t let the lack of a large down payment hold you back from buying a home.
10. You get what you pay for (and when you don’t invest enough, you pay for it somewhere)
I’m sure most people would agree that they wouldn’t want to find their doctor on discountdoctors.com. That’s because there’s a difference between a bargain and a value. Bargains usually come with a price, primarily low quality and defects.
On a similar note, we often hear clients say they don’t want to pay for a realtor or attorney, and that they want to get the absolutely lowest rates possible.
We all want a good deal on our purchases and investments, but it’s important to strongly factor in the value of working with knowledgeable and trustworthy professionals. You’ll save more in the long run from their advice and guidance than shopping for a rock bottom deal and hoping against hope that the gamble pays off.
It comes down to the old adage: If it sounds too good to be true, it probably is.