The steps to get to the mortgage credit

Finding and securing a mortgage to finance your new home can seem overwhelming, especially if you’re a novice buyer. But it doesn’t have to be that way.

If you use this list (and reviewing the recommended articles below) you will be able to unfold the processing of the mortgage loan for the house in simpler and easier tasks and you will be able to complete each requirement at the indicated time.

This summary will help you prepare the required documentation and information. You’ll know what to expect in terms of loan rates and other fees and you’ll be better equipped to be able to find the lowest cost mortgage loan available.

Finally, this list was designed so you don’t miss any crucial steps during the process. Let’s start with the first four steps; They are the ones that should be done well in advance before you start actively looking for a loan.

First, take a closer look at your overall financial situation: understand that you will need to document your monthly income, current expenses, savings, or equity from another property that you plan to use as a down payment. Be prepared for it. Ask yourself what mortgage you can afford. As an approximation, calculate your debt-to-income ratio (DTI), the portion of your total gross monthly income that you will now pay off credit card debt, auto loans, student loans, and other expenses. See the link to my article “How much can I pay for my house?” for more information during this stage.

Check your credit reports: Request all three credit reports from the three national credit reporting agencies (Equifax, Experian, Trans Union) at least two months prior to engaging in credit. You have the right once a year to obtain them through If you see errors, omissions or outdated information, request corrections from lenders immediately, which is your legal right under federal statute.

Monitor your FICO score: Your FICO score is the only credit score that matters. See the article below “Understanding Your Credit Score” for more information. After reviewing and correcting your credit files, request your FICO scores from one or more of the big three credit bureaus or through As a general rule, you’ll need your FICO score to be at least 680 to qualify for most loans, and a score of 740 or higher to get the lowest rates and expenses for mortgage loans.

Compare types of mortgages: 30-year mortgages offer lower monthly payments than 15-year loans, but shorter mortgage terms allow you to pay off your mortgage much faster. FHA, VA, and Rural Housing loans offer the lowest down payments and require the lowest FICO scores. Adjustable rate hybrid mortgage loans are fixed payments for a term of certain years (say 5 or 7) but then converted to annual adjustable rates, exposing you to higher payments if interest rates rise. Conventional loans (Fannie Mae, Freddie Mac) often offer the best closing if you can make a 20% down payment.

Start looking for a mortgage loan: Have an overview of the prevailing rates for different types of loans and terms among lenders (and also online credits). Please note that without asking for your credit information and your formal request, the prices of lenders or loan officers are not binding.

Search smart: In the mortgage comparator, compare key features of loan offerings from rival lenders.

Interest rates: The cost of mortgage money is basically the same — or in a very thin band — nationally on any given day. Beware of very low interest rates, key differences are often the result of differences in costs and loan creation fees.

Points: These are the extra charges that the lender charges as part of their remuneration for setting up a loan at a certain interest rate, given the perceived risk of the applicant. They can be paid at closing funded for the full term of the loan. As a general rule, if your intention is to stay in the house for only a few years, it is better to pay less in points, even if the budgeted rate is slightly higher. If your idea is to stay on the loan for several years, opt for a lower interest rate and slightly higher score.

Annual percentage rate (APR): Control the annual percentage rate for each mortgage you consider. This is the effective interest rate you will pay with points and fees originated by the loan included. This will always be different from the published rate.

Rate closing costs: How much will it cost to “close” the budgeted interest rate—that is guaranteed, no matter what happens in the money market—beyond 30 days? 45 days? 60 days?

Debt-to-income (DTI) limits: Can the lender accept the DTI you calculated earlier without charging you more in interest rate or expenses for the type of loan you want?

Loan amount: Based on the information you provided, what loan amount will the lender consider?

Granting time: How long will it take from application submission to closing? What is the lender’s average delivery time?

Junk costs: Ask rival lenders how much they charge for initiation, processing, document preparation, mail, and application fees. These are areas in which lenders slip in dubious extra charges. Add each lender’s total estimated borrowing costs to see how they fit up among competitors.

Lender Ratings: Certain online mortgage sites that showcase various lenders also include applicant ratings for service, efficiency, accuracy, etc. Please refer to this before submitting your application.

Choose the best lender: Choose the loan that best meets your goals and financial situation, with the lowest total cost package.

Ask for a pre-approval letter: This will expose a minimum loan amount from the lender you intend to use. This will help a lot in your home purchase as it will tell a home builder or seller that you are financially qualified. This will set a maximum loan amount from the lender you expect to use.

Choose the home you want to buy and sign a contract to buy it: a copy of this agreement should be part of your loan application.

Now is the time to apply for the loan you identified before: be sure to review the Truth in Lending and Good Faith Estimates that lenders must present to you within 3 business days of applying. If you have questions about any costs, have them answered as quickly as possible. Confirm the closing/deal date and location.

Check the status of your mortgage during the process: was the mortgage calculation for the required loan amount? Do risk assessors need additional documentation? Any problems that may delay or spoil the closure? Require a copy of the estimate after it is completed.

Require a copy of the closing form (HUD-1) three days before the scheduled closing: Compare line by line with what was previously estimated. Ask for explanations or corrections if any discrepancies or charges higher than agreed arise.

The day of closure arrives: now is the time to sign the closing documents. Congratulations, that new house is already yours!

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By Catharine Bwana