Unsure where to start? Do you find yourself asking if it better to get pre-qualified or pre-approved? Or how to raise your credit score? You’ve come to the right place. Check out some of our clients’ most frequently asked questions during the mortgage process below.
Pre-approval is more thorough than pre-qualification. To be pre-approved, you must submit an application and verify your credit and financial history. After you receive your pre-approval certificate, you’re in a stronger position to close earlier and negotiate a better price. It’s highly recommended that you seek pre-approval if you are shopping for a home.
- Proof of Income – Find and make copies of your pay stubs.
- Tax Information – Gather your W-2s, 1099s, and tax returns for the last 2 years. If you’re self-employed or an independent contractor, you’ll be required to provide your 1099-MISC information.
- Credit Details – We’ll perform a credit check when you apply.
- Debt Documentation – You’ll be required to provide documentation on your outstanding financial commitments. Gather materials on your current mortgage, car loans, student loans and any other debts.
- How much you can afford to pay upfront?
- How long do you expect to make payments on your mortgage?
- What is the length of your loan, and how long do you plan to live in the home?
Many people looking for a long-term mortgage opt to pay points to ease their monthly payments. People looking at a mortgage with a shorter term or looking to stay in the home for a shorter period of time often opt to make a larger down payment instead of paying points.
Also, make sure that you understand the full cost of the loan and that you feel comfortable with all of the terms. For instance, pre-payment penalties, a large down payment requirement, or larger monthly payments may cause the loan to be less than ideal — regardless of the interest rate.
- Form 1003 — The residential loan application — including the attached Fair Lending notice, loan info sheet, and credit authorization. Note: Do not use whiteout on this paperwork. Mistakes should be crossed out and initialed.
- Copies of W-2s or tax returns for the previous 2 years.
- If you own rental units, provide the most recent rental agreement and tax returns for previous 2 years.
- Your last 3 bank statements along with the most recent statements for any mutual funds, IRA/401(k), or stock accounts.
- Settlement agreement and divorce decree (if applicable).
- Letter explaining how you plan to utilize refinance proceeds if you’re seeking a cash-out refinance.
- Non-U.S. citizens must present their Green Card or H-1 or L-1 visa.
- If you’ve filed for bankruptcy, present a schedule of creditors, discharge notice, and filing.
- If you’re applying for a second loan, include the first mortgage note.
These documents may not be all-inclusive, but by having these on hand, you will expedite the application.
FICO and the credit bureaus do not disclose their exact computation methods. However, most credit scores are calculated through models that assign points to different factors of your credit history to best predict future performance. There are many commonly analyzed factors in your credit history, including:
- Payment history
- Employment history
- How long you have had credit
- How much credit you have used compared to how much you have available
- How long you’ve lived at your current residence
- Negative credit/financial events such as collections, bankruptcies, charge-offs, etc.
- Identifying information — Social Security number, date of birth, employment information (these facts are not determining factors in credit scoring)
- A list of debts — how many credit lines have been opened and closed, types of credit lines, a history of how you’ve paid them, loan limits, and current balances
- Public record information — bills referred to collection agencies, bankruptcies, foreclosures, suits, liens, etc.
- Inquiries made about your creditworthiness during the last two years — voluntary and involuntary inquiries.
- Pay your bills on time. This is extremely important. Collections and late payments can lower your credit scores.
- Reduce your credit balances. Maxed out credit cards will lower your credit score.
- Don’t apply for credit often. This reflects poorly on you and your rating.
- Establish credit history.
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Inflation also has a major impact on mortgage rates. Inflation is associated with a growing economy. As the economy grows, the prices for goods and services increase along with it. This price inflation affects real estate along with everything else, pushing up the price for mortgages.
Lastly, the Federal Reserve has the ability to influence interest rates for the purpose of controlling inflation and employment. It can do this by raising or lowering the discount rate, and indirectly influencing the direction of the Federal funds rate.
Zero-point/zero-fee loans are particularly useful for people who will not be spending a long time in their home. If you’re looking to move within five years, there’s little downside to this type of loan. However, if you stay in the home for the long term, you’ll eventually end up losing money by paying at a higher rate over a longer period of time.
Rate locks are dependent on the type of loan program, current interest rates, points, and the length of the lock. To hold a rate for longer periods of time, you usually have to agree to pay higher points or interest rates.
The price of PMI is inversely proportional to the size of your down payment. The larger your down payment, the lower the cost of PMI will be.