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What You Need To Know
For many buyers, applying for the mortgage loan is one of the more stressful aspects of buying a home. And with all of the changes that have occurred in the last 18 months, some times you don't even know what questions to ask.
It is important to understand that applying for a loan is an important element in the negotiating process. First, by knowing what you can afford, you are looking at homes that are within you price range, so you don't fall in love with a home that will stress the budget.
But perhaps more important is the ability to go into the negotiating process and tell the seller "I am willing to pay this amount for your house, and here is the letter from the bank that says I can afford that." With bank owned properties or short sales, the lender won't even look at your offer without the prequalification letter. So make that your first step.
The loan application need not be a stressful time. By following a few easy steps, you'll sail through the loan application process.
- Make a list of any questions you have about the loan program.
Be sure you understand the advantages and disadvantages of the various mortgage programs for which you may qualify. You want to know more than the interest rate. Ask about closing costs, prepaid points, private mortgage insurance and escrows so that you have a complete understanding of the money you will need to close as well as to make the ongoing house payment.
- Decide if you want to lock-in or float the loan's interest rate.
Locking-in the rate means that the lender commits to the mortgage interest rate for the loan - typically at the time the loan application is submitted. By floating the rate, you can lock-in the interest rate anytime between the loan application day and closing. Buyers opt to "float the loan" when they believe interest rates will drop after their loan application date and prior to closing. The risk is that rather than dropping, interest rates may rise, increasing the mortgage payment. Although interest rates have been trending down, most projections call for in increase in mortgage rates in 2010.
- Decide if you want to pay additional points to lower your interest rate.
Typically you can elect to pay additional points (each point is 1 percent of the mortgage loan payable in cash at closing) to lower the interest rate of your mortgage loan. You can also ask the seller to contribute with closing costs and/or points.
4. Gather your paperwork.
Click here to view a list of typical loan documentation. |
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