Ask an Expert: The Mortgage Process
In the first of my new Ask an Expert series, I spoke with mortgage consultant Hunter Church of Prosperity Home Mortgage. We chatted about questions that commonly come up when people are starting the home buying process. Get pre-approved; get house hunting! Thinking about buying or selling? Have questions? I’d love to guide you through the process from pre-approval to getting the keys to your new home.
Have real estate questions or suggestions for the next “Ask an Expert series”? Leave a message below or email me at Ldonnelly@kw.com.
What are the most important qualifications to look for in a lender?
For a buyer, “rate” will always be important. But in some cases, the old saying of “you get what you pay for” comes into play. In our footprint, flexibility and local lending is the name of the game because not all lenders are created equal. Big banks and financial institutions operate differently because they are typically nationwide companies. They don’t have a true “local” presence, as their loan officers, processing and underwriting centers are across the country. This can translate to a lack of control and communication during one of the most important financial decision’s that a buyer can make.
With my company, Prosperity Home Mortgage, we have local processing and underwriting. This means that our team members have knowledge of the specific markets that our buyers are purchasing in. On top of that, we are able to help make our buyers as competitive as possible by offering quick turn times for settlement dates and contract contingencies which can help to put them at the front of the pack when making an offer.
I know in order to look at homes with a realtor, I need to be “pre-qualified.” What does that entail?
The preapproval process involves an initial conversation with a lender to outline the parameters of what you are looking to do. In my conversations, this initial consolation usually focuses on comfort levels for monthly payment and cash needed to close.
We then notify buyers that they can get the process started by completing an application over the phone or online. In today’s world, many of the buyers that we work with prefer to complete the application online. The application only takes about 10-15 minutes or so to complete, requesting basic information about employment history, residence history, income, assets, etc. There is no cost or obligation associated with the preapproval process, as it’s solely educational in allowing you to better understand your qualifications and comfort levels.
Once the application is completed, you work with the lender to tie up any loose ends and answer any outstanding questions to ensure the lender has a complete picture of what you are looking to do. The lender then pulls together mortgage estimates tailored to the purchase parameters you have discussed, and at that point you are preapproved.
I want a home, but I have student debt. Will I be able to obtain a mortgage?
One of the biggest factors that a lender considers in a buyer’s qualifications is their debt to income ratio. As the name suggests, this considers a buyer’s minimum monthly payment obligations (credit cards, student loans, proposed monthly payment for property, etc) against their gross (before taxes) monthly income. Conforming guidelines allow for a maximum debt to income ratio of 45%, and up to 50% on a discretionary basis.
With that being said, a number of buyer’s come to us with this question, and unfortunately, it can’t be a blanket “yes or no” answer. However, a large percentage of buyer’s in the market today have some level of student debt, and many of them are able to obtain financing.
How can I improve my credit score?
There is no easy fix or golden ticket to improving your credit score, but there are some proactive steps that you can take to help put yourself in the best position possible. While the three major bureaus place different amounts of weight on areas of your credit profile, the most common items that have an impact on your scores are payment history, length of credit history, credit limits, and the number of recent inquiries.
To focus in on one item, your credit utilization rate is a good starting point. Your credit utilization rate is calculated based on the balance of an account (or your whole credit profile in general) vs your high credit limit. The general rule of thumb/sweet spot for the big bureaus is a utilization rate of 30% or below.
What do you wish people knew about getting a mortgage?
A lot of people are misdirected by what their parents tell them or what they have heard in the media/Rocket Mortgage commercials. One of the most common misconceptions that I encounter with first time home buyers is that they feel they need to wait to buy a property until they have 20% to put down. In reality, first time home buyers can put as little as 3% down with a conventional loan through Fannie Mae or Freddie Mac.