First 5 Steps To Accepting A Mortgage Loan

August 13, 2023

Finding a mortgage loan is one of the first steps in the home buying process. Unless a buyer is paying cash for their new home, they must find a lender willing to work with them by providing an affordable and reasonable loan. Many buyers have been through the process before and know how it works, but first-time buyers might not possess as much knowledge about the mortgage loan process, how it works, and what it means to find the best mortgage. It seems easy, but there are a few aspects of the process buyers should familiarize themselves with before accepting any mortgage loan offer issued by the first lender to respond. Let's review them now!

Determining A Realistic Number

One thing buyers must understand is how to determine a realistic number in terms of a mortgage loan. It’s exciting when a lender comes back with a number and tells a buyer they can afford to spend that amount on a home. The buyer may not have even known they could afford that much. For example, if a buyer gets a preapproval from a bank for 500,000 dollars but they didn’t believe they could afford more than 300,000 dollars, the number might not be realistic. The bank might say it's doable, but homeownership is expensive. If the buyer is only comfortable spending 300,000 dollars, that’s the true realistic number. Buyers must account for homeowner’s association fees, the cost of home maintenance, and their everyday living expenses when figuring what they can afford to spend. Even if the lender tells a buyer they can spend more, it doesn’t mean they should. Sit down, do the math, and figure out a realistic number and go from there when looking for the right mortgage.

Continue reading to discover the difference between a bank and a broker.

Bank or Broker

When choosing between a bank or broker, buyers must remember there is a difference and understand it first. A broker is a person who works to find lenders for clients, but the broker doesn’t do the lending. Rather, brokers have a long list of lenders to work with, so they can shop around and find the best possible mortgage loan for buyers. The broker charges the buyer a fee to find the right loan for them, but the process is far more streamlined when the broker does all the work for the buyer.

A bank is a lender. If a buyer goes to a bank and asks them for a loan, they get the loan from that bank. They get the bank’s rates, the bank’s terms, and they work directly with that bank. It’s easy for a buyer to compare rates at different banks, or they can use a broker to do the same work on their behalf. Choosing is personal, but both can be beneficial to buyers.

Continue reading to learn about the most important process in the home-buying process.

Pre-Approval Process

Before a buyer does anything else in the buying process, they must find a lender and get pre-approved. There are several reasons for this. The most important is so the buyer knows how much they can afford. A lender might have a different idea of what is affordable based on credit scores, debt-to-income ratio, and a down payment. If the buyer is positive they can afford a 300,000 dollar mortgage, but the lender decides the maximum amount they’ll lend the buyer is 280,000 dollars, it’s helpful to know that before they put in an offer on a home.

The second reason a pre-approval is necessary pertains to the shopping process, as many sellers and realtors will not work with a buyer without a preapproval. For one, preapproval letters tell realtors and sellers the buyer is serious and not just someone who is out to waste their time. Second, a seller might not accept an offer from a buyer without a preapproval if there are multiple offers. They want a sure thing, and a buyer with a preapproval is a safer option.

Continue reading to learn about choosing a mortgage.

Choosing A Mortgage

Choosing a mortgage is easier than it sounds when buyers are familiar with what they’re looking for. It’s a very personal decision, and there are many options. FHA loans are available across the country for buyers with a low income and a small down payment. VA loans are available to those who currently or previously served time in the military. They don’t require any down payment or that buyers pay private mortgage insurance. Conventional loans do require a down payment, but they are simpler and more straightforward than other loans.

First-time homebuyer programs help buyers who don’t have the traditional twenty percent down. Some lenders offer mortgages to buyers without a down payment if they pay private mortgage insurance, and other lenders provide fixed-rate mortgages, balloon mortgages, and even variable-rate mortgages. Each one is advantageous for buyers based solely on their financial needs, payment abilities, credit score, and income.

Continue reading to learn about the role of closing fees.

Looking At Closing Fees

Looking at closing fees is important, as they can make or break a mortgage loan for buyers. Closing costs vary based on the lender, but they almost always include application fees, appraisal fees, inspection fees, doc stamps, escrow deposits, and title insurance. It’s expensive to close on a home, and it’s not something individuals should ignore when it comes to the total cost of ownership when accepting a mortgage loan. Just because one mortgage loan has a high closing cost fee, however, isn’t always a make or break deal. Buyers can ask the seller to pay part of their closing costs in their offer. For example, imagine a buyer is looking at a 295,000 dollar home, submit an offer of 296,000 dollars, and the seller pays half of the closing costs. It might seem as if the buyer is spending more, but they are actually spending less by offering more than asking price and requesting half the closing fees from the seller.

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