Buying a home can be a challenging experience, but you have help. Your real estate agent is there to help with the home search and your mortgage lender is there to get you through the mortgage process. Utilize these people and their knowledge to help you navigate through all the steps.
Here, we’ll talk specifically about the mortgage lender and your pre-approval. Your lender will ask for your income and assets and your debt. They’ll pull your credit and get your credit score. All this information will determine your mortgage estimate. Make sure your lender issues a pre-approval with all this information taken into account. Some lenders will issue a basic pre-approval, but without fully checking all your financial information. Embrace Home Loans will issue a fully-underwritten pre-approval through its Approved to Move™ program. This means, you have the loan, but have not found a property yet. Think about how strong your offer will be when you find that perfect home. Your Approved to Move™ pre-approval is as strong as a cash buyer, giving you the edge over others with only a simple pre-approval. For more information on Approved to Move™, click here.
As a reminder, here’s what your lender will need you to submit.
Personal information to verify current income and employment:
- Paystubs for borrower and co-borrower from the last month
- W2s from the last two years for both borrowers
- Signed copies of the last two year’s tax returns, including all schedules filed
- Bank statements for all checking and savings accounts for the past two months, including blank pages—yes, that seems silly, but page 3 of 5 tells the lender you received 5 pages and they are required to document all of them.
- Statements from any retirement and investment accounts for the past two months.
Debt and payment history
After your lender runs a full credit check to review all outstanding balances, they will determine your debt-to-income ratio, which is the amount of all monthly recurring bills divided by your gross monthly income, displayed as a percentage. As a simple rule, your debt-to-income ratio should not exceed 30%.
They will also review the types of credit you have. Having a mix of credit cards, auto loans, etc. is best. Your lender will also look at the number of inquiries on your credit report made in the past six to twelve months. So when the cashier asks if you’d like to save 10% on your pants purchase by opening that store credit card, you might want to rethink your decision. It’s a good idea to limit opening too many credit card accounts—they’ll only bring your credit score down. Everything in moderation here.
There are many costs associated with your mortgage so make sure you’re prepared and understand what each cost is for. Your lender should handle all of these relationships and fees for you:
- Application Fee – Fee charged by lenders to process your loan. Embrace does not charge an application fee.
- Appraisal Fee – Fee charged by the appraiser to determine the current value of the property.
- Closing Fee – The closing agency, comprised of escrow, attorney, title companies, charge this fee to ensure the close of your transaction.
- Credit Report Fee – Credit reporting agencies charge the lender a fee to obtain your credit report. This fee is passed on to you.
- Title Search / Title Insurance Fees – The title company charges a fee to ensure the property is free from liens or title defects.
- Origination Fee – This fee is paid to your lender to establish your account, provide services to you and process your loan.
- Discount Points – These are paid to the lender to obtain a lower interest rate on your mortgage – one point equals 1% of the loan amount.
- Miscellaneous Fees – Certain loans like VA and FHA may have other fees associate with them, including Private Mortgage Insurance (PMI), document preparation and notary, recording and tax services.
Consult with your lender with any questions. Getting the pre-approval up front and knowing the fees associated with your loan will allow you to shop for your new home with confidence.