Pre-approval/Mortgage

The first step towards getting a mortgage is a pre-approval.  This checklist has a few things that you will need to move forward on the home-buying process.

  1. Check your credit score. (Free Credit Report: creditkarma.com)
  2. Address any disputes, issues or questions regarding your credit report.
  3. YOUR CREDIT IS IMPORTANT FOR PREAPPROVAL. DO NOT DO THE FOLLOWING DURING THE PROCESS:
    • Apply for new credit.
    • Take on new debts or make large purchases.
    • Cancel any current credit accounts.
    • Ask a creditor to lower your limit.
  4. Make sure all individuals applying for the mortgage have the following documents from the past two years:
    • tax returns and proof of income (W2s or pay stubs)
    • year-to-date profit and lost statement (self-employed)
  5. Have your down payment/closing money already in the bank.
  6. FOR CURRENT RENTERS: Have proof for the last 12 months that you have paid rent on time (check copies/money order receipts). You should also have a written referral from your landlord in regards to you as a tenant.
  7. Two forms of government identification and any other personal documentation you may need to provide for the lender. (marriage records, divorce papers etc.)
  8. Proof of regular income from all forms including Social Security, child support or government assistance.
  9. Proof of account balances for IRAs and retirement accounts.
  10. Show proof of money held in the stock market.
  11. FOR CURRENT/PREVIOUS HOME OWNERS: Bring proof of other property currently or previously owned.
  12. Disclose past financial issues (bankruptcy etc) along with a written explanation of what happened and how the situation has been addressed or corrected.

The modern mortgage market offers a variety of mortgage loans catering to the needs of homebuyers. The titles and details of these plans can become confusing, especially as new types are introduced continuously. You can make sense of these loan types, however, if you understand the basic principles that govern all mortgage loans.  Again, you can look to your real estate professional for assistance.

Basic Principles of all Mortgage Loans

  • The home is used as security to back up the loan. A lender can force sale of the home if the borrower defaults by failing to make scheduled payments.
  • The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be.
  • Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month).
  • The required payment usually is a bit larger than the interest due so that some of the loan principal is repaid with each payment. This process is called Amortization and is why most mortgage loans can be retired when all the monthly payments have been made.

All mortgage loans have one of the following features:

  • Fixed payment and fixed interest rate - fixed rate mortgages
  • Fixed rate but variable payment - graduated payment mortgages
  • Variable rate and variable payment - adjustable rate mortgages

As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter-term loans often have slightly lower interest rates compared to longer-term loans. However, the monthly payment for the same amount of principal may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that interest rates will rise in the future.