Loan Application Checklist
For many buyers, applying for the mortgage loan is one of the more stressful aspects of buying a home. 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, including the advantages and disadvantages of Fixed Rate Mortgages versus Adjustable Rate Mortgages.
- 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.
- 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.
- Gather your paperwork.
Click here to view a list of typical loan documentation.
5 Tips for Homebuyers Seeking a Mortgage
Here’s a warning for potential borrowers: Nervous lenders have tough new rules and are paperwork crazy.
"Borrowers are going to have to prove they are the borrower they say they are," says Keith Gumbinger, vice president of HSH Associates, a mortgage-industry publisher in Pompton Plains, N.J.
Gumbinger says homebuyers should consider these things before they apply for a loan.
1. Down payments are critical. Borrowers should expect to put down at least 10 percent for a “conforming loan” – a mortgage that Fannie Mae and Freddie Mac will purchase.
2. Credit scores count. A 720 on the 850-point FICO rating scale will get a borrower access to the best rates. Rich Bira, branch manager of FCM Direct Lender in Chicago, says: "A score between 720 and 739 gets 0.125 percent added to the rate, a score between 700 and 719 gets 0.375 percent added to the rate, and a score between 680 and 699 gets 0.5 percent added to the rate.”
3. Consider VA and FHA. Borrowers without down payments or with less than stellar credit scores should consider these government-insured loans offered through the Federal Housing Administration of the Veterans Administration.
4. Unearth the records. Before applying, borrowers should organize tax, banking and other records that prove income, savings and debts. They should also expect to be patient about what may seem to be endless requests for information.
5. Get rid of debts. Limiting debts, including what borrowers expect to pay for the mortgage, to less than 43 percent of gross income is important.
Source: Chicago Tribune, Mary Umberger (02/15/09)