Obtaining a mortgage for a home is, for most people, the biggest financial transaction in which they will ever be involved. Today, as potential homebuyers begin to explore purchasing a home, the mortgage market has changed dramatically. Ten years ago half of all mortgages were loaned by the nation’s three largest banks. Today, over half of all mortgages are secured through non-banks, either through mortgage brokers or online mortgage bankers. There is no doubt that the Internet and the expansion of the mortgage lending industry into web based services has played a major part in this transformation. As time goes on it is almost certain that more and more people will be going online to secure possibly the largest financial transaction of their lives.
Broker or Banker?
Much like retail banking institutions, mortgage brokers are somewhat limited in their lending practices because they represent a certain number of lenders via a wholesale arrangement. By contrast, web based mortgage bankers typically have a couple of advantages in that securing mortgages for their clients is their only business, and they probably have a wider range of lenders to work with. Online mortgage bankers also have a certain advantage in that they conduct their business almost in its entirety, online, which reduces their overhead and, hence, their fees.
Mortgages: What You Need to Know
Regardless of whether you try and obtain a mortgage through your local bank, a mortgage broker or a mortgage banker, the mortgage process, itself, is virtually the same, and you need to be familiar with it. Here’s the basics of what you need to know.
- Application Process
- Approval Process
You’ll be required to fill out the standardized Fannie Mae application form know as “Form 1003.” You’re going to have to provide financial information about yourself, including how much money you make, where and with whom you make it and any valuables, or assets, you may possess. In addition, you will have to authorize potential lenders to access your credit report. Be prepared to have on hand copies of W-2 forms from employers for the past two years, as well as pay stubs to verify income and employment. You’ll also need bank statements for asset verification purposes.
After lenders have compiled the information you have provided you will either be approved for a mortgage loan with no conditions, or you will be expected to meet certain conditions to obtain this approval. This usually requires that you provide additional documentation and should not be viewed as a rejection. The third option is that your request for a mortgage loan has been denied outright. Don’t do anything like change jobs, take on any additional credit cards or loans during the application process. All you’ll accomplish is creating delays and setting yourself up for a lot of explanations.
Some Tips for Finding the Best Mortgage Lender
Now that you have a basic understanding as to what you will have to go through to secure a mortgage, here’s some steps you can undertake to ensure that the mortgage broker or lender you choose is the one that will work best for you and your needs.
- In addition to gaining a good basic understanding about the mortgage process, spend some time online doing some research on mortgage brokers and mortgage bankers. You’ll be pleasantly surprised at how much good information you’ll be able to find that will aid you in your choice.
- Work on ensuring your credit score is in good shape before you even start inquiring about obtaining a mortgage. Remember, the higher your credit score, the stronger your bargaining power.
- Go online and compare rates between various lenders. Rates can fluctuate for a variety of reasons. Don’t ever underestimate how much savings you can enjoy from even a fraction of a percentage point difference in interest.
- Try and get preapproved for your mortgage. In essence, this means you provide enough information to a potential lender so that they might pre-approve a loan up to a certain amount. This helps greatly in deciding how much of a home you can afford.
- Make sure you have a good understanding of everything that will be required of you in regards to fees and any costs, such as mortgage insurance, that go beyond your principal and interest payments.
As you may have already gathered there are certain advantages in obtaining your mortgage loan through an online mortgage banker. Not only is there the likelihood of working with an organization with more options and flexibility to offer you, the application process and seeking pre-approval will, likely, be handled online at a time of your convenience so you won’t have to miss work or travel to an office somewhere. In today’s digital age this can be a big plus.