When it's time to shop for your mortgage, keep in mind that there are plenty of factors to consider. You want a good rate, lower fees and someone you can depend and trust to help guide you through the process.
Make your credit union your first stop when looking for a mortgage. They're known to have some of the best rates, lowest fees and friendliest service around. Plus, credit unions tend to hold onto your loan for the life of your mortgage. If you go with another financial institution, chances are your loan will be bought and sold several times over while you have it. It's nice to know who your lender is and the consistency a single lender can offer.
Once you start mortgage shopping, you might get offers to get pre-qualified. For Realtors and potential sellers, the magic phrase is pre-approved, not pre-qualified. Pre-qualified means you've had an initial consultation with a lender. Pre-approved means you've had your credit report pulled and your history and finances analyzed to come to a specific figure of what you can afford.
Being pre-approved gives you more buying power and should always be done before you start house hunting. Once you find a house and put an offer on it, being pre-approved makes you much more attractive to the seller and brings you one step closer to having your offer accepted.
There are plenty of things to consider when getting a mortgage: 15- or 30-year, adjustable- or fixed-interest rate, points or no points.
Term – A 15-year mortgage has larger payments but will cost you less in the long run. You pay the principal off much quicker, meaning less time to pay interest. A 30-year is great if you need to keep your monthly payments down, but it'll take you that much longer to pay off and compile interest. Use our fixed rate mortgage calculator or variable rate mortgage calculator to help you decide.
Interest rates – There are two kinds of mortgages, adjustable-rate and fixed-rate. A fixed-rate means you'll have the same interest for the life of your loan. An adjustable-rate mortgage (ARM) is usually lower than a fixed, but it can increase or decrease by a certain amount over a specific period, usually once a year. To protect you, they come with an upper limit, or cap, of how much they can increase per adjustment. While your rates may be lower with an ARM, they can be a gamble.
Points – Points are a way of bringing down your interest rate. One point is worth one percent of your mortgage. If rates are high, they may be worth considering and talking to your lender about.
You've probably applied for a loan or credit card by now. Applying for a mortgage is somewhat similar. But remember, you're applying for a major amount of money, so you and your financial history are going to go under a microscope.
A signed and completed purchase agreement.
A receipt for your good faith deposit that will be applied toward your down payment at closing.
Proof of income. You'll need stubs from the last month's worth of paychecks plus your W-2 forms and/or tax returns for the last two years. If there are two of you on the mortgage, you'll need this for both of you.
Statements for your checking, savings and deposit accounts.
Stock/bond statements if you have them.
Award letters for things like Social Security, disability or retirement if applicable.
Your checkbook to pay for your credit report, appraisal fee and loan application fee. You can get these numbers in advance if you need to. They are sometimes included in your closing costs.
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