You already saw how we found our house, and then how we negotiated the final sales price. But what about the other big, scary part of buying a house, getting a mortgage?
This was an aspect of home buying that I really didn't know anything at all about until around 6 months ago. It's not exactly a glamorous part of the home buying process that would make for a good show on HGTV, so I had to turn to the internet to find my way.
So here is basically a brain dump of some of the things I've learned about mortgages over the past few months. A lot of this you can find by digging around online, but since I've been on the topic of buying houses, I thought I'd add this post as well. Or just feel free to skip this post altogether, if this stuff isn't interesting to you. But check back later today, I'll have another post up about a fun giveaway!
One of the easiest to read and understand resources I found when researching the mortgage process was on Homefinder.com. Their guide to mortgages was really useful to us, and I won't copy their content here, but just wanted to refer anyone who is interested there for a good place to start understanding what mortgages are all about. And this is a good summary of the mortgage process as well.
Aside from all of the details that go into mortgages and the definitions of what these things all are, a good takeaway is to start early. At least 6 months out from when you are looking to get pre-qualified for a mortgage, pull your credit scores, so you know where you stand, and if you need to do any damage control (like fixing errors on your credit reports), this will give you enough time to do so. Only get your credit scores from MyFico.com. I can't reiterate this enough. This is the one and only site that gives you the real FICO scores that your mortgage lender will use. There are a ton of credit score websites out there, but what they don't tell you is that they're fake credit scores. Commonly called "Fako" scores, these companies use their own scoring systems to provide scores (at a cost to you, of course), that can differ from your true FICO scores. So don't waste your time and money, just go to the true source for your credit scores (and no, MyFico.com is not paying me or anything to write this, I'm just sharing what I've learned by researching this stuff to death!).
Once you've gotten your Equifax and TransUnion credit scores (and that's another thing, you can no longer get your Experian credit score online. Several years ago they pulled out, to go off and join the other companies who make up their own Fako scores to charge more money, which is pretty shady in my opinion), make sure there isn't anything on there that shouldn't be. If you find something wrong, on the individual credit bureau's websites, you can submit a dispute to get whatever needs to be changed. For example, on my TransUnion credit report, they had my birthday off by one year. This took several weeks to correct, so that's why it's important to start early, well before you need your credit scores to apply for a mortgage.
So, you've got your credit scores, you have an idea of what kind of interest rates you'll qualify for based on those credit scores, and you're ready to get pre-approved for your mortgage. Or, you can shop around for mortgage companies, if you like. This is where understanding interest rates and APR comes in handy, and this is a good description. Personally, we went with a mortgage broker, since brokers have access to all of the different mortgage types (conventional, FHA, VA, etc, etc) and can help you pick the best mortgage for your situation. I think our broker has access to something like 18 different loan types, so it was just easier for us to go with a broker, than to shop around individually. But if you are going to be shopping around, make sure you do it all within a 2 week time span. They will be pulling your credit to see what you qualify for, and if you're shopping for mortgages, it's ok to have multiple pulls in a 2 week span, but outside of that, the credit pulls will start to negatively impact your credit score.
But back to pre-approvals. These days, everyone recommends getting pre-approved, because it saves a lot of time once you're ready to put an offer on a house. With your pre-approval, you'll get a letter from your lender to include with your offer on the house, stating that you are well qualified to purchase the home. This is reassuring for the sellers when considering accepting your offer, and having the letter ready ahead of time will mean that you won't have to wait on submitting your offer while the pre-approval is happening.
For us to get our pre-approval (which we were able to just fill out online on our broker's website), we needed each of our names, our address, social security numbers and birthdays, our salaries, time at our current companies and contact info. Unless of course, there's anything weird on your credit reports, then they may need pay stubs or your tax forms. Luckily there wasn't anything out of the ordinary on ours, and we had our pre-approval letter ready to go the next day.
So, fast forward past putting an offer on the house of your dreams, to when your offer is accepted. Then it's time to sit down with your lender again and go over all of the paperwork. You'll sign off on your mortgage application, the good faith estimate of what your closing costs will be (I'm actually planning another post on all of the costs we've incurred, prior to getting the keys to our house, so I'll go over closing costs then), truth in lending documents, etc. Your lender should walk you through all of what you're signing, and this is your chance to ask any questions you may have about the process.
Then you get to hand over all of your supporting documents that you've gathered. This is another area I would recommend getting started on early, since you'll have to do a lot of printing and tracking things down. This is the list of what we had to include with our mortgage application, although other lenders might ask for something else.
- Purchase Agreement
- Legal Description and MLS Sheet
Income & Assets
- Pay stubs covering the last 30 days
- Names and addresses of employers
- W-2s and K-1s from the previous 2 years
- My husband's tax returns from the previous 2 years (since he's a partner in an LLC)
- Bank account statements last 2 months
- Names and addresses of each employer
- Names, balances and monthly payments on all current loans (We have no current loans—husband's student loans were just paid off, so we included his last statements showing a zero balance)
- Credit card statements (zero balances on both, but we included anyway to save the underwriters time)
- Copy of Driver’s Licenses
- Copy of Social Security Cards
- Residence addresses for the past two years
To make things very easy for our lender, I printed out cover sheets for each of the bolded sections above, and then neatly arranged all of the supporting documents into a packet, with report cover and all. One of the biggest things that can delay your mortgage approval is the underwriters needing more info on something, so we tried to over share as much as possible, so they would (hopefully) have no reason to come back for anything else from us.
And it worked! Not only did our lender tell me I was "an underwriter's dream" after I handed over our packet, but it only took one week for them to come back to us with an approved mortgage, pending the property appraisal and us securing home owners insurance (the appraisal happened after our home inspections, since there's no point in paying for it until you know for sure you're moving forward with the purchase of the home).
So that's where we are now in the mortgage process. All that is left on our end of things is to add home owner's insurance to our existing policy with State Farm (working on that today, actually, since we just got our appraisal back), and sign up for a home warranty. And once we send that info over to our lender, all of our mortgage documents, the appraisal, etc, are gathered together to create what is called the "Closing Package." This Closing Package will be sent to our closing attorney, and he will draw up what is called the HUD-1 Statement, which is a summary of the funds needed to close (and which hopefully closely matches the good faith estimate that the lender originally gave you).
After that, in a little over two weeks we'll just need to get a really, really, really big certified check from the bank, show up for our closing, and sign our lives away! We've scheduled it for 10am, so we should have no problems getting it recorded by the courts, and getting our keys the same day (sometimes later in the day closings mean they don't have time to get the documents to the courthouse, and you don't get your keys until it's recorded, so scheduling your closing early is usually better). Update: Terri, who is a former real estate attorney, left a comment on this post, and I wanted to include the info up here, so anyone reading this would see it. She says that in many states it's not the courts who record your mortgage, it's usually an office called the Registry of Deeds (or something similar) or at the County Clerk's Office. My lender's website literally says "the courts," but I wanted to be sure to update the post with this info, in case it's different in your state. Thanks Terri!
I'm definitely not an expert; I'm only just sharing our experience so far, but my three mortgage tips are: start early, do your homework, and be as organized/over share as much as you can
Have you gone through the mortgage process before? Have any additional tips to share that worked well for you?