1. What do lenders look for when I apply for a mortgage?
Answer: There are four things that lenders look for when deciding on approving your loan:
- Credit – They are looking for good established credit history. A credit report inquiry will be obtained from the 3 major credit bureaus. Don’t worry if you don’t have the best credit history, this will usually not just out right deny your loan.
- Debt to Income Ratio – The total amount of gross monthly income over the total amount of monthly payments. A good rule of thumb to follow is not to exceed 45% as your total ratio.
- Assets – Any type of liquid assets will help to strength your loan application. Things like a 401k, stocks, savings, etc. can be used as assets to support your approval.
- Property – Whether it is a home you plan on living in or buying as an investment property, it will have a difference in the interest rate. Also, the number of units like a duplex or 4 unit can have a difference in your approval.
2: Do I need a down payment?
Answer: No. There are still programs that allow you to finance 100% of the purchase price. Having a down payment does help in getting the best interest rate, but it is not necessary.
3: What if I don’t have the best credit?
Answer: Not having the best credit doesn’t necessarily mean you will never be approved for financing. Many times someone who has a few late payments in the past or extra debt and they will still be approved. There are government first time home buyer loan programs that approve bad credit history everyday!
4: What are the closing costs?
Answer: Closing costs can vary with different loan programs and approvals. Typically, you can expect to pay the following:
- Lender Fee – This is a fee from the lender for underwriting the loan.
- Appraisal Fee – An appraisal is required to obtain value of the home.
- Title Fees – A title company is used to obtain a lenders policy for the lender and handle the closing of the loan.
- Pre-paids – This is the escrow account (money set aside for property taxes and homeowners insurance) and interest paid through the rest of the month, depending on when your closing date is.
Here in the state of Wisconsin, you can anticipate to pay $1500 to $2000 in total closing costs.
5: How long does the loan process take?
Answer: On average, the entire process takes a total of 2 weeks. Here is a good breakdown:
- Loan Application – A standard application is taken to gather credit, income, employment, assets, etc. (1 day)
- Appraisal – Once there is an accepted offer on the home, the appraiser is scheduled to appraise the home. (3-5 days)
- Underwriting – Once the loan application, personal documents, and appraisal is gather, it is submitted to underwriting for the underwriter to verify all documentation. (2-7 days)
- Closing – Once the loan is completely clear and ready to close, the closing date and time is scheduled with the title company. (1 day)
For additional advice as a first time home buyer, learn more at First Time Home Buyer Advice.
There are other questions that can be answered and don’t hesitate to ask them. Make sure you fully understand the process and feel comfortable with the financing you can obtain. I make sure all my first time home buyers get all their questions answered, because I know the feeling…I was once a first time home buyer!
