Tips for Choosing the Right Lender or Home Mortgage Company

Home loans aren't one-size-fits-all. For this reason, you owe it to yourself to look at all of your options when choosing the right lender or home mortgage company for you. As you begin the process, pay attention to the following things.

First Steps: Before Applying for a Loan

Understanding Your Financial History

Your financial history paints a story of how you pay back a loan and if you do this in a timely manner. Your lender cares about how much debt, if any, you're carrying and how challenging it can be for you to repay the loan in a timely manner.

Lenders will look at your credit score. This number helps them understand your financial history. The higher the number, the better your chances to qualify for a lower interest rate. This is the time to work on paying off outstanding loans. Before applying for a home loan make the effort to clean up any credit history that portraits you in a less than flattering light.

Ways to fix a low credit score include always striving to make payments on time, in-full, or whenever possible to pay extra payments to pay-off the loan quicker. These actions can turn around a lower score. Don't hesitate to talk with a financial advisor to ask questions and put together a plan to improve your credit score.

Know Your Budget

Making the decision to purchase a home is one of most rewarding decisions and one of the largest purchases in a lifetime. It makes sense to be mindful of your budget. Lenders will ask about your budget as well as your gross income, if you have any outstanding loans, and ask about any revolving debt you may have. Besides these key things, you will also want to take into consideration the following monthly bills: utilities, gas for your daily commute, health insurance, monthly subscriptions, daycare (if you have younger children), projected property taxes, and homeowner's insurance costs plus any additional recurring bills.

With a better picture of where your money is going each month and how much money is coming in, you have the figures needed to determine how much house you can comfortably afford.

A good formula to follow is the 28/36 rule. This rule explains that your housing costs ideally should not exceed 28% of your monthly gross income.

Next Steps: Deciding on a Lender

Now that you have a better understanding of your financial history, you've searched for your credit score, and you know what your budget is, you are ready to begin your search for a lender or mortgage company that will be best for you.

What Lenders are Looking For

The four main points a lender wants to know about are:

1. A high credit score.A score of 740 or higher paves an easier path to loan approval. Loan approval isn't based solely on a credit score. It is possible to be approved for a loan if you have a lower score.
2. Minimal existing debt.The lower any existing debt, the more room this allows to take on a home mortgage loan.
3. Steady income.Demonstrating steady employment for the past two years will be seen favorably in the eyes of the lender. If you're self-employed, you can provide your tax returns.
4. The ability to make a higher down payment.Proof of savings and the ability to make a higher down payment will make a favorable impression with a lender.

Some key documents a lender may request to see include:

• Your photo ID
• Your social security card number
• Pay stubs for the past 30-60 days
• Two years of federal tax returns
• Financial statements for applicable checking, savings, and brokerage accounts
• A listing of recurring bills for such things as your credit card, auto loan, student loan, alimony, child support, etc., as applicable.

Getting the Pre-Approval

Knowing ahead what a lender is looking for and after putting in the effort to gather these documents, it makes sense to move forward with securing a pre-approval mortgage loan letter. Having this document in-hand shows you are serious about buying a home and positions you well later on when it's time to make an offer. This mortgage pre-approval helps you know your budget and know your financing limits. While the letter won't guarantee a loan, it does pave the way for the underwriters later on when you do apply for a loan. Pre-approval letters can give you an advantage with sellers in a competitive housing market.

Variety of Loan Types

Several of the most common loans include:

• Conventional loan- A conventional loan is any mortgage loan through a private lender which is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).
• FHA loan Federal Housing Administration loans (FHA) are government-backed mortgages geared toward borrowers with lower credit scores or who otherwise don't qualify for a conventional loan. The FHA loan is a favorite among many first-time homebuyers.
• VA loan This is a special loan offered by the Department of Veterans Affairs (VA) to help servicemembers, veterans and their families buy a home.
• USDA loan- A USDA home loan is a zero-down-payment mortgage for home buyers in eligible towns and rural areas. USDA loans are guaranteed by the USDA Rural Development Guaranteed Housing Loan Program, a part of the U.S. Department of Agriculture.

After speaking with your lender and reviewing your unique information, it is possible there are additional loan options you could qualify for.

Shopping Around the Various Lenders

Because mortgage rates change daily, try to gather your loan estimates from each potential lender on the same day. This gives you consistent information from each lender since each provider will be using the same daily interest rate. As you compare these estimates, take into consideration things such as the term of the loan (e.g., a 15-year, 20-year, or 30-year loan), the interest rate plus mortgage points.

Ideally, try to get a minimum of three loan estimates before making your decision. You can seek out estimates from mortgage banks, mortgage brokers, or retail banks.

Use the information in this blog post as a guide to begin your research and to start a conversation with lenders or your financial advisor. If I can be of service to you,don't hesitate to contact me. While it may feel like a lot of things to keep track of and consider, these are things that are manageable. I'm happy to be your guide to help you cover all of your bases and think through your options as well as find a great home that's within your budget.

Since 2004 Sara Lyn Nguyen continues to bring a wealth of knowledge and expertise about buying and selling real estate around the Houston area to those she serves. Sara is a multi-year award winning REALTOR® and relocation specialist where her clients trust her to have up-to-date information on the real estate market. She has been one of Gary Greene's Multi-Million Dollar Top Producers, and citywide was the #2 Top Producing agent in 2020, #3 in 2021, and #2 in 2022. When it's time to buy, sell, invest, or relocate speak with a trusted professional knowledgeable in thehomes and neighborhoods of Fort Bend/Sugar Land and the surrounding region.