Basics of mortgages:
- A mortgage is a loan used to buy or maintain a home or real estate.
- This is a secure loan, and the lenders of the loan keep the title of the property until it’s fully paid off. The lender would be considered the bank.
- To get a mortgage you must meet certain requirements from the lenders.
- When applying your credit score should be between 720-850, this is considered ‘excellent’. The higher it is, the more likely it’ll be approved.
- The better your credit, the lower the interest you need to pay.
What are the requirements for obtaining a mortgage?
- When applying for a mortgage the banks will require you to gather all your personal information, employment status, details on your income, assets and liabilities and credit card history. Also, any debts you may have.
- These are some of the forms you’ll likely need to bring when applying:
- Tax returns
- W-2 forms or any other proof of income
- Credit reports
- Government ID
- Renting history
- Another requirement I had previously mentioned was to have a good credit score. Try to have your credit score in the 720-850 range when applying for loans.
How do you apply for a mortgage?
It’s a simple 12 step process –
- Check your finances: Look at your credit score to see your eligibility
- Determine your budget: Figure out how much you can afford to borrow. You can do this by calculating your monthly income and expenses.
- Get pre-approval: Apply to a lender, the application will require all of the previous documents stated above. Once approved you’ll receive a letter of pre-approval.
- Shop for a home: Start looking at home once you’ve been preapproved and start looking at homes in your budget range.
- Make an offer on the home: Submit your offer to the seller. If accepted, you can continue with the mortgage application process.
- Start saving for a down payment: Depending on the type of mortgage, you’ll need a down payment saved ahead of time. The down payment can range from 3%-20% of the home’s purchase price.
- Gather necessary documents: You should start collecting your documents early on, just so you don’t lose them and can refer to them quickly if needed. They will be the same documents I have mentioned in the requirements section.
- Pick the type of mortgage: Most likely going to be conventional (Loan not backed by the government) or FHA (Government backed loan designed for low-income or first-time buys)
- Shop around for lenders: Compare the interest rates and the terms from multiple different lenders. Such as banks, credit unions and online lenders.
- Submit your application: After picking which lender you want, submit a formal mortgage application.
- Underwriting: The verification of your application details and assessment of the potential risks when lending them to you.
- Receive final approval: Once approved, you’ll be given a loan offer that includes the interest rate, term length and monthly payments.
So, mortgages are just loans. You need to have a good credit score and other supporting documents when applying for one. When looking for a loan, look at different lenders interest rates and evaluate them, see which one is best for you. You likely won’t need to get more now if you’re in high school or college, but it’s helpful to understand it when the time comes.