Once you’ve found your home and agreed on the price, the next step is finding the right loan and qualifying for a mortgage. There are a variety of products and each comes with its own set of fine print, so read carefully. A good lender will help you sort through the options and decide which one works for your unique situation.
Qualifying for a Mortgage
A lending institution like Weichert Financial Services is required to send you a Loan Estimate within 3 business days of the submission of a loan application unless the loan has been denied. A Loan Estimate will explain all of the costs associated with your loan in a standard form, making comparison easier. It will cover both closing costs and the cost of the loan if you repay it over the entire term. You can’t be charged any fees until you receive a Loan Estimate, except possibly a credit report fee. Lenders are required by law to honor the Loan Estimate, even if there has been a mistake. It is only an estimate and can legally change up to 10%.
Despite what some institutions may tell you, multiple credit report inquiries will not affect your credit score when qualifying for a mortgage. To allow for rate comparison, FICO ignores all mortgage, auto and school loan inquiries made in the 30 days prior to a score request. If you are going to shop around, it’s best to do it within a 30-day period. Don’t let credit score worries stop you from finding the institution with the best rate for you.
Once you have settled on a lender, the next phase begins with an application. If you continue with the institution that gave you pre-approval, some of the process is already complete. In addition to the same paperwork that you needed for pre-approval, you’ll also need a copy of the signed Purchase and Sales Agreement. After the application is complete, an underwriter will review all of your information and make the final decision on your loan.
Locking in an Interest Rate
The next step when qualifying for a mortgage is to “lock in” an interest rate. The rates change daily and your lender will let you lock in a specific rate for a specific period of time, possibly for a fee. This protects you against rising rates while your loan paperwork is being processed. It’s a gamble, because rates can always go down. If they do, you’ll miss out unless you include a “float down” provision in your contract. A float down provision offers the borrower the chance to take advantage of lower interest rates without being subject to increases.
This option costs more because there is more risk for the lender. Nonetheless, spending more now might be the key to finding the right loan especially if rates are volatile. With either option, it will be your job to follow the numbers and let the lender know if anything changes. Locks can last anywhere from 15 to 90 days with the average being 30 days. All of the details including the rate, the fees and the term should be detailed in your mortgage rate lock contract.
The Extra Cost of PMI
If your downpayment is less than 20%, most lending institutions will charge a fee for PMI. (Private Mortgage Insurance). Although you won’t shop around for PMI like you will for a mortgage rate, you can ask your lending institution about their rates. If you’ve been unable to find additional funds for your downpayment, this might be a good time to figure out a plan to get to 20%. Monitoring your home’s value as well as making extra mortgage payments can help you eliminate the monthly PMI charges.
For more information on PMI, see our Resource Center.
Finding the Right Loan
Borrowers can "lock in" a specific interest rate for a specific period of time for a fee to protect against rising rates while their loan paperwork is being processed.
A lending institution is required to send a Loan Estimate within 3 business days of the submission of a loan application detailing the closing costs and financial details of the loan.
Despite what some institutions may tell you, multiple credit report inquiries will not affect your credit score when qualifying for a mortgage. To allow for rate comparison, FICO ignores all mortgage, auto and school loan inquiries made in the 30 days prior to a score request.