Mortgage Lending Options
Very little in life holds as much potential for confusion, frustration, and financial disaster as buying a home. First-time buyers, caught up in the excitement of owning a home, can find it difficult to step back and think clearly. Especially, if there's an agent pushing to close. It's your money going out - for the next 15 to 30 years - and you need to be able to live with the decisions. Read More? . . .
Although it may seem backward, agents worth their commission will tell you to qualify for a mortgage first. A pre-approved mortgage is proof that your offer is serious, backed by a financial institution, and will go through on acceptance. Knowing what you can afford helps focus the search, once you get down to picking a property. Not to mention, with the current economy, pre-approval may be the only way to get an agent to even talk to you.
In a lender's perfect world, each potential mortgagee has flawless credit, high six-figure income, and 20% of the national debt set aside as a down payment. Naturally, the better your financial situation, the better your mortgage rate will be. But there are workable options for the rest of us average folks who may have some credit issues, a higher debt-to-income ratio, and aren't related to Bloomberg, Armani, or Trump.
Most lending institutions offer the same types of home loans: fixed-rate and adjustable-rate being the most common. Each has risks and benefits which should be clearly defined in advance of any agreement. In addition, these traditional mortgages generally only apply to existing single-family homes in move-in condition. Condos, rehabs, new construction, and manufactured homes have their own mortgage rules, uses, and qualifications.
Unless you're in need of / interested in a no-verification mortgage1, be prepared to pull together a lot of financial information. Different banks, lenders, or programs may look for different documentation. W2s, pay stubs, bank statements, prior year tax returns, list of assets, list of debts, and proof of residence are pretty standard requirements.
Buying a home doesn't have to give you grey hair and ulcers. If you do your homework.
1 - No-verification / no-documentation mortgages, as expected, do not require verification or documentation of income. They are an option for people who: are self-employed, don't meet income requirements for a traditional mortgage, receive undocumented wages, don't fully report non-1099 / W2 wages or tips, perform seasonal work or have irregular income, or simply don't want to disclose the source of their income.
Riskier for the lender, these mortgages are, therefore, more expensive for the borrower. They cannot be used to purchase manufactured homes, mobile homes, or commercial properties. Credit checks and property appraisals may still be required.
