MORTGAGE BASICS
A mortgage is a long-term loan, typically spread over 15 or 30 years, used to purchase a home using the property as collateral. The lender will hold the title to the property or a lien on the title until the loan and interest have been repaid. Home loans are available from several types of lenders including thrift institutions, banks, mortgage companies and credit unions.
The most common types of mortgage loans are fixed-rate and adjustable-rate loans. However, there is a broad and sophisticated array of mortgage products from which to choose including a stated-income loan, bridge loan, zero-down loan or FHA loan. Each program specializes in meeting specific borrower needs.
Depending on the loan type, during the mortgage loan application process, the lender will verify your income and debt obligations. The lender will want proof of your financial status and may verify your income and other assets by requesting pay stubs, tax returns, bank and investment account statements, and any other documentation that verifies your financial situation. The lender also will evaluate your credit history. This will help determine your debt-to-income ratio and buying power.
Lenders typically require the borrower to repay the loan via monthly payments, which are comprised of principle and interest, and in some cases property taxes and homeowners insurance. The total cost of a mortgage is determined by the loan amount, its amortization period (the term over which the loan is spread), and the interest rate paid on the loan.
Get Pre Approved!
If you are looking to buy a house, you should get pre-approved for a mortgage as soon as possible, before you get to the point of placing an offer on a house. The pre-approval process is a fairly easy, straightforward process that lets you know how much of a mortgage you can afford.
It is important to get pre-approved because it can help you when it comes time to place an offer on your dream house. In a competitive housing market like in Denver, it is critical to move quickly if you want to buy a house before somebody else does. Having a pre-approval in place speeds up the buying process, and establishes your credibility and seriousness with the seller.
Most Realtors will require a buyer to talk to a lender before beginning to look for their future home. A pre-qualification occurs when a lender asks the potential buyer questions regarding income, assets, debts, credit history, and job history. Based on the answers from the buyer and a credit report, the lender can issue a “Pre-qualification Certificate” which allows the Realtor the confidence to sell a home to the buyer.
However, because of the hot Denver market, pre-qualification with a lender may not be enough to be competitive against multiple offers. Once a buyer pre-qualifies, they should immediately come into the lender’s office and get pre-approved.
Pre-approval is simply gathering proof of the information discussed on the phone. By making available W-2’s, pay stubs, bank statements, and possibly tax returns, your loan can be submitted and approved by an underwriter.
By providing a “Pre-approval Certificate” with your contract, the seller knows that your loan is in place and as long as the house appraises well, the contract will close. In some cases, multiple contracts come in on some properties and if one of the contracts has a “pre-approved buyer” - they usually get the home. Pre-approval is good for 90 days which should allow you enough time to find and close your home.
