Applying for a home loan can be a daunting prospect. Kelly Malatesta, a mortgage officer with First United Mortgage Group in The Woodlands, said there are a few steps first-time homeowners or anyone seeking to buy a home can undertake to make the process easier to navigate and to increase their chances of approval.
What should prospective first-time homeowners have ready before they speak with a loan officer?
Prospective homeowners need to have the most recent 30 days worth of pay stubs, two years of W-2s and tax returns along with two months of bank statements to show where funds are coming for the down payment. Individuals should bring or send this to their loan officer so they will be able to review their qualifying situation thoroughly.
What should prospective homeowners look at when comparing lenders?
Again, [homeowners should work with] someone that they can hold accountable. They want to be able to compare rates and fees [and] check to see how long they have been in the industry. When it’s a complex transaction, you want to work with someone who has experience and knows how to structure deals and work through issues for a quick solution. Prospective homeowners should check around to see what [a loan officer’s] reputation is and how they are viewed in the area.
How do credit scores affect interest rates and chances of getting loans approved?
The credit score is very important. Not only does a higher score—740 or higher—get you lower rates, but it allows you to qualify for certain programs. When you drop below a 740 on conventional programs, you will pay a premium on the rate. Private mortgage insurance is also based on credit scores, and the cost will increase with lower scores and decrease with higher credit scores. There are several first-time homebuyer programs that don’t require a 740 score.
What are several common mistakes or misconceptions people make when they are seeking a home loan?
[Some people] don’t provide thorough picture of income. A lot of clients will lump all income under one category in completing applications. Base, bonus and commission are looked at differently. Self-employed income is also viewed differently and typically averaged.
We also find that clients will put in a contract before getting preapproved, and it can be embarrassing when you can’t qualify for the loan. Credit should be reviewed by a lender upfront. A recent medical collection can drop your score, causing you to not qualify for certain programs. Applicants should do the work on the preapproval before they start shopping.
Another mistake we see a lot is using a lender that is not local to the area or one that doesn’t have any accountability factor. You want to work with a lender that you or your agent can hold accountable.
In picking a lender, get a closing cost estimate, and make sure you are comparing apples to apples. Clients will look online and really are not pricing the same product when comparing. Build a relationship with the lender to try and get the best deal. Rates are not the only important aspect—it’s the whole picture that matters.