The first-time buyer is often in for a shock when it comes to getting a mortgage. What seems as if it should be a straightforward process ‒‒ you want to borrow money to buy a house, the bank wants to loan money to qualified buyers, what could be a match made more in heaven, right? ‒‒ can quickly become an overwhelming, confusing mess. Before you apply for a mortgage, here are a few things to keep in mind:
Whether you get your mortgage at all depends largely on your debt-to-income ratio; in other words, the ratio between how much money you make and how much you will have to spend per month on the projected total costs of your house. That includes mortgage payments, property taxes, and insurances. If what you will have to pay in a month is greater than half what you bring in, you almost surely won't qualify for a mortgage.
A Loan Officer Does Not Decide
A loan officer at your bank may be friendly and informative, but if you apply for a mortgage, he will simply pass your paperwork over to the institution's underwriting department. There, someone you've never met, whom your friendly loan officer is not likely to know, and who represents only the bank's interests will decide whether you are a good risk for a mortgage. And if an underwriter says no, the only thing your loan officer will be able to do is give you the bad news.
Consider an Independent Loan Originator
Independent Loan Originators, or ILOs, typically operate their own businesses, where they can advise clients and order appraisals, two things bank loan officers often cannot do. More importantly, ILOs are often able to work directly with underwriters, giving you a better chance of getting your loan approved.
Shop Around for the Right Lender
Finding the right lender is not just about finding the right rate, and not all lenders are created equal. Since the Great Recession, the Fed has kept lenders who advertise too-good-to-be-true low rates in tighter check, but you still need to do your homework. According to Forbes magazine, one sign of an incompetent lender is one who advertises great rates but has no one on staff qualified to make final approval. And if your lender's consultants are employees at a call center, your odds of getting a good loan are not so good. (Think back to what happens when your bank's loan officer passes your paperwork on to the underwriting department.)Best tip: Look for a lender who has survived economic downturns and can back up his claims of top-notch service with a longstanding string of satisfied clients and evidence of few defaults on mortgages she's written.