How to Get a Mortgage
A mortgage is a type of loan that lets you buy a home, or refinance an existing mortgage. It combines the money you borrow with interest and is secured by real estate, which means your lender can repossess the property if you don’t repay your loan.
Mortgage payments look like a single monthly bill. But they are actually broken down into several parts, including a portion of each payment that goes toward principal and the rest that goes toward interest. The amount you pay each month depends on the terms of your mortgage and the size of the loan you’ve approved for.
The first step in getting a mortgage is to make an application, which asks for information about your credit, income, and assets. Then, you’ll have to meet with an underwriter to ensure that your finances are in order.
Some borrowers apply for a mortgage through a broker, who can help you find a variety of loan products and negotiate with lenders on your behalf. However, if you decide to go this route, be sure to compare offers from multiple lenders and brokers yourself.
How much you will pay for a mortgage is dependent on the loan product, the terms of the loan, and any discount points that you may have paid in advance. You also will have to pay closing costs, which are fees that the lender collects from you when you close on your loan.
Before you start your mortgage process, it’s a good idea to make a list of all the things that will need to be included in your mortgage application. These can include your driver’s license or passport, recent pay stubs, two years of tax returns and documentation showing where your down payment is coming from, such as bank statements.
During the application process, your lender will review all the information you’ve submitted and may ask for additional documents. For example, if your tax returns or pay stubs show big swings in income, the lender might request that you write a letter explaining the changes and why they are occurring.
A letter of explanation is a written document that you provide to your lender to explain any financial issues that might impact the approval of your mortgage. This will allow the lender to better understand your financial situation, says Windham of MortgageLoan.com.
The letter can be written in writing or verbally, but it should contain specific details about your financial history. Specifically, it should detail any financial problems that might affect the approval of your mortgage, such as an overdraft or large deposits in your checking account.
It should also include information about any negative factors that might be on your credit report, such as a recent bankruptcies or a foreclosure.
The lender will then use the information in your mortgage application to determine whether you qualify for a loan. It will also look at other factors that might be important to your loan approval, such as your income, debt-to-income ratio and credit score. If any of these factors are out of line with your financial circumstances, the lender might reject your application.