Applying for a Home Loan
What Communication to Expect During the Home Loan ProcessBuying a home is most likely the biggest financial transaction you may make in a lifetime and communication is key to making sure the process is as stress-free as it can be. While hiccups can happen in the home buying process, it’s important to have clear, open communication with your loan specialist to minimize the possibility of disruptions and to ensure that your expectations are met. Being prepared for potential items that may come up makes them much easier to handle and our well-trained staff is here to help you throughout the process.
During the Application Process
Many buyers now submit initial loan applications online, but we are here if you would like to contact us once that’s submitted. Contacting us via phone after sending the application does two things. First, it assures you that your application has been received and secondly, it gives you contact with a real person to go to for future help. But, rest assured that our friendly staff will be reaching out to assist with moving your loan along at the time line and speed that works for you.
During Loan Approval
Once an application is submitted, the loan will go through the approval process. The loan processor should be in contact regarding necessary documentation. Should there be anything missing, that loan processor should take the lead in making sure you know what documentation is needed and when. At UHCU, we provide ongoing communication throughout the approval process and will communicate often with you to ensure you’re up to date on the status of your loan. If you’re ever confused or not sure about specific documents requested, it’s best to ask for clarification as soon as possible to avoid any delays. We also recommend sending your documents as soon as possible, instead of waiting until the deadline given by your loan processor. This gives them more time to review what you’ve sent, ask questions, and/or ask for additional items, if needed. Remember, often times the file can't move to the next steps until the requested documents are provided. Delays early in the process can lead to stress at the end of the process.
Initial Review Process
The next step in the home loan process is an initial review by an underwriter. During this review the underwriter will check the documents that you have provided and issue a conditional approval of your loan. Following the conditional approval, the processor will reach out to review the additional items the underwriter has requested to complete the loan file.
Once all of the items and conditions have been provided and met, the loan file is sent for loan approval and you will be given the clear to close. The loan processor should then contact you to establish a time line for closing and wrapping up any outstanding items.
Your closing scheduler will guide you through the closing process, which includes setting the closing date and time and reviewing the closing process with you.
Establishing your communication needs early is the key to a successful and low-stress mortgage process. Let your loan officer know the best way to contact you, what hours are best for you and when you expect communication from the very beginning and you’ll be setting yourself up for success!
Call 512.435.4444 or visit our Purchase a Home page to start your home buying journey today.
Pre-Qualified vs. Pre-Approved - What’s the Difference?When you apply for a home loan, you’ll encounter the terms ‘pre-qualified’ and ‘pre-approved.’ While they sound similar, there are some distinct differences that are vital to understand when you’re in the mortgage loan process.
When a borrower (you) applies for a home loan, the information you and your co-borrower, if any, submit starts the pre-qualification process. This process relies on this information that you provide to the lender. This usually includes your income, employment history, your outstanding debt, and your assets. Pre-qualification can usually be done quickly online or on a phone call with the lender. While pre-qualification is a part of the loan process, it is important to understand that it is not a guarantee of approval for a loan. The results of the pre-qualification give the lender the basics needed to move to the next step in the application process, pre-approval. Pre-qualification is usually done before or during the home shopping process, so that you have a better understanding of what you can afford.
During the pre-qualification process the lender will also advise the borrower whether a down payment is required, and if so, the amount of the required down payment. Though you should note that downpayment amount could change once the borrower goes under contract if the purchase price of the home differs from the amount the borrow is pre-qualified for their home loan.
Pre-approval is completed by the lender after checking the information given by the borrower during the application process. During pre-approval, the lender verifies the borrower’s employment history, credit score, debts, and assets through the documents such as paystubs, W-2s, 1099s, tax returns, bank statements, brokerage statements and additional information provided by the borrower. The pre-approval step can take longer than pre-qualification, because the lender may need to contact one or more sources listed on the loan application to verify that all the information is accurate. The results of this verification are used by the lender to decide on the applicant’s eligibility for the loan.
Once the lender provides the pre-approval documentation of the offered loan, the borrower will have a better chance of their offer being accepted once they find a property, as it assists sellers in knowing that the potential buyer’s offer is legitimately backed by a lender. Sellers prefer to deal with a pre-approved buyer, because they know that the buyer’s offer is legitimate and not contingent on the buyer’s obtaining financing, which can delay the sales process significantly.
While neither a pre-qualification or a pre-approval are guarantees of your ability to obtain a home loan, they are both good indicators of whether a loan will be offered to you by a particular lender. The red-hot housing market moves very fast, with some homes going from offer to sale in just hours! Having both a pre-qualification and pre-approval completed puts you in a far stronger bargaining position. Contact your United Heritage Loan Specialist at 512.435.4444 with any questions or to start your pre-qualification - we’re with you every step of the way!
What to do if you don’t qualify for the loan amount you wanted?You’ve made the big decision to buy a home and gone through the application process only to find out that you don’t qualify for the amount you wanted. Now what? You’ve got some options to consider, but you should always talk to your loan specialist to find out why you didn’t qualify for the amount you wanted. Once you know why, you can figure out the best way to approach the problem.
If your problem is that you don’t have enough of a down payment, you may need to step back from a loan and save more. Often credit unions offer mortgages that require smaller down payments than the traditional 20% needed. United Heritage offers loan programs with 3% and 5 % downpayment options. Talk to us about the types of loans that we offer and our loan specialists will work with you to find the loan option that works best for you.
Clean Up Your Credit
Make sure your credit report is accurate. If there are problems with your credit, make sure you are addressing them. Contact each of the three credit bureaus to ensure that there are no mistakes in your credit report. If you have outstanding credit problems, work with the creditor to get those fixed. Also try not to open new lines of credit before applying for a mortgage. Boosting your credit score before applying for a mortgage is your best bet.
Reduce Your Debt to Income Ratio
Often it's your debt to income ratio that can have the biggest impact on how much you will qualify for on a loan. There are a few ways you can reduce your DTI, including paying off some low balance credit cards. Another great option might be to refinance large installment debt like a car to a longer term to reduce the monthly payment. If you have saved money for a 20% down payment for your home, you may be able to use those savings to pay down some debt and qualify for a 5% down payment with certain loan programs. Before you begin to pay off any debt be sure to talk to your loan specialist who can advise you on the best course of action.
You may qualify for more money under certain loan programs offered by the FHA or VA. We have many homebuyer programs or lower down payment options.
Adding a co-signer to the loan may maximize the amount you can get for a loan. If your income is low, adding a co-signer may be your best bet. It is a big responsibility to be added to a mortgage, so make sure that it is someone who is willing to take the financial risk should you not be able to make payments. Often lenders will want to know your relationship to the co-signer and whether the co-signer will live at the property. If they co-signer isn't going to live on the property they may be required to be a parent or child (in an elderly parent scenario). Also, remember that the co-signer will most likely have to go through the mortgage application process as well.
While it’s rough not getting the loan amount you wanted, there are options to help. Having good communication with your lender is key to making sure you get what you need from a loan. At UHCU our loan specialists are committed to working with you throughout the home buying process. To get started you can apply online or with a call to one of our loan specialists at 512.435.4444.
Loan Estimates – What You Need to KnowWhen you’re looking to finance a home there are several things you need to consider, including the loan estimate, which is key in understanding the actual terms of the loan. The loan estimate can be a good tool when comparing lenders if you haven't already finalized your financing with your bank or credit union.
What is a loan estimate?
The loan estimate explains the mortgage terms, costs, and interest rate. It is a three page document with a prescribed template; this ensures that you can fairly evaluate one lender’s proposal next to another. It contains details regarding the interest rate, closing costs, monthly payments, and other information you can use to make a final decision. It’s important to remember that the loan estimate needs to be signed and returned to the lender before it expires which is typically 10 days after it has been issued. Once the estimate is returned to the lender they will be able to work with you on the timeline for the rest of the loan process, including a closing date.
The Consumer Financial Protection Bureau (CFPB), a U.S. government agency, offers a checklist to help you verify that all elements on your loan estimate are present and correct.
On average, most borrowers keep a mortgage for about five years before moving or refinancing. While your situation may be different, figuring out the total dollar amount you will pay in interest and fees over five years is a good way to compare loan offers.
Apples to Apples
Make sure the loan terms and figures are comparable across loan estimates from different lenders, and make sure that any costs are reasonably estimated. Remember, if one loan estimate shows significantly lower taxes and insurance, that doesn’t mean that loan is a better deal. Lenders don’t control your taxes and insurance. Also be sure to check that all the loan estimates show the rate is locked. If the one of the estimates is not locked the rate and fees could change. Watch out for lenders who send out a low rate and low fee loan estimate that isn’t locked as you could end up locking in a higher rate and fees later.
Reading the Loan Estimate
There are nine main elements in a loan estimate, which makes it simpler to evaluate proposals across lenders:
- Loan Overview
- Loan Terms
- Projected Payments
- Costs at Closing
- Closing Cost Details
- Additional Loan Information
- Details for Comparison
- Other Considerations
- Confirmation of Receipt
When you accept a loan estimate and proceed with the loan, you will receive another document called a closing disclosure, which shows what you will be paying at closing. The lender typically sends the closing disclosure (CD) close to your closing date. Make sure to compare the loan estimate to the closing disclosure, and if there are any major differences, ask the lender to explain the differences to your satisfaction. You may get an initial CD that doesn’t have the final fees so it is important to ask if the CD has the final fees. Often times lenders will send the initial CD that shows the same fees as the loan estimate, then closer to the closing the CD can change to include the final fees, like those from the title company. Make sure to clarify if you are viewing the final fees, if not the numbers may still change as they are balanced at closing.
Some differences between the estimate and the disclosure are permitted, but others are not. Your UHCU Loan Specialist can help you with specific questions regarding final costs and fees, and any other questions you might have in the mortgage process. Call your UHCU Loan Specialist at 512.435.4444 or visit our Home Loans page!
5 Factors that Influence Your Mortgage Interest RateIf you're in the market for a new home, you're also in the market for a mortgage loan. And when it comes to loans of any type, it's key to work with a lender you trust. That's why it's important to understand how your interest rate is determined and the factors that affect your final rate. When shopping for mortgage loans, consider these five factors and how they might influence your rate.
1. Credit ScoreYour credit score represents your creditworthiness and is one factor lenders use to predict your reliability as a borrower. A credit score is calculated from your credit report, which is comprised of all your debts (existing loans and credit cards) and the payment history on those debts. Credit scores range from 300-850. Typically, if you have a higher credit score, you'll be able to obtain a lower interest rate.
Before you start looking for mortgage loans, get your credit report and check it for errors. If there are any errors, work with the appropriate credit bureau to have them fixed. You can also examine your debts and determine if there are any you can pay down to improve your score. To attain a free copy of your credit report, visit usa.gov.
2. Down PaymentA higher down payment usually means you'll acquire a lower interest rate, because lenders see a lower level of risk when a borrower has more invested in the property. If you're able to put down 25 percent or more on your new home, you'll most likely get a lower mortgage loan rate. A down payment of 20 percent or more also allows you to avoid private mortgage insurance (PMI), which keeps your overall monthly payment lower.
3. Home Price and Loan AmountThe price of the home subtracting any down payment is the amount you'll need to borrow for your mortgage loan. Normally, you'll pay a higher interest rate if the amount you're borrowing for your mortgage is particularly small or particularly large. If you've already started your home search, you should have an idea of the price range of the real estate you hope to buy. Real estate websites, such as Austin Home Search, can also help you gauge typical prices in the neighborhoods which interest you. Keep the total amount you're going to borrow in mind during your home search and consider how it could affect your loan rate. Only you can decide how much you're comfortable paying each month for your home. It's also important to consider the possible maintenance costs that can come up outside of your monthly mortgage.
4. Loan TermThe term of your loan is the length of time you have to repay the loan in its entirety. Shorter terms often have lower interest rates and lower overall costs, but higher monthly payments. You can work with your lender to find the term in which you get the best rate available with a monthly payment that fits your budget.
5. Interest Rate TypeThere are two basic types of interest rates: fixed and adjustable. Fixed interest rates do not change over time. Adjustable rates have a fixed period and then the rate fluctuates up or down based on the market. Adjustable rate loans customarily have lower initial interest, but your rate might increase significantly throughout the life of the loan. It's important to think about what type of interest rate best fits both your current and future financial state as well as how long you plan to own the house.
If you obtain a home loan through UHCU, you’ll get more than great rates. UHCU mortgage loan specialists strive to make financing your home as simple as possible and will guide you step-by-step through the entire loan process – from application to move-in.
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What You’ll Need to Apply for a Home LoanNo matter where you apply for a home loan, the process always requires many similar documents and kinds of information from you, the borrower. Lenders may have their own unique forms and requirements in addition to the commonly asked-for information, of course. There are four specific items that are required nearly everywhere, and having these documents and information assembled before starting a loan application will make the process much smoother. Assemble this information into a packet ahead of time, and you’ll be ahead of the game! Here are a few tips on what to prepare:
A valid government-issued photo ID is required of every person who will be signing the loan. A valid driver’s license is acceptable, but if you don’t have a driver’s license, a U.S. passport, Armed Forces Identification Card, or other combinations of ID are legal and accepted.
Your previous bank statements help the lender in their evaluation of your loan application. The lender may ask for proof of other assets as well, such as insurance policies, investment balances, titles/deeds, or other proof of ownership and control. The number of previous bank statements and asset statements that the lender might ask for will vary, so be prepared to provide at least the previous 12 months of bank statements and investment balance statements. Lenders will look at how long funds have been available to you, and any recent large deposits will likely require an explanation of the origin of the funds. Ask your United Heritage Loan Specialist for more details if you anticipate family assistance such as parents gifting you the money for a down payment – this is not unusual, it simply needs explanation during your application.
Bank Statements and Assets
Mortgage lenders require proof of employment and income as part of the loan process. W2s or 1099s for the previous two to three years are usually required of all borrowers. If you’re self-employed, the lender may ask for several months of statements or invoices as proof of steady employment and income.
Pay Stubs or W-2/1099s
In order to get the most clear and fair picture of the borrower’s finances, a lender may ask for previous tax returns. This helps the lender evaluate your financial stability.They may request documentation for any large fluctuations over the preceding two to three years.
When you apply for a home loan, your credit history, and that of your co-borrowers, are very important to the lender. Factors that can impact your application include your credit score, any late payments, or a pattern of accounts that have been in collections or defaulted. Also, your debt-to-income ratio is an important part of your overall financial picture. Applicants that have lower credit scores, problems in their credit history, or other issues can still qualify for a home loan; possibly at higher interest rates or modified loan terms. Ask your Loan Specialist if you have questions or concerns.
If you’re currently renting, a lender may ask for proof of rental history or other verification of your living situation. Also, the lender may ask for documentation of prompt payment of rent, any eviction history (if any), utility bills, or other documentation.
Other Historical Documents
Preparing these statements and documents ahead of time will go a long way toward smoothing the loan application process. Your UHCU Loan Specialist is ready to help you every step of the way!