As a money coach, I had read countless articles about the mortgage process and worked with many clients as they purchased their first and second homes. As with most things, however, going through the process yourself is whole different story! My husband and I were fortunate to secure our mortgage at great rate and in a timely manner, but there were still many aspects of the mortgage process that were eye-opening and educational. We learned a lot along the way, and I’m excited to share it with you as part of my new blog series on home buying.
Here’s what we wished we knew before embarking on the mortgage process:
Throughout the mortgage process, you will have to show your assets in great detail—and you’ll do this over and over and over again. You’ll have to provide a list of all of your accounts along with statements showing what’s in each account. You’ll also have to document recent activity for each account. For our particular bank, that meant two months worth of activity. As you might imagine, the fewer accounts you have, the more simple this process will be. That being said, simplifying your accounts right before you start the mortgage process can actually create more of a headache, given that you’ll have to explain all the transfers in and out. For that reason, simplifying well in advance is definitely the way to go. Don’t make the process any harder than it needs to be!
The bank will run your credit at least two times during the mortgage process: once at the beginning, and once near the closing date to confirm that nothing has changed. Your credit score plays a big role in the mortgage process, so being in the know about your own credit can only help you. If you are preparing well in advance of your application, you’ll have time to improve your credit score if needed. Remedying errors on your report is the quickest way to get your score up, so make sure you pull your free credit report on an annual basis and check for inaccuracies. You can also check your score through MyFico.com, CreditKarma.com, or WalletHub, or even through your credit card company, if they offer that service (and many now do). Once you have collected information about where your credit stands, avoid any hard inquiries that can ding your score (like opening a new credit card) if you’re planning on starting the mortgage process in the near future.
Once the mortgage process starts moving, you’ll want to be able to send information to your mortgage banker as quickly as possible. If you’re scrambling to retrieve account numbers and passwords each time your bank needs something, the process will quickly feel stressful and overwhelming. If you’ve simplified your accounts in advance, this part of the process will be much easier! To take inventory, make a list of your accounts, and include account numbers, the total amount in each account, and what the account is made up of (for example, if it’s an investment or retirement account, you’ll want to note the specific investments). The mortgage banker will send you their own form once you start the process, but you can create a system for easy reference in the meantime.
The amount of documentation you’ll need to provide will vary on how you earn your income and the specifics of your financial situation. For example, if you are an entrepreneur or small business owner, you’ll need more documentation about your business’s profitability than you would if you were salaried with a company. While the bank will likely have follow-up questions beyond these documents, this list will get you started. Don’t forget, the inventory listed below applies to each applicant. If you’re applying with a partner, you get double the fun!
As you have probably guessed by now, getting a mortgage can be a lot of work! Your mortgage company can give you a general sense of a timeline based on their process, but things often take longer than expected and there are many people and parties involved. Don’t be afraid to check in, remind, and follow-up with individuals or groups to make sure everything is running smoothly and on time. If you aren’t able to close on schedule, it may be because something got lost in the shuffle and it isn’t your fault, but in the end it really only affects you! Checking in as you go along and building in some buffer time can help minimize disappointment.
During the pre-qualification process, the bank runs a couple of simple formulas using a combination of your income, assets, and debt. Each bank has its own threshold for what qualifies, and at this time, they take the information you give them at face value and don’t question it. That’s why pre-qualifying doesn’t necessarily mean you qualify for a mortgage. For example, in our case, the bank wouldn’t count my husband’s bonus income because he hadn’t yet worked at the company for two years. They also wouldn’t count his rental income on a property he manages. We also didn’t realize that they would only count my business profit as income, rather than my business revenue. That was a surprise, given that salaried employees report pre-tax salary but business owners report income after all expenses! Needless to say, these revelations can quickly turn a peachy pre-qualification to a non-qualifying mortgage. If this turns out to be the case for you, you can look into having someone co-sign your mortgage to beef up some of the numbers in the equation.
Call up some banks, talk to a mortgage specialist, and give them the background on your situation. What is the best rate they can give you? Take note of the best offers and use the best offer you get to pre-qualify. We called all the big banks and a few smaller banks in the area, which gave us a lot of information to work with. When it comes time to lock in your rate, call your banker to confirm that it’s the best they can do, then call around to some other bankers to see if they can beat it. If they can, bring that information back to your current mortgage banker and see if they can meet or top it. While this takes some extra effort, you actually want the banks to fight for your business, and in the end, you can feel confident that you got the best possible rate.
Next up in this series: What is actually costs to buy a home.