Amid the euphoria of envisioning your new home comes the sobering reality of shopping for a mortgage. It’s time-consuming, it’s complex, and it’s a little daunting. But if you’re armed with the right questions and come to the table with the right documents, shopping for the right loan becomes an easier process.
Comparing rates and fees and seeing where you can negotiate closing costs can save you thousands of dollars, so putting extra effort into preparing for lender meetings can pay off.
To help streamline the process, this one-stop reference guide suggests the important documents you should bring to each appointment with a lender; you’ll also find a list of key questions you simply must ask to get the best information for cost-comparing loans.
Key documents for lender appointments: Using this list of key documents, gather all the materials into one folder so that you’re never scrambling to find the right paperwork.
• Copy of your driver’s license or passport.
• Proof of regular rental or housing payments.
• Copies of your two most recent paycheck stubs.
• Copies of your W-2s from the past two years.
• Copies of your federal tax returns with all schedules for the past two years.
For self-employed income:
• A statement of year-to-date profit-and-loss for the business.
• Copy of any corporate tax returns.
• Copy of all current IRA statements, stock and bond accounts, or any other retirement or investment accounts.
• Copy of current bank statements for each account for the past 60 days.
• Documents on the value of personal property like automobiles.
• Forms showing the face amount and value of life insurance policies.
• Copy of any lease agreement for a rental property.
• Copy of any student loan deferment letter or agreement.
Big-Time Benefits: The government created the VA loan program as part of the original GI Bill. Envisioned as a short-term benefit, the program aimed to boost the postwar economy and broaden access to homeownership for returning veterans.
Seventy years later, VA loans are still fulfilling that original mission. Rather than make home loans, the VA basically insures a portion on behalf of eligible veterans and service members. That fiscal guaranty helps gives lenders the flexibility to extend financing with some significant benefits, chiefly the ability to purchase with $0 down.
These loans also tend to be more forgiving when it comes to things like credit score benchmarks or a previous foreclosure or bankruptcy. It is, after all, a benefit program. But it’s also a powerful loan product in the marketplace.
The no-down payment benefit allows qualified borrowers to purchase up to $417,000 in most parts of the country before having to factor in a down payment. That ceiling can be significantly higher in costlier areas.
Unlike FHA loans, VA financing doesn’t carry any recurring mortgage insurance. The annual mortgage insurance premium for FHA loans has made that government-backed option increasingly expensive. On a typical $200,000 mortgage, FHA buyers will pay about $200 more per month because of that premium.
Conventional buyers who can’t put down at least 20 percent of the purchase price have to contend with private mortgage insurance. VA loans do come with an upfront fee that most buyers finance. Veterans with a disability rating of 10 percent or higher are exempt.
VA borrowers have also emerged as a safe bet. These zero-down loans have had the lowest foreclosure rate of any mortgage on the market for most of the last six years.
Additional documents you may need:
• If you are divorced, a copy of the final divorce decree.
• If you have filed for bankruptcy, the complete bankruptcy paperwork.
• If you are an active veteran, a statement of service and an authorization to live off base.
Key questions for comparison shopping: Print out the following list and keep it on-hand as you start shopping for your home loan. Meeting with loan officers can be overwhelming — this way you won’t forget to ask important questions.
• Is the mortgage fixed or variable?
• If the loan is fixed, what is the interest rate or annual percentage rate (APR) of the loan?
• If the loan is variable, when does the rate change? And how is the rate change determined?
• How long are quoted interest rates good for?
• Is the Good Faith Estimate guaranteed?
• What are the escrow requirements for taxes and insurance?
• Is there a penalty for paying off the loan early?
• Do you allow extra principal payments?
• How long do funds, say for a down payment, need to be in my bank account before closing?
• What are all the closing costs? Will you provide a written list?
• Are any of the costs or fees negotiable, or capable of being waived?
• Which financial firm will service the loan?
• How long does the funding process usually take? Are on-time closings guaranteed?
• What changes, such as employment changes, should I avoid before the loan closes?