Now that your credit score is in line, it’s time to apply for a mortgage loan. The process is a bit daunting, but with the right partner it can be as painless as possible. We welcome back to the Nest Report our mortgage banking expert Whit Douglas of Corridor Mortgage. In the Q&A below he walks us through the logistics involved in applying for a mortgage.
Nest Realty: Let’s say we’re ready to apply for a mortgage. Why do you recommend working with a lender such as Corridor Mortgage as opposed to going straight to a big bank or a mortgage broker?
Whit Douglas: Corridor Mortgage Group is a correspondent lender which I find gives us the benefits of a big bank and a broker. What this means is that much like a big bank we have our own money and our own underwriters. With that I am very much in touch with the entire process and at any moment can pick up the phone and directly talk to the processor/underwriter/closer working on the client’s loan. It also allows us to keep the process as smooth and quick as possible; we are still able to accommodate a closing as quick as 14 days if needed. After closing we do set you up with a bank for your ongoing payments, which gives us the opportunity to stay competitive with rates as we have a number of banks wanting to buy our loans so our rate sheets reflect the best rates amongst a number of banks.
NR: It’s reassuring to have an ally in your corner. Let’s say you choose to move forward with a direct lender such as Corridor Mortgage, what legwork should you be prepared to tackle?
W.D.: We are in a document heavy environment. However, if you think about it in the sense of someone wanting to “borrow” a few hundred thousand dollars from you, I am sure you would like to see a lot of documentation too, and you would want to make absolutely sure that the documentation was legitimate. We are no longer in the days where you are just borrowing money from your one local bank and they lend off of whether they think you are a good person or not. Now loans are sold behind the scenes to Fannie Mae, Freddie Mac, Wall Street Investors, etc. who only know you as what they see on paper. If you know upfront that banks want to see most of your financial documentation and that the process is rather intense, then the process ends up not being too shocking. Finally if you have your tax documentation, paystubs, bank statements, etc. available and ready then you won’t be rushing around trying to find it all when you find that home you would like to purchase.
N.R.: You mean a bank won’t just “trust us” with their cash? Can you give us a check list of the docs we need to have ready when we walk in your office?
W.D.: In general it would be good to have on hand your past 2 years’ W-2s, past 2 years’ federal tax returns, past 2 months’ paystubs, past 2 months’ bank account statement (all pages from the statement your down payment is coming from), and your driver’s license. Each scenario is different and could require additional documentation, particular in the case of a self-employed borrower.
N.R.: Whew! Ok, say we’ve got the paperwork covered, let’s talk down payment. We’ve heard a lot of numbers thrown our way…20%, 10%. Help!
W.D.: To be honest, it depends on the situation. There are still many different programs out there and some that allow as little as 3.5% or even 0% down. There are also options that help you avoid monthly PMI without putting down 20%. With rates so low a lot of people favor using less money on their down payment and look for investment instruments that yield a greater return than their mortgage interest rate (especially considering the tax deduction you receive). I also never recommend that a client utilizes all of their cash for their down payment as you certainly want to have some in reserve for various reasons that are unforeseeable with both home ownership and life. I am not trying to be ambiguous here, but more just explaining that there are many options when it comes to how much you want to put down (ranging from 0% on up) and it helps to look at your financial goals to decide what would be best. Which is something I certainly like to understand so that I can help guide you to the best solution.
N.R.: That makes sense, there being no one-size fits all answer. So, we’ve applied for a mortgage. What can we expect in terms of timing and next steps?
W.D.: Once you have been pre-approved you can begin the exciting steps of finding your home. Then after a putting in a contract and having it accepted the clock starts ticking towards your closing. During that process, which on average takes 30 days, you can expect to sign “a few” documents and provide updated paystubs and bank statements. There will be a couple times throughout the process that your lender will come back and ask for additional documentation. Just know that upfront. There are other small items throughout the process that your realtor, lender, and settlement company will help guide you through. With the right team in place though those items work out quite smoothly and lead to a timely closing.