Home Loans

Applying for a Mortgage 101: What You Need to Know

Since most people finance their home purchases, buying a home usually involves applying for a mortgage. Here is some basic information to help guide you through the process.

The Difference Between Mortgage Pre-qualification and Mortgage Pre-approval

Before applying for a mortgage, you’ll want to shop around and compare the mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can pre-qualify or get pre-approval for a loan. Pre-qualifying gives you the lender’s estimate of how much you can borrow and in many cases can be done over the phone, usually at no cost. Pre-qualification does not guarantee that the lender will grant you a loan, but it can give you a rough idea of where you stand. If you’re really serious about buying, however, you’ll probably want to get pre-approved for a loan. Pre-approval is when the lender, after verifying your income and performing a credit check, lets you know exactly how much you can borrow. This process involves completing an application, revealing your financial information, and paying a fee. Generally, if you’re applying for a conventional mortgage, your monthly housing expenses (mortgage principal and interest, real estate taxes, and homeowners insurance) should not exceed 28 percent of your gross monthly income. In addition, most mortgages require borrowers to have a debt-to-income ratio that is less than or equal to 43 percent. That means that you should be spending no more than 43 percent of your gross monthly income on longer-term debt payments. It’s important to note that the mortgage you qualify for or are approved for is not always what you can actually afford. Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to make sure that your mortgage payment won’t be beyond your means.

What to Do Before You Apply for a Mortgage

Do some homework before you apply for a mortgage. Think about the type of home you want, what your budget will allow, and the type of mortgage you might want to apply for. Obtain a copy of your credit report, and make sure it’s accurate; you’ll want to dispute any erroneous information and quickly correct it. Be prepared to answer any questions that a lender might have of you, and be open and straightforward about your circumstances.

What You’ll Need to Apply for a Mortgage

When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you’ll buy) to determine your loan eligibility. Some of the information you’ll need to provide:

  • The name and address of your bank, your account numbers, and statements for the past three months
  • Investment statements for the past three months
  • Pay stubs, W-2 withholding forms, or other proof of employment and income
  • Balance sheets and tax returns, if you’re self-employed
  • Information on consumer debt (account numbers and amounts due)
  • Divorce settlement papers, if applicable

You’ll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report. If you’ve already made an offer on a home, you’ll need to give the lender a purchase contract and a receipt for any good-faith deposit that you might have given the seller.

What Type of Mortgage is Right for You?

Like homes themselves, mortgages come in many sizes and types. The type of mortgage that’s right for you depends on many factors, such as your tolerance for risk and how long you expect to stay in your home. The following are some of the more popular types of mortgages available:

  • Conventional fixed rate mortgages
  • Adjustable rate mortgages (ARM)
  • Government mortgages (e.g., FHA or VA mortgage loans)
  • Hybrid adjustable rate mortgages (ARM)
  • Jumbo loans

Last Steps: Finalizing Your Mortgage Application

As your mortgage application is processed and finalized, your lender is required by law to give you a Loan Estimate within three business days of receiving your application. The Loan Estimate is a form that spells out important information about the loan you applied for, such as the estimated interest rate, monthly payments, and total closing costs for the loan.

Apply for a Great-Rate Mortgage at Patriot Federal Credit Union

If you live, attend school, work, worship, or regularly conduct business in Franklin or Fulton County, Pennsylvania; Washington County, Maryland; or the Borough of Shippensburg, Pennsylvania, we would love to meet with you to discuss the best mortgage option for your home-ownership plans. We have a team of knowledgeable and friendly mortgage consultants whose biggest goal is to get you into the home of your dreams. To learn more about our home mortgage solutions, get in touch with one of our mortgage consultants today!

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Patriot Federal Credit Union does not endorse any third parties, including but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. Patriot Federal Credit Union does not warrant any advice provided by third parties. Patriot Federal Credit Union does not guarantee the accuracy or completeness of the information provided by third parties. Patriot Federal Credit Union recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.