Smart Moves by Ellen James Martin

Take the Stress Out of Applying For a Mortgage

No matter your income or wealth, when you’re buying your first home, the mortgage process can seem bewildering.

“With so many moving parts, the process is nerve-racking for many folks not in the finance field. First, you’re under pressure to gather all your personal financial information. Then you worry your loan could fall through, which could cost you the chance to acquire your dream home,” says Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage markets throughout the country.

Another factor that’s stressing buyers is recent uncertainty over the direction of mortgage rates. If rates rise significantly before their deal closes, buyers fear they could lose the ability to afford the house they’ve selected.

“Rates have been very volatile in recent weeks and could be more so as 2017 progresses,” says Gumbinger, who’s worked as a mortgage market analyst since 1984.

Given the difficulties facing first-time buyers, he says that finding a mortgage lender who offers personalized service can be very helpful.

Here are a few tips for buyers:

-- Initiate your mortgage search early.

The mortgage market is always evolving. With mortgage rates still hovering near historic lows, the overwhelming favorite choice of most homebuyers is a fixed-rate mortgage. Still, new products are constantly developing to appeal to a divergent set of buyers.

“Keep an open mind and explore your mortgage options,” says Sid Davis, a veteran real estate broker and author of “A Survival Guide for Buying a Home.”

Most mortgage innovations involve adjustable-rate mortgages of one type or another. But they can differ dramatically relative to their names, terms and conditions.

“There are many puzzling twists and turns, especially with adjustable loans. That’s why it’s critical you know what you’re getting into before you commit to any mortgage product, fixed or adjustable,” Gumbinger says.

He says that both first-time buyers and those with more experience need as much lead time as possible to educate themselves on mortgage basics, to cull through alternative home loan choices, and to compare lenders and rates.

-- Look for a lender willing to get you started with tutorials.

Gerri Detweiler, a consumer advocate and author of “The Ultimate Credit Handbook,” encourages first-time buyers to seek out a mortgage lender who will instruct them on the intricacies of home loans.

“A good lender won’t think it unreasonable to spend a couple of hours teaching you the basics and helping you deal with potential flaws on your credit reports,” says Detweiler, who offers free credit pointers on her website, www.gerridetweiler.com.

But how do you find a sympathetic lender willing to usher you through your first or second attempt at home finance?

Gumbinger says real estate agents are usually a good bet for sound advice on finding a qualified lender. But he says you should look well beyond the suggestions of agents.

“For referrals, I recommend you use what I call the Satisfied Customer Index, also known as friends and family,” he says.

-- Go into the lender’s office fully prepared.

To maximize the use of your time and that of the lender you’ve chosen for your preliminary tutorials, there’s no substitute for gathering key documents in advance of your meeting. Ideally, these should include recent pay stubs, your latest W-2, a couple of years’ worth of federal tax returns, and bank account statements.

Using these documents, your lender should be able to quickly calculate your top borrowing limit and also assess your eligibility for various lending programs.

“Well before you’re ready to apply for a loan, you can bring the whole mortgage picture into much clearer focus by supplying basic documents related to your financial life,” Gumbinger says.

-- Determine your credit standing to make sure you get the best possible rate.

Under federal law, you're entitled to one free credit report each year from the three largest credit bureaus: Equifax, Experian, and TransUnion. You can easily request these online at www.annualcreditreport.com.

Besides your credit reports, you'll want to access your credit scores. Such scores, which draw on data from the credit bureaus, seek to provide lenders with a quantitative measure of a person's credit risk. Most lenders still use FICO scores, pioneered by the Fair Isaac Corp. In most cases, you'll need to pay a fee to obtain your credit scores. One way to get them is through the Fair Isaac website: www.myfico.com. You can also receive credit scores through the three large credit bureaus.

Once you’ve chosen a property you want to buy, it’s time to get serious about making your mortgage application. And with your credit scores in hand, you can readily begin the process of comparison shopping on rates.

As Gumbinger says, you may wish to start the rate-shopping process with the lender who tutored you in the basics of home finance.

But he strongly suggests you extend your rate hunt well beyond the first lender you consulted. And he recommends you include community banks and credit unions in your search.

“It sounds like overkill. But it’s smart to take the time to make enough extra phone calls to collect at least a dozen rate quotes before going forward with a formal mortgage application,” Gumbinger says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)