Mortgage Q&A: “How and where to get a mortgage?”
If you already know what a mortgage is, you may be wondering how to obtain one. To refresh your memory, a mortgage is just another way of saying a home loan.
Of course, mortgages serve different purposes – some are used to purchase a home and others are used to refinance an existing mortgage. You may even open a second mortgage behind an existing first mortgage to tap into the equity of your home (home equity line of credit).
Are You Able to Get a Mortgage?
Regardless of loan type, the first step to successfully getting a mortgage is figuring out how much you can afford, or if you even qualify. Mortgages are a privilege, not a right. So before you begin to shop around, you need to determine if you’re eligible.
This way you won’t waste your time, or anyone else’s. For example, it’s probably not best to attend open houses and hire a real estate agent if you don’t even know if you can get a mortgage.
The best way to accomplish this is by figuring out a rough idea of your debt to income ratio. At the same time, you’ll want to organize all your assets to ensure you have money for a down payment and closing costs, and take a hard look at your credit score to make sure it’s in good shape.
Once you’ve done all your homework, you can start looking for a a bank, mortgage lender, credit union, or mortgage broker to work with.
They can take a look at all those numbers and get you pre-qualified to help determine how much you can borrow and at what interest rate, at least a ballpark figure.
If the mortgage is for a purchase, you’ll also need to get pre-approved to show the home seller (and their real estate agent) that you’re a serious candidate (pre-qualification vs pre-approval). They surely won’t want to waste their time with ineligible borrowers.
Where to Get Your Mortgage
There are a lot of options here, and no one-size-fits-all solution. Which route you choose will depend on a number of factors, including your own preferences.
One important thing to note is that you don’t have to use the same bank, broker, or lender who provided you with the pre-approval. You are free to change your mind after the fact and go with someone else.
For example, you may have been pre-approved with your real estate agent’s contact, but later decided to use your own bank to get the mortgage instead. That’s perfectly acceptable, regardless of what they may tell you.
- Contact a mortgage broker (can give you quotes from multiple lenders)
- Check out an online mortgage lender or two
- Visit a local mortgage lender/banker
- Visit a local retail bank
- Visit a local credit union (often have good deals)
- Zillow’s Mortgage Marketplace
- Contact your investment bank (sometimes they have special rates)
- Speak to a housing counseling agency
- Ask your real estate agent
- Ask a friend for a referral
These days, there are lenders that cater to all types of people. If you’re not the social type, you might be able to go through much of the process online, or via email and text.
If you’re the type who likes to meet face-to-face, there’s an option for that as well. Search around to find the right fit based on your needs and your personality. There’s something for everyone.
Using Your Existing Bank to Get a Mortgage
I’d guess that most prospective and current homeowners seeking a mortgage would go to their bank or credit union first. After all, if you keep your money with them, there must be a certain level of trust and some kind of relationship.
That relationship could equate to savings and special deals on a mortgage, and perhaps a streamlined process. If they already have information about you, they may be able to assess your borrowing profile more easily, and get you an answer sooner.
However, a bank or credit union is only as good as the loan programs it offers. In other words, you’re stuck with whatever they’re selling. This might mean you can only get a fixed-rate mortgage, or the loan-to-value may be capped at 80 percent.
If you want more options, consider a mortgage broker. They work as middlemen between banks and borrowers, and can offer loan programs from an infinite number of lenders.
For example, a mortgage broker may be able to get you mortgage rate quotes from Bank of America, Wells Fargo, Chase, and many others, all at the same time. Then you can compare them side by side.
To ensure you don’t miss out on anything, you can speak with both your local bank/credit union and a mortgage broker (or two). And grab a quote or two online while you’re at it. That way you can compare mortgage rates, programs, closing costs, and more to determine which is best for you.
If you’re buying a home, chances are your real estate agent will “know someone.” Just take their recommendation with a grain of salt, because it’s likely referral business, and not necessarily in your best interest.
However, their recommendations tend to carry a lot of weight. Something like half of home buyers go with the lender their real estate agent recommends, for better or worse.
As a courtesy, you can call their bank or lender just to get pricing and avoid ruffling any feathers. But I wouldn’t stop there. It should be one of many quotes and opinions you receive.
Ultimately, you can speak to a variety of different lenders and then make your decision after that point.
If you’re a first-time home buyer, you can also visit a local housing counselor to discuss your options and ideally get some education on the home-buying process while you’re at it.
There is data that says those who receive some level of pre-purchase counseling tend to be better borrowers, so it might come in handy over the long-term as well.
The Mortgage Loan Process
- Research mortgages and determine affordability/eligibility
- Contact banks, lenders, brokers for pre-qual or pre-approval
- Get pricing from a variety of companies and compare rates and closing costs
- Decide who you would like to use and formally apply for your mortgage
- Provide income and asset documentation, get underwritten, sign loan docs
- Fund your mortgage and rejoice!
Once you’re actually ready to apply for a loan, the bank or mortgage broker will pull your credit and ask you to provide documentation for the loan. This can also happen during the pre-approval stage.
In return, they are required to provide you with a Good Faith Estimate and Truth in Lending (now known as the Loan Estimate) disclosure within three days of loan application. This is essentially a loan summary and an estimate of the charges you’ll incur upon settlement of your loan.
You can use this Loan Estimate to compare offers from different banks, as the terms of deal, such as mortgage rate, APR, and closing costs will be spelled out fairly clearly.
After everything is submitted, it will take anywhere from a few days to a couple weeks to get a decision on your loan. Generally it doesn’t take too long, but ever since the mortgage crisis things have gotten a little backed up.
Assuming you get approved, you’ll be issued a conditional loan approval with a list of items that must be provided before loan documents are released. You will also need to lock your mortgage rate to ensure your desired rate doesn’t change once you’re happy with a certain price.
Once you satisfy these and receive your loan documents, they must be signed and a list of funding conditions must also be met, if applicable.
After those are satisfied, your mortgage will fund. Yes, it sounds like a lot, and it is, but mortgages aren’t a trivial matter.
If for some reason your loan application is declined, you can make an appeal with the bank that denied you or apply elsewhere. In some cases, you may need to restructure the loan or simply wait until your credit/asset/employment outlook improves. Not everyone is eligible for a mortgage…
Read more: What mortgage rate can I expect?