When you go to buy a home in the St. Louis Metropolitan Area, use these five steps to get your mortgage loan process started and to make sure you get the best lender for you.
1. Make sure your credit score is good
Not everyone who want to purchase a house will qualify. Mortgage lenders want to know that you can repay the loan, so you will need to satisfy certain credit and income criteria to qualify.
The higher your credit score and the more on-time payments you have made, the easier it will be to negotiate for better rates with potential lending institutions. A low credit score tells a lender that it might be risky lending to you, which could mean a higher interest rate on your home mortgage. If your score is under 580, you typically will have a difficult time qualifying for the majority of types of home loans.
If you need to raise your credit score, first make sure your credit reports are correct and free of errors. You can get a copy of your report from one of the 3 major credit bureaus: Equifax, Experian and TransUnion. All of them are required to provide you with a free copy of your report once every 12 months.
The next step is to pay off your high-interest debts and to reduce your overall level of debt as quickly as possible. By reducing your debt, your debt-to-income ratio will improve. Paying off credit card debt and recurring loans before you buy a home is a good way to free up more cash for the down payment on the a loan.
2. Know the difference between types of lenders
Knowing the difference between the different types of lenders available in St. Louis will help you understand the choices. Here are the most common types of home lenders:
- Mortgage bankers: They work for a certain financial institution and package loans for consideration by the bank’s underwriters.
- Correspondent lenders: They are often local mortgage companies that have the resources to make your loan, however they will rely instead other loan providers to whom they will immediately sell your loan.
- Savings and loans: S&Ls used to be the major source of home loans, but are now actually hard to find. However these smaller sized financial institutions are often community-oriented and worth looking for.
- Mutual savings banks: Another type of thrift institution, like savings and loans, mutual savings banks are locally focused and often competitive.
- Credit unions: Credit Unions are member-owned financial institutions and often provide great interest rates to the members. And many have made it easier to become a member, so finding one to join should not be very hard to do.
Make sure to check that the lending institutions you consider are registered in Missouri. You can do that through the Nationwide Multistate Licensing System Registry. Likewise, browse the Better Business Bureau for objective reviews and information.
3. Get preapproved by your lender
When you get a home loan preapproval letter before you begin looking at homes, it gives you an edge over other buyers if you find yourself bidding against them on the same house. The preapproval is evidence that a loan provider has actually assessed your financial situation and determined how much you can afford to borrow, and how much home you can afford. It shows the seller that you are a serious and qualified buyer whose loan is likely to close.
Getting preapproved now will also save time later. When you’re ready to make an offer on a house, your lender will have the current information they need to process your loan.
Here is what a lending institution normally needs from you to get you preapproved:
- Social Security numbers for yourself and any co-borrowers
- Bank, savings, checking, investment account information
- Outstanding debts, including credit cards, car loans, student loans and other balances
- Two years of tax returns, W-2s and 1099s
- Wage/salary and employer info
- How much of a down payment you can make, and where the cash is originating from
It’s also a good idea to get preapproved by more than one lender. This will allow you to compare each lender to determine which one offers you the best rates and terms.
4. Compare rates from a number of home mortgage lenders
One way to start is by looking for home mortgage interest rates online. But remember, the rates you see online are just estimates. Using your credit and financial information, a lender or mortgage broker will be able to get you a more accurate rate.
Having a number of rate quotes in hand will allow you to compare expenses and choose which rate and loan is best for you. You can use your research to negotiate for the very best mortgage rates possible. Once you find the product that best fits your needs, you can lock in that rate.
Finding a good lender is more than just choosing the most affordable interest rate, but the rate is a very important factor. The total amount of money you will pay in interest over the life of the loan is a large amount, so a low rate can save you thousands of dollars.
5. It’s important to ask the right questions and read the small print
A way to narrow your choice of lenders is by getting referrals from your real estate agent or family and friends. Online reviews of lenders are also valuable. When you have a list ask these questions:
- How long does it take to get a preapproval letter, an appraisal and then closed?
- How will you communicate with me? In person? By phone? Or by email or text? How long will it take for you to respond to messages I leave you?
- What lender fees will I have to pay at closing? (Fees may consist of commission, loan origination, points, appraisal, credit report and application fees.).
- Can any of these fees be waived? Or can they be rolled into my mortgage?
- How much do you require for the down payment?
If you purchase discount points, you’re paying some interest upfront in exchange for a lower rate on your home loan. Talk to your mortgage lender or broker to see if purchasing points to reduce your rate is a good way to go. This might be an excellent strategy if you intend on living in the home for a very long time.
Principal and interest payments aren’t the only costs of purchasing a house. Make sure you ask your lender about the other costs, such as closing costs, points, loan origination fees and other transaction fees. Ask for an explanation on anything you are uncertain about.
Mortgage lending institutions will require an “earnest money” deposit to start the loan process. Ask the lender if there are any circumstances the earnest money can not be returned. If their response is unclear, keep searching.
Always pay close attention to the fine print on your loan documents. These will let you know the exact finance terms, who pays what closing cost, what items are and aren’t included with the house, whether there’s a home inspection contingency, the closing date and other crucial information.
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