Knowing how to get a mortgage and what to expect will make your home buying process in Greater Lansing much easier. Many hopeful homebuyers get bogged down in the lending process, or they realize too late that they’re not financially ready. With proper planning, you can be confident in your financial position and you can move into the home buying process straightaway.
Proper planning is one of the most overlooked steps when learning how to get a mortgage. Before you contact a lender or start looking at homes, you should have a good idea of how much you can pay. This means assessing what monthly mortgage payments you’re prepared to pay, as well as other costs like a downpayment, taxes, and mortgage insurance.
Lenders generally use the “28/36” rule to determine mortgage terms. This rule means that your monthly housing costs can’t exceed 28 percent of your income and your total debt load can’t exceed 36 percent of your total monthly income. This is only a minimum and other factors like your assets, credit history, or job potential can cause lenders to increase the ceiling to 40-60% or higher.
As you plan how to get a mortgage for your home in Lansing, you should determine what amount is right for you. Assess your income, credit score, current debts, spending and other aspects that might affect your mortgage or ability to pay. The mortgage calculator can show you what you might expect from a lender.
When planning how to get a mortgage, getting pre-qualified and pre-approved are significant steps. Many homebuyers are confused by the differences between pre-approval and pre-qualification when learning how to get a mortgage. Pre-qualification is one step before pre-approval, and pre-approval holds more weight in a sale negotiation. To get pre-approved, you will need to provide a number of documents as evidence of your financial position.
Being pre-approved makes it easier to find the right home and place a serious offer. You’ll know exactly how much you can afford, and your offer will have more weight. In competitive real estate markets, offers without pre-approval are easily looked over.
Choosing the Right Loan and Lender
As you decide how to get a mortgage, you are likely to encounter several different loan types. Many of these loans vary by interest rates, down payment amounts required, and the lending institution providing the loan. It is important to understand each one and to read the loan terms carefully so you can plan for the future. If you’re not sure what loan or lender is right for you, our preferred lenders and partners can help explain. The following are some of the loan types you may see;
Fixed Loan – In a fixed loan, the monthly payments and interest rate stays the same. This is a very common type of loan, and one of the easiest to plan for. A fixed loan is ideal if you are planning on owning the property long term (more than 7 years), or if you’re not comfortable with changing interest rates.
ARMs (Adjustable Rate Mortgages) – ARMs typically have a lower starting interest rate that increases later on. When and how the interest rate changes depends on the terms of the loan. An ARM may be better for you if you are planning on selling the property within a few years, but the terms should be carefully reviewed and understood.
Intermediate ARMs (Hybrid Loan) – An intermediate ARM is a combination of the previous two loan types. Intermediate ARMs will have a lower rate for the first 3, 5, 7 or 10 years, after which the interest rate adjusts with the market. If you are planning to sell before the adjustment period, this may be a good loan option for you.
FHA Loans – An FHA loan is a fixed loan that is backed by the federal government and distributed by private institutions like banks. These loans are generally less risky and therefore provide lower interest rates, even for buyers with lower credit scores. These loans are similar to other government loans like USDA and VA loans.
Which documents will I need to provide?
A major factor affecting how to get a mortgage is your ability to pay. For your lender to accurately assess your mortgage and determine your ability to pay, you will need to provide several documents. While this process can be time-consuming, it is easier to collect these documents when you are prepared.
Your mortgage broker will need copies of at least the following documents, and may require others:
- Two years of w2 forms
- Recent pay stubs
- Proof of other income sources
- Previous tax returns
- Bank statements
- Statements of other loans or debts
- Credit card statements
- Credit history report
- Records from previous residences
- Driver’s License or other ID