In this day and age, it is very important for you to get Pre-Qualified and/or Pre-Approved BEFORE you begin searching for homes. Pre-approval is a lender’s commitment to lend; pre-qualifying is a verbal exchange in which the lender tells borrowers in advance how much money they can borrow. It is important to educate yourself and find a lender or mortgage broker you are comfortable with. Check with your bank and/or local banks, or use a Mortgage Broker, who will research several lenders and find the best option for you. 

Mortgage Company

How to secure home financing the smart way

Three elements are crucial to the purchase of a home—the down payment, closing costs, and qualifying for a mortgage. Here is a quick rundown of what you should know:

Typically, conventional lenders will require a 20% down payment, although you may be able to find loans with down payments of as little as 5% (perhaps less in some cases). With down payments less than 20%, you likely will have to pay private mortgage insurance, which guarantees the lender will be repaid in case of default. Mortgages insured by the Federal Housing Administration (FHA) and those available to U.S. veterans often require very low down payments. Ask your lender if you can qualify for one of these loans.

If you are having trouble coming up with the down payment, here are some tips to ease the burden:

- Consider down payment assistance programs. Buyers can get up to 6% of a home’s purchase price—that they do not have to repay—through a down payment assistance program called Texas Cares. For more information, visit TexasCaresProgram.org.

-Start early. Begin saving for a down payment as soon as possible. After a few years, it adds up. 

-Ask for a Flex 97 mortgage. Underwritten by Fannie Mae, it only requires 3% down, provided you have good credit. And, you may be able to borrow that 3% on credit cards. 

-Convert stocks. Consider selling stock for the down payment. The housing market often is a better investment anyway.

-Sell an asset. If you have “toys” such as a boat, extra car, or other asset, consider selling it for the down payment.

- Borrow from relatives. Today lenders will allow you to use money borrowed from relatives as the down payment. In many cases the relatives do not need to co-sign the mortgage. Check with your lender for restrictions.

No matter what home you buy, there will be closing costs. These can include: discount points, title insurance, escrow fees, attorney fees, termite report, recording fees, appraisal fees, document preparation fees, notary fees, and a loan underwriting fee. Usually these are due in cash, but sometimes they can be folded into the mortgage.

The size of the mortgage you qualify for is based mainly on the interest rate offered and your income. The higher the interest rate, the higher the monthly payment. And, the higher the monthly payment, the more income you will need to qualify for the mortgage.

Contacting a lender before you’re actually ready to make an offer on a house can be a good idea. This head start gives you a chance to work out any problems that may arise without the pressure of contract deadlines.

Questions buyers should ask a mortgage lender

There is a lot more to the mortgage process than getting the lowest rate. High costs in fees and poor service can come as very unhappy surprises.

How large is your company, and how long has it been in business?

Are you a licensed mortgage broker or loan officer in Texas?

Is your company a mortgage banker or a mortgage broker? (A banker lends its own funds; a broker searches mortgage sources and arranges for you to receive financing from the lending entity.)

What is the name, phone number, and e-mail address of the person who will actually be processing my loan application? How accessible is that person?

Tell me about all loan fees. What fees must I pay up front? What fees will I have to pay at closing?

How can you assure me I won’t pay any unnecessary “add-on” fees?

Do the costs you are quoting include the lender origination fee?

Are there loans available with no origination fees? No closing costs? Reduced closing costs?

What are your interest rates?

Is there a fee to lock in my interest rate? How long can I lock in the rate? If interest rates go down, can I relock at the lower rate? If so, will there be a fee for that?

What information must I provide to get a mortgage loan?

What documentation will I have to provide?

Will you require current tax returns? (Take note of this especially between Jan. 1 and April 15 if you haven’t prepared your return yet.)

How long will it take to get complete and unequivocal loan approval and be ready to close?

I plan to stay in this house for ___ years. Can you show me the breakdown of any ARM loans you offer vs. fixed-rate loans to see which could save me the most money in my situation?

What is private mortgage insurance? Other than a 20% down payment, how can I avoid the private mortgage insurance?

In the last three months, how many loan applications have you taken and how many have you been unable to close?

Can you give me names and phone numbers of two or three people for whom you’ve funded loans in the last two months?

Currently, Texas-licensed mortgage brokers must use the standard Conditional Qualification and Conditional Approval letters when representing that an applicant is pre-qualified or pre-approved for a mortgage loan. Mortgage bankers may be required to do so in the future.