The Mortgage Process

I’ve written about the basics of a mortgage to provide a starting point for people new to the process. Now that you’re armed with that information, it’s time embrace the mortgage process and get pre-approved so you can buy your dream house (or maybe a condo?).

What’s Your Budget?

This step requires that you know exactly what you make a month and what all your expenses are. Login to your bank website and download your last years statements into a spreadsheet. If in 2017 your bank doesn’t offer this functionality, change banks. Looking at your credit card payments, bills, taxes, insurance and miscellaneous expenses, it shouldn’t take long to work out a monthly average. Subtract this from your average monthly income and you’ll have a good idea of what you can afford for a monthly mortgage payment. You can also use my mortgage calculator to estimate how much house you can afford.

Picking a Lender

You really need to do some footwork here, speaking with multiple lenders in person, and investigating on the Internet. This isn’t just about finding the best rate. You want to know what other options they offer like a personalized website, what their fees are, what kind of customer service they have, and closing costs to name a few.

The Players

Who should you use to get a mortgage? Due to the size of the average mortgage, and the interest to be made, competition among lenders is fierce. Take advantage of that.

• Bank and Credit Unions: They’ve been the traditional option for getting a mortgage. If you have a great relationship with your bank, and they have a good offering, then convenience alone can make them the right choice.
• Mortgage Brokers: A local brokers are my favorite option because they know more about the process than I ever will. They work for you and make their money from the lender. Brokers meet with you to understand what your particular situation is, then they engage with their network of lenders to find the best fit.
• Online Mortgage Brokers and Lead Services: New financial technology companies, or fintech companies as they are referred to, are producing new websites / mobile applications everyday aimed at displacing the traditional players in the market (banks). I haven’t gone this route myself, but I will be definitely looking at some of them when it comes time to renew. Following are some of the names i keep coming across in my research:

  • Sindeo

    • Apply once
    • Chose from over 40 lenders
    • 15 day closing
    • Dedicated mortgage advisor from start to finish
    • Less paper, more technology
    • Specialty finance solutions
    • Cost based on your satisfaction. Their advisors work on salary so they give the small borrower the same attention as bigger ones.
    • Ambitious – want  to do $1 billon per year
    • Claim that compared to market average, they get lower rates resulting in savings of $31,257 over the life of a mortgage

  • Lenda

    • Specialize in refinancing
    • Online self serve means lower cost due to lower rates and fees
    • Can submit documents through their portal
    • Act as the underwriter, so they appraise and close your loan
    • Great customer support

  • SoFi

    • Claim to qualify you for more financing than you can get from other lenders due to their underwriting approach
    • Offer low down payments of 10-50% – no private mortgage insurance required
    • “Interest-only” mortgages where you pay only interest for the first part of loan, then principal in the last part of the term. During the interest-only period, your monthly payment is normally tax-deductible.
    • Online application and 30 day close
    • No origination or lender fees and no prepayment penalties.

Not sure which way to go. Talk to friends and family about what they do and what the experience is like.

Get Pre-Approved

When you’ve completed your research and found a lender you can work with, get pre-approved. With pre-approval you’ll know exactly what amount you have to shop with and you’ll be attractive to a seller compared to other potential buyers who haven’t even started the approval process.

Finally when you’ve figured out all the above, get yourself a good real estate agent and start shopping!