 Personal finance PowerPoint presentation. How to apply for a mortgage loan. Get ready to get financially fit by practicing personal finance. Remember that we can generally group our finance decisions into the short-term decisions and the long-term decisions. Short-term decisions being those that we're gonna train our gut in order to trust our gut. We're gonna be using trial and error tinkering. We're going to be honing down our habits so that we can trust our habits to make the short-term decisions. The long-term decisions using the adage of measure twice cut once. Not being able to use the trial and error. Therefore needing a more formal process to go through the decision-making process. Clearly the home buying fitting into that category. So we might go and group our home buying process into the five sections here. Number one, determine the home ownership need. Number two, find and evaluate property to purchase. Number three, price the property. Number four, obtain financing. Number five, close the purchase transaction. We're now going to be looking into how to apply for a mortgage loan. Most of this information can be found at Investopedia which you can find online and look at the references and continue your research from there. This is by Andrew Martin's updated February 17th, 2022. Finding the right home takes time, effort and a bit of luck. If you manage to find a property that's right for you and your budget, then it's time to get one step closer to home ownership by applying for a mortgage loan. So obviously most home buyers don't have the capacity to put straight cash down for the purchase of the home and therefore the financing is necessary, a necessary process, a necessary step to the home purchasing. So and though this is one of the biggest financial decisions you can make knowing how to start and what you need will put you one step ahead of other potential home buyers. So you want to have a general idea of the process of the financing, the financing factors. What to do before applying the first step in applying for a mortgage isn't necessarily filling out the paperwork. There's a lot of preparation involved before you reach that point. So clearly the financing component is going to be a substantial part of the decision for the home purchase process. You want to be factoring in how much home you can purchase. Clearly the financing component is going to be one of the things that you need to factor in to do so. And when you think about that, you have a whole world of different kind of financing options that are out there and possibly available to you. You might first want to hone down those financing options to the most kind of straightforward ones, possibly like the 30 year fixed type of loans, because those are going to be the ones that are most static, most static in time generally, and most static from financial institution to financial institution, and then possibly make variants from that point. And as you do, you're going to expand a whole lot more of loan options and you're going to need to do a lot more kind of in-depth comparison from there. For example, if you're changing to an adjustable rate or something like that, then that opens up a lot more complexity in the process. So the more you prepare, the better off you'll be as you hit each milestone in the application process while trying to close on a house. Whether you're becoming a new homeowner or are looking to change homes, the following items are just some things you'll want to address before kicking things off. So clearly when you're going into the home purchasing process, then you're doing a negotiation, you're on the market, you're competing with other purchasers, and obviously if you were on the other side of the table, if you were the one selling, you want to be secured that the person you're negotiating with can pay the amount that they're saying that they're going to pay. So you'd like to get everything lined up so that you could provide that security and close the deal when you're really getting serious about the home purchasing process. Consider your credit score. So the credit score, of course, is going to be important to try to get the best deal on the lending deals. So lenders will want to know your credit score as you gear up to start your mortgage application process, check your credit ratings and make sure it's in good shape. So you can check out your credit scores obviously and try to get a feel for them if there's substantial time before buying a home and you have the capacity to make changes to improve your credit scores, you can look into the ability to do so. Though each lender will typically have a minimum credit score in mind for prospective mortgage applicants, experience estimates that the minimum FICA FICO FICO score needed to secure a conventional mortgage is in the 620 range. So you can kind of target that number. You can check out your credit scores there and see if you're in that range. Do your research early on in the mortgage application process. You want to make sure the lender you ultimately pick is right for you. A mortgage can last as long as 30 years. So the relationship is important. Do your due diligence and choose a lender that can best fit your needs. Decide on a mortgage type. There's no one size fits all mortgage solution for today's home buyers. Lenders offer several types of mortgages in a bid to meet the needs of diverse clientele. So you got obviously loan terms can vary greatly in terms of the types of loan terms that are out there. Sometimes you could think of the baseline. I like to think about you know kind of what is a standard home loan for the most part because those are the ones that are likely to be more static. You could kind of look at those as the ground floor and then start to compare and deviate from them, noting that as you do so they will get more complex and that complexity will be applicable further out into the future. As you do that you probably want to get advice not only from people that are engaged in the home purchasing process such as the lender or your mortgage broker perhaps but possibly someone else like a CPA firm or something your tax preparer or accountant or possibly something you can pay that is not directly involved or invested in the outcome of you actually purchasing the home because you would think that that process then being involved in it would bias their decision to some degree. So when deciding on a lender and a mortgage type you'll encounter information about 15 year and 30 year mortgages adjustable mortgages and even mortgage backed by the US government if you qualify. The important thing is to seek out the best mortgage type to match your situation. So you got the you know you could have a 15 year mortgage the 30 year you can adjust basically the years in general those are like the two most common links of mortgages 30 probably be the most common and then the 15 year mortgage you can have the adjustable rate mortgages which is a fairly big deviation from a fixed rate mortgage which you've got to be careful of and understand what you are doing into the future because those rates can have a significant impact on your payments and that adds a big deal of complexity and risk into the into the mix but of course can start with that lower rate at least upfront and then the government if you've got the mortgages backed by the US government of course and you can take a look at those items I gather your documents the loan application process is just that a process you'll need to handle hand over documents that establish your credit worthiness and convince a lender why they should trust you to pay back potentially hundreds of thousands of dollars. So it's a significant thing you got to think about it as you know it's a business transaction here so you might have like if it was a government back loan or something like that you might whenever that we tend to start to think that the loan is some kind of just like like process or like a government thing or like it's not a business transaction it is you want to start it off as yeah it's a business transaction right the bank is making money from the interest that they're going to be getting from the loan payments they want to give us a loan but they're balancing that out versus the likelihood or the risk the likelihood that we're going to be paying back the loan and that's the balancing tools that they're going to be putting into place so we got to think of it from the perspective of the lender in that case and and if you do that it'll be a little bit easier possibly to to comply with what they're doing or try to see why they're doing what they are doing so that you can get them what they need and be able to kind of project or think about what it is they're looking for. So this paperwork will prove you have a settled income list your assets and lay out your financial obligations and debts have these documents ready before getting started seek pre-approved from different lenders so pre-approval from different lenders congratulations you've been pre-approved for we've all received those letters in the mail for loans and credit cards and they aren't the same as a mortgage pre-approval so that's something for which you must apply so clearly you know you're not just going to have something you know they're not going to just say hey you know we've pre-approved you for a $400,000 loan typically or something like that for a mortgage or something so you got to apply for that so pre-approval will give you an idea of how much you can borrow and what kind of mortgage you'll have so when you're getting serious for the loan purchasing process then of course you want to be knowing that you got the money available to you in the event that you're going forward you're pushing forward you're making this thing happen do this before making an offer on a on a home because it lets the seller know you have the bank's backing so the seller of course if you're competing if you were on the seller side of things and someone's coming up to you and saying yeah i'm going to give you this amount and then i've got the bank is going to finance this stuff but the bank hasn't hasn't told me that they're going to do that versus this other guy where the bank has already said that they're going to they're going to back up the financing for it well clearly i'm going to feel more secure going forward with the person that has has the money ready to go and the banks banks already said given the okay for it how the application process works when you laid the groundwork for working mortgage application you can begin the process in earnest remember that by entering the housing market you may be competing against other buyers for the same property well at the same time negotiating your best price with the seller so so when we go into this thing it is a market right so we got to think about it from the bank's standpoint we're doing business with them by getting a loan they're going to want to give the loan if they can because they're making interest on it but they want security on it because they're balancing the risk and then we're going into business of course with the seller of the home and as we do so we're competing with others that might be wanting the home at the same time we can compete on price but that's not the only thing we want to be competing on we also want to be be able to compete on anything that we can get an edge on right and that would include the idea that look i've got i can got access to the money i've you know here and now i'm ready i'm ready to move forward this other guy's not ready to move forward you know and so that that's the kind of thing you'd like to be able to compete on as well in a seller's market that often means higher price tags and concessions while a buyer while a buyers market will usually result in lower costs and greater negotiated power for the new homeowner so with the current housing market in mind and your preparations complete use the following steps to secure a mortgage and land your next home so make an offer if you found the house of your dreams and the seller has accepted your offer then you're ready to start the application process this means you've likely bested other prospective homeowners with your offer and now all you need to do is secure the funds before the closing date choose a lender and submit an application because you've already gone ahead and researched various lenders you should have a good idea of where you intend to get your mortgage or at least have have the list whittled down to a select few take this time to finish shopping around for the best interest rates you can find the lowest fees charged and the most beneficial loan term get quotes from different lenders review loan office offers and choose among them loan estimates will include interest rates costs fees a loan period among other details pick a lender you feel you can trust so clearly when you're dealing with a financial institution and picking out a loan you want to be dealing with the financial institution that you feel you know comfortable with dealing with so wait for the loan to be processed and cleared this step takes time so be patient and ready to respond to questions or requests for extra documentation from the lender so the lender might say hey i want more stuff i need another pay stub or something like this and be ready and patient for that process to take place and try to try to give them whatever you know whatever they need be able to respond to them as needed hopefully by providing fast responses you'll speed up the process so clearly if they're looking for documentation if you can give them the documentation earlier then that would be better and you want to expect that kind of thing to be happening generally as you go through so close on the mortgage after all the painstaking effort the time the close has come to wrap up you review your closing statement and sign some final paperwork the loan is now yours to pay back along with the keys to your new your new abode what documentation do you need so throughout the entire application process you're providing your credit worthiness to lenders by providing official statements that outline your financial status along with other legal and certified documentation you'll need to verify your annual income which means supplying tax returns recent pay stubs or other proof of income so clearly they're going to make most of their estimates on you know basically your income line remember that the loan officer is is trying to determine based on the heuristics that they have and these are going to be generalized heuristics generalized percentages based on gross income typically to determine how much loan you might be able to qualify for note again that that is not the same thing as you do in your personal budgeting when you go to the bank when you're trying to get a loan you're trying to qualify for as much loan as you can get not for as much loan as you actually need for a certain home purchase possibly or for or as much home for them to determine how much you can afford right you want to do that on your own so it would be nice if you have the capacity if necessary to qualify for a higher loan you know with the bank if you needed it to have the credit available to you have the cash available to you and then do your own budgeting to determine how much how much you can actually afford using an income statement right your your general more detailed calculation of your finances and we'll do this a little bit with the practice problems more and then and then take out however much loan you actually need and that's just kind of an important distinction because oftentimes people kind of think like the the lender the bank is there to help them budget right the bank is there to tell them how much they can afford no the bank the bank is there for their purpose to determine how much they think that you can afford based on their heuristics which might not match your personal lifestyle which are which are geared by the fact that the economy is going to be different banking standards are different and what they can actually rely on what they can rely on is your income numbers not so much your expense numbers because those are supported by documentation like the tax returns and the w2s so just be aware of that and of course the income if you if you have a standard job for multiple years and it's a secure job for example and you have a salary to income rather than hourly that's usually going to be more beneficial type of income you could see why from the lender if you're if you're like a like a teacher or something and they and you've been you know like you're tenured or something like that and you're basically locked into your job and your salary is what it is and it's going to go up by a little bit each year and so on then they're feeling pretty comfortable if you have a job where it's hourly they're feeling a little less comfortable you would expect and if you had a a sole proprietorship then they're less comfortable unfortunately with that because there could be they would assume possibly more variation with the income so just to keep few things to keep in mind lenders might also request the following bank statements credit card history rental history and assets and debts so clearly the bank statements can help them confirm you know you're spending for the last at least time frames whatever they're going back to the credit history of course the rental history could be something that could be significant to them which could give them an idea of how how steady you are at making the the rent payments and so on and assets and debts they might then dip into your actual balance sheet information assets and debt side of things so additional documentation you should have on hand include signed copy of the sales agreement between you and the seller identification and if necessary documents that explain credit blemishes like late payments and run-ins with collection so if you have any credit issues then you want to justify or try to say what what your side of the story is at least on that i'll tell you why i didn't pay that i was i totally had a reason that was justifiable my dog ate the ate the check and then in any case how long does the s how long does the entire process take you might ask how long your mortgage loan application will take hinges on the number of factors the average mortgage uh took approximately 46 days from application to closing according to the november 2021 i c e mortgage technology or a orientation insight report the most important thing to remember is you should always be ready to address any questions or provide any supporting documents the lender may request so clearly if you're not giving them the the lender what they need if they're saying hey i need you know this documentation to support your income level or your you know renting or this or that and you don't get back to them that's kind of clearly slow up the process so by stating by staying on top of the process you can help things moving what are the key documents you need to gather for a mortgage application you'll need to verify your annual income which means supplying tax returns recent paystubs or other proof of income so notice that the the lender is going to be more dependent on your gross income whereas you when you do your budgeting might look into your full income statement income minus expenses the lender can verify your income through tax returns and paycheck check stubs and so on which is also why they're less more skeptical about say schedule c business income sole proprietorship because it's less easy to verify that income on our side we trust our numbers because they're our numbers so we can look at our expenses a bit more closely put together a full kind of income statement which will take into consideration not just what we earned but also our lifestyle or spending habits which could vary greatly from individual to individual lenders might also request the following bank statements credit history rental history and asset and debts how important is a credit score to securing a mortgage your credit score is a crit is is is as critically important as other information you supply so be sure to check it so you want to keep an eye on your credit score because it's a significant factor lenders generally have a minimum credit score in mind for prospective mortgage applicants so you might say well if it goes over this this metric it might be that okay if it goes like over that metric by a lot it might not be as big a factor but you want to be over you know that big threshold component generally so again it like each increment increase in the credit score might not give you the same incremental increase in the significance of the loan in other words but there might be more of like a critical threshold that the that the bank is looking for people to be over in order to feel secure going forward and then of course the better the credit score from there the more secure the bank feels but it might not again each incremental increase over that component might not have the same kind of positive impact on the on the financing so the minimum FICO the FICO score needed to qualify for a conventional mortgage is around 620 how long does closing a mortgage typically take it depends the average mortgage takes around 46 days according to the mortgage technology organization insight report the bottom line buying a home a major milestone in people's lives requires that you pay attention to the details surrounding the mortgage loan by doing your homework and following through to the closing date you can ensure that you end up in the house you want at the rate that you can afford so clearly the financing process is going to be one that we want to make sure that we're focused in on through the whole purchasing process