- BUYING RESOURCES -
Mortgages can be confusing, but you do not need to become an expert before buying a home. Start by getting preapproved so you know what a lender may be willing to finance. Then, once you have an accepted offer, compare lenders and loan options carefully before choosing the mortgage you will actually use.
A mortgage preapproval is crucial in determining what homes you can afford.
On YELLOW, a preapproval is required before you can visit or make an offer on a home. Sellers set their own preapproval thresholds.
For instance, if a seller lists their home for $200,000, they may specify that only buyers preapproved for $180,000 or more can visit. YELLOW will not disclose your preapproval amount or the minimum level set by the seller.
Having a preapproval benefits both buyers and sellers by preventing wasted time and resources on homes that buyers cannot afford. It also helps keep sellers safe since they are letting strangers into their homes.
Contact lenders to get preapproved for a mortgage. The process is easy and free!
Getting a preapproval involves submitting basic information about your financial situation. Typically, within a day (or just a few minutes with some online lenders), you will receive a letter stating how much you are qualified for. The preapproval process is less involved than applying for an actual mortgage.
YELLOW SAYS...
Your current bank or credit union is a good place to start, especially if you already have a relationship there. However, mortgage pricing and loan programs can vary from lender to lender.
Try getting preapprovals from a few lenders if convenient. Then, once your offer is accepted, shop the actual mortgage carefully and compare written Loan Estimates before choosing a lender.
Comparing a few lenders can be worthwhile even at the preapproval stage. It lets you compare service, loan programs and estimated costs, and it gives you a few lenders to return to once you are under contract.
FINANCIAL INSTITUTION (BANK, CREDIT UNION, ETC.)
Most major and local banks offer mortgage products. Check with your current bank or credit union, as they may offer preferred rates or discounts to existing customers.
NON-BANK LENDER
Non-bank lenders specialize in lending rather than traditional banking. Companies such as Rocket Mortgage and loanDepot may offer fast online applications, competitive pricing and streamlined processing. Service varies by company, so ask whether you will have a dedicated loan officer and how underwriting is handled.
MORTGAGE BROKER
Mortgage brokers can shop among multiple lenders instead of offering only one lender's products. This can be helpful if you want someone to compare several loan options for you or if your financial situation is unusual. Ask how the broker is compensated and whether any broker fee is paid by you, the lender, or built into the loan pricing.
ONLINE MORTGAGE BROKER
Online mortgage brokers function similarly to traditional brokers but operate online. They help you find the right lender. These are the companies like LendingTree.com and Bankrate.com.
The preapproval process is fairly straightforward. You provide information about your income, debts, assets and credit, and the lender estimates how much it may be willing to lend.
Requirements vary by lender and by your situation. A salaried employee with simple finances may provide fewer documents than someone who is self-employed, owns rental property or receives income from several sources.
DOCUMENTS COMMONLY NEEDED FOR PREAPPROVAL
The exact list varies. Your lender will tell you what applies to your situation.
The lender will generally review your information and credit before issuing a preapproval. Some lenders can do this quickly, while others may take longer depending on how much documentation is needed.
A preapproval is helpful, but it is not a guarantee that the mortgage will be approved.
Once your offer is accepted, the lender will verify your finances in much greater detail and will also evaluate the property. The loan may go through underwriting, appraisal, insurance review and other requirements before final approval.
THINGS THAT CAN CREATE MORTGAGE PROBLEMS LATER
YELLOW SAYS...
DON'T CHANGE YOUR FINANCES WHILE BUYING
Once you are shopping for a home - and especially after your offer is accepted - avoid major financial changes without first talking to your lender.
Lenders may recheck employment, assets and credit before closing, so a financial change that seems unrelated to your home purchase can still affect the mortgage.
Once your offer is accepted, your mortgage becomes one of the most important parts of the transaction. You do not need to know every lending rule, but you should understand the basic choices, the documents you will receive, and what to compare before choosing a loan.
The mortgage payment is often more than just principal and interest. Your total monthly housing cost may include:
PREAPPROVED AMOUNT ≠ YOUR PERSONAL BUDGET
A lender may be willing to approve a larger payment than you are comfortable making every month. Use the preapproval as a financing limit, not as a recommendation to spend the maximum amount.
CONVENTIONAL LOAN
Conventional mortgages are not insured by the federal government and are among the most common home loans. Down payments can be much lower than 20%, although private mortgage insurance may be required when the down payment is smaller.
FHA LOAN
FHA loans are insured by the Federal Housing Administration. They can be helpful for buyers with smaller down payments or credit profiles that may not fit some conventional programs. FHA loans include mortgage-insurance requirements and the property must meet FHA guidelines.
VA LOAN
VA loans are available to eligible veterans, service members and certain surviving spouses. Qualified buyers may be able to purchase with no down payment, and VA loans do not use monthly private mortgage insurance. A VA funding fee may apply unless the borrower is exempt.
USDA LOAN
USDA Rural Development offers mortgage programs for eligible buyers purchasing eligible properties in qualifying areas. Some USDA programs allow qualified buyers to finance the full purchase price, but income and property-location requirements apply.
WHICH LOAN TYPE IS BEST?
There is no single best mortgage for everyone. Credit, income, cash available, military eligibility, property location and how long you expect to own the home can all affect which option makes the most sense.
Ask lenders to show you more than one loan structure when you qualify for multiple options.
FIXED-RATE MORTGAGE
The interest rate stays the same for the life of the loan. Your principal-and-interest payment does not change, although taxes, insurance and association fees can still change.
ADJUSTABLE-RATE MORTGAGE (ARM)
An ARM starts with a rate that can later change according to the terms of the loan. These loans can make sense in some situations, but be sure you understand when the rate can adjust, how often it can adjust, and how high the payment could become.
A 30-year mortgage usually has a lower required monthly payment because repayment is spread over a longer period. A 15-year mortgage generally has a much higher monthly payment, but the loan is paid off faster and usually results in less total interest.
The right choice depends on your cash flow, long-term plans and how much flexibility you want in your monthly budget.
INTEREST RATE
This is the rate used to calculate the interest charged on the mortgage.
APR
APR, or Annual Percentage Rate, is designed to reflect the broader cost of the loan by incorporating the interest rate along with certain fees and charges. It can be useful when comparing similar loan offers.
DISCOUNT POINTS
Discount points are upfront charges paid in exchange for a lower interest rate. One point generally equals 1% of the loan amount. Paying points may make sense if the lower payment saves enough money over the time you expect to keep the mortgage.
YELLOW SAYS...
SHOP THE LOAN, NOT JUST THE RATE
The lender advertising the lowest rate is not automatically offering the least expensive mortgage. A lower rate may come with higher points or lender fees.
Compare the rate, APR, lender charges, points, credits, monthly payment and cash needed at closing before deciding.
Mortgage rates move constantly. A quoted rate is not necessarily guaranteed until it is locked.
When you lock a rate, ask how long the lock lasts, whether there is a fee, what happens if closing is delayed, and whether the lender offers any option to take advantage of a lower rate if rates fall before closing.
Once your offer is accepted, you know the property, purchase price and expected closing date. That is the best time to compare actual loan offers.
Contact several lenders quickly and ask for comparable loan options. The Consumer Financial Protection Bureau recommends comparing at least three loan offers.
THINGS TO COMPARE
The Loan Estimate is one of the most useful documents in the mortgage process. For most covered mortgages, the lender provides it after receiving the required application information.
It gives you a standardized way to review the loan amount, rate, estimated payment, lender charges, closing costs and cash needed to close. Because lenders use the same general form, it is much easier to compare offers side by side.
YELLOW SAYS...
If two lenders are quoting you a mortgage, ask each for a Loan Estimate based on the same purchase price, down payment and general loan structure. Comparing verbal quotes can be confusing; comparing the written forms is much easier.
Your down payment is only one part of the money you may need to complete the purchase. Depending on the transaction, cash needed can include:
Your escrow deposit, lender credits, seller credits and other amounts already paid or credited can reduce the amount you ultimately need to bring to closing.
Mortgage insurance protects the lender rather than the homeowner. It may be required when the lender is taking on additional risk, such as with a smaller down payment.
CLOSING DISCLOSURE
For most covered mortgages, your lender must provide a Closing Disclosure at least three business days before closing. This form shows the final loan terms, projected payments and closing costs.
Compare it with your most recent Loan Estimate. If something looks wrong or unexpectedly different, ask your lender or title company about it before closing.
YELLOW SAYS...
LOOK FOR ASSISTANCE PROGRAMS
Many mortgage and assistance programs consider you a first-time homebuyer if you have not owned a principal residence during the previous three years, although each program has its own rules.
Florida and local programs may offer down-payment assistance, closing-cost assistance or special mortgage options. Check eligibility before assuming you do not qualify.
Mortgage rates can change daily, sometimes even during the same day. Do not rely on a rate you saw weeks ago when deciding what you can afford.
When you are ready to buy, check current market rates and then get actual quotes based on your own credit, down payment, loan type and property.
What can you really afford?
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