February 10, 2021 by Space Coast Credit Union
With today’s record-low mortgage rates, it’s no wonder renters are considering becoming first-time homebuyers! Or, depending on where they are in life, homeowners might be ready to take that next step of moving up or downsizing. Throw in seasoned homeowners considering refinancing their mortgages to save money or cash in on equity, and the mortgage mix can seem quite confusing. What’s best for you? Understanding today’s mortgage landscape will help you become a more informed decision maker and put you on the path to successfully reaching your goal — moving into your new home, or enjoying the spoils of your growing equity. So what do you need to know? Read the "Time to Buy" or "Refinancing a Current Mortgage" sections below for expert tips!
TIME TO BUY?
Preapproval and House Hunting
Before you begin your home search, it’s important to know how much you can afford. A mortgage preapproval will give you a good idea of how much mortgage a lender is likely to approve. To obtain a preapproval, you will start by submitting a mortgage application. A loan officer will take a look at your credit history, employment, income, assets, and debt. The lender will run a credit check and verify other documentation prior to providing a preapproved letter with a loan amount. If you’re shopping several lenders, don’t worry too much about the credit check. Suppose several mortgage lender requests show up on your credit report within a relatively short time (usually 45 days). In that case, they are viewed as one shopping experience and won’t count as individual credit inquiries. Most preapprovals expire after 60-90 days, but you can provide updated information if you need a new preapproval.
Keep in mind a preapproval is not a final loan decision. Once you’ve found a property, the lending team will request a property appraisal to ensure the property value is in line with the loan amount.
If you’ve been home shopping, you know homes sell quickly in today’s market! A preapproval gives you a distinct advantage as a buyer. When you include a lender preapproval letter with your purchase offer, a buyer understands you are a serious buyer, have done your homework, and are prepared to purchase. In addition, many realtors will not consider an offer without a preapproval letter.
Making the Offer: Processing and Underwriting
When you’ve found a home and made an offer, the mortgage team will request updated paperwork to confirm your current application information. It’s very important not to incur any new debt after you’ve been preapproved. Making a large purchase on a payment plan or running up credit cards can affect your final ability to qualify for a mortgage or get the best rate.
As mentioned earlier, the home will be appraised to ensure its value aligns with the seller’s asking price. Don’t be alarmed if you get requests from processors or underwriters for additional information or clarification—it’s a normal part of the approval process.
Closing and Getting the Keys
With your final approval in hand, you’re ready to close on financing your new home! A few days before the closing, you’ll receive a closing disclosure. The disclosure will detail the final terms of your loan, as well as costs associated with the closing and who will pay them. This will give you a chance to review all terms and closing costs to ensure that everything is in order and you know how much money to bring to closing. Your lender will finalize the loan and provide funds to the seller. The lender is named as a lienholder on the property.
REFINANCING A CURRENT MORTGAGE?
Resetting Your Home Loan
Because you already own the home, the refinancing process is simpler than buying. You will start with completing an application and providing the supporting documents for employment, income, assets, and debt. The lender will run a credit check and verify your documentation. An appraisal will be ordered to determine the current value of the property. Your lender will verify the application information documents and review the appraisal before approving the final loan amount and terms. As with a purchase application, it’s very important not to incur any new debt when you’re applying for a refinance. Making a large purchase on a payment plan or running up credit cards can affect your final ability to qualify for a mortgage or get the best rate.
There are several main reasons homeowners refinance their mortgage:
- Lower rate and payment: Refinancing the amount currently owed to take advantage of a lower rate and lower monthly payments.
- Change of term: Refinancing at a new lower rate over a shorter number of years to pay the loan off quicker. Some borrowers refinance to lower their rate but stretch the current amount owed over an extended-term to lower their monthly payments.
- Cash out: Refinancing the amount currently owed, plus taking out some equity as cash. This will increase the amount owed, but the owner may want to use the funds for home repairs, to pay off other debts with high-interest rates, or toward another large purchase. If the rate and/or term is lower, a cash-out refi often provides a good alternative to other loan solutions or dipping into savings.
Whether you’re buying or refinancing, Space Coast Credit Union makes the home loan process more straightforward for our members. Our mortgage experts guide you from start to finish. We will continue to service your mortgage for the life of the loan, meaning you’ll have our expert member service support any time you need it.
Whatever stage your home-buying journey is in, we’ll be glad to discuss your financing needs and review your options. If you are looking for more information, check out our Ultimate Guide to Mortgages
article and other tools at our Home Buying Center
. Want to get a quick idea of what your payment might look like? Try out our Mortgage Rate and Payment Estimator