Before you even start house-hunting, it’s a good idea to shop around for lending options. The Network Real Estate team put together this guide to help you navigate the mortgage loan process and find the very best loan possible.

The Mortgage Loan Process

To secure a good home loan, there are several steps you must take…

1) Assess your financial situation.

To set yourself up for mortgage loan success, you should first make sure your finances – from your credit score to your debt-to-income ratio – are in good shape. Do what you can to boost your credit score. The higher your credit score, the more likely you are to get a good loan with low interest rates.

How can you improve your credit score?

Attempt to pay all of your bills on time and pay off your credit card balances in a timely manner. 

It’s also a good idea to work on your debt-to-income ratio. The more debt you have, the less likely lenders will be to give you a good deal. Try to pay off your debts as much as possible – your goal should be a debt-to-income ratio of around 36%.

2) Brush up on the different loans

A critical component of securing a home loan is learning the language mortgage lender’s speak. That means knowing about the different home loans…

  • Conventional Loans – With a good credit score (620 or higher), you can often secure down payments as low as 3%.
  • FHA Loans – A little more lenient with credit score, FHA loans only require you to fall in the 500 to 580 range. With an FHA loan, you could look at 3.5% down.
  • VA Loans – Reserved for current and veteran military service members, VA loans are arguably the BEST mortgage rates and require a credit score of 620.
  • USDA Loans – For people with low-to-moderate incomes who are buying homes in designated rural areas, USDA loans require zero down payment and a credit score of 640.
  • Jumbo Loans – These loans are generally given to finance properties that are too pricey for conventional loans.

NOTE: North Carolina also offers Housing Finance Agency Assistance through state-specific interest rates and down payment help. The NC 1st Home Advantage Down Payment offers up to $8,000 toward your home purchase. However, to receive this help, you need a minimum credit score of 640 and a debt-to-income ratio under 43%.

You also have options regarding your mortgage term. More often than not, home buyers choose a 30-year fixed-rate that is paid off in 30 years and comes with an interest rate that never changes. However, you can also opt for a 5-year rate, which offers a lower interest rate and larger monthly payments. Some lenders even offer adjustable rate mortgages with interest rates that change depending on the market.

3) Find multiple mortgage lenders & compare their rates.

The next step? Determining “where” you can get a loan. You have several options…

  • Conventional Banks – Along with savings and checking accounts, your average bank typically also offers mortgage loans.
  • Credit Unions – To get a loan with a credit union, you first need to be a member. Some people prefer credit unions because of their more personal service.
  • Non-Bank Mortgage Lenders – There are also companies that exist only to grant mortgage loans‌ offering a quick turnaround time.
  • Mortgage Brokers – If you want a little more guidance with the lender-selection process, hiring a mortgage broker may be the way to go.
  • Wholesale Lenders – Unlike direct lenders like banks, credit unions, and nonbank mortgage lenders, wholesale lenders never actually interact with borrowers, doing all their business through mortgage brokers.
  • Hard Money Lenders – These are private investors that offer loans secured by real estate and typically require quicker repayment.

To make an educated decision, you need to take time to browse at least 3 or 4 lender options, gathering quotes and information from several lenders and comparing their estimated rates, fees, and down payments. 

4) Apply for mortgage pre-approval.

Once you have narrowed down your list to a few of your best lender options, submit a preapproval application to your top choices. After doing a thorough evaluation of your credit and financial situation, lenders may decide to pre-approve you for a loan.

A mortgage pre approval letter can provide the proof you need to show real estate agents and sellers that you can truly afford to purchase a home, giving you a leg up on your competition.

NOTE: Borrowers often confuse “preapproval” with “prequalification,” the latter of which is NOT an official, verified approval, but merely an estimate of the loan amount you may secure. 

5) Compare loan estimates & decide!

Along with the preapproval letter, lenders should provide a detailed loan estimate, including information about interest rates, fees, down payments, and many other factors you’ll want to take into consideration as you’re choosing the best lender. 

If you still have questions after receiving the estimate, ‌ask. Ultimately, the more informed you are about your loan options, the better decision you will make.

What to Consider Before Choosing Your Lender

Be sure to ask lenders LOTS of questions. Below, we’ve listed several of the best questions to discuss with mortgage lenders.

  • How long will the loan process take?
  • Who will be my main contact throughout the process?
  • Which steps take place online vs. in-person?
  • What will my down payment, fees, and rates be?
  • What kind of mortgage loans do you offer?
  • What credit score and debt-to-income ratio do you require?
  • Should I have an Escrow account? 
  • Do you offer Mortgage Points? What about a Mortgage Rate Lock?
  • Do you offer “preapproval” or “prequalification”?
  • Is there a prepayment penalty?

Once you have all the information, it’s time to choose! But which factors should play the heaviest role in your decision?

The most significant factors you’ll want to consider are a loan’s interest rate, associated fees (application fees, underwriting costs, etc.), down payment percentage, and mortgage insurance payment. 

Network Real Estate | Wilmington, NC Area 

Have more questions about the home loan process? The Network Real Estate team can answer your questions AND provide you with meaningful lender connections in the Wilmington area. 

Looking to secure a home loan in Wilmington, Wrightsville Beach, Carolina Beach, or Kure Beach? We are here to help! Call us at 910-395-4100.