Understanding the Mortgage Process
Publish Date 2/10/2021
Most would agree – home ownership is part of the American Dream. And, more often than not, securing a mortgage is a part of that process. However, many Americans are not as familiar with mortgages as they should be.
According to Bankrate, in a recent “Consumer Mortgage Understanding Study” by Fannie Mae, 91% of the more than 3,600 respondents prefer owning a home to renting, but are still largely unaware when it comes to home-buying basics.
More than 40% of survey respondents revealed they do not know the minimum upfront cost to purchase a house. Most overestimated the actual amount. What’s more, 17% of respondents knew the correct amount for a down payment, which is between 1% and 5%. Another 20% of respondents believed the correct down payment was 6% and 10%.
FICO scores are important when trying to qualify for a home loan, but according to the survey, 43% of Americans were unaware of what their number was and more than half (53%) of survey respondents did not know the minimum credit score required for a mortgage. FICO score requirements vary by loan type and lender, but scores as low as 580 are often acceptable.
The mortgage process can feel complicated to consumers, mainly because the transaction is done so infrequently. The lack of financial education among Americans, however, is a major contributor to misinformation concerning mortgages. Staying informed about your own financial credentials is just as important as having a general knowledge of mortgages.
Tips for navigating the mortgage process
Understanding the mortgage process is no easy feat, but it’s necessary to learn before becoming a homeowner. Financial education is key to figuring everything out, so here are some practical tips for navigating the process in a simple step-by-step format. Learn more details about the mortgage process from credit.com.
- Do your homework – Check out reputable lenders in your area and get pre-qualified so you know the price range in which you should be shopping. Colorado Credit Union has an on-site mortgage team ready to assist you. Visit our mortgage page for our Mortgage Shopping Took Kit or to apply online.
- Know the numbers – Find out what current average mortgage rates are to help determine what you can afford. Don’t forget to calculate fees including homeowner’s insurance and local property taxes in addition to a monthly mortgage payment. View our current rates.
- Know and understand your credit score – When applying for a loan, lenders look at your FICO scores to help determine your credit risk and the interest rate charge on your home loan. You have three, one from each of the major credit bureaus -- Equifax, Transunion and Experian. Keep in mind, any changes to your credit scores or reports could potentially derail the loan process. Here is more information about credit scores and how your score is determined.
- Get to know your local credit union – Never underestimate the value of a close relationship with your credit union; it could positively influence your mortgage rate. There are many advantages to choosing a credit union as your lender, but none are as important as having an established, face-to-face relationship with your financial institution.
- Get pre-approved – While pre-qualification gives you a sense of financial readiness and can be done over the phone or online, a preapproval takes it to the next level by requiring proof of your financial history and stability. You will be asked to provide a variety of documents, which will verify your assets and debt, income, employment and credit standing. You do not need to be pre-approved to make an offer on a house, but your extra level of commitment and preparedness might give you an edge with a seller should they receive multiple offers, or if they’re simply ready to move quickly.
- Lock in your rate and terms – Once you’re pre-approved, it’s time to lock in the terms of your mortgage loan, as well as your rate. Locking in your rate and whether it’s fixed or adjustable, as well as how long the loan will last, takes away the risk of changing rates, which can happen daily. This also commits your lender to funding your loan at the specified rate.
- Make an offer! – Once you’ve been pre-approved and locked in your rates, you are free to make an offer on your new home!
To learn more about Colorado Credit Union’s mortgage process call us today at 720.981.2399 or visit https://www.ccu.org/borrow/mortgage-loans
Source: Mountain West Credit Union Association - www.mwcua.com
Did you know?
Knowledge of the Mortgage Process Among Americans:
- 91% of Americans prefer home ownership to renting
- 40% of Americans do not know the minimum down payment amount for a mortgage
- 17% of Americans know the correct minimum upfront cost to buy a house, which is 1-5%
- 43% of Americans are unaware of what their FICO score is, an essential piece of the mortgage process puzzle
- 53% of Americans do not know what the minimum credit score requirement is for securing a mortgage
- The minimum FICO score for most mortgages, depending on loan type and lender, is around 580, according to Bankrate
- The lack of knowledge about mortgages in the U.S. is most likely attributed to lack of financial education, in addition to how infrequent the process is for most home buyers
- 30% of Americans are getting their mortgage information from lenders, while 19% are getting it from family and friends