The Loan Process

The Loan Process

Prequalifiying for a Loan


Getting pre-qualified is a strong first step if you're buying a home. It allows you to see how much you can be approved for and gives you a gauge of the price range you’ll be searching in. Once you're pre-qualified, it's a snap to apply for full approval once you've found your dream home - or want to begin building one. 

Pre-approval shows  the sellers you're serious. Many buyers find that they have increased negotiating clout if they are pre-approved when they conduct their home search. Your loan officer will review your  application, documentation and check your credit report.  You will need to provide pay stubs for the last month, two cycle’s worth of bank statements for all assets, and tax forms for the last two years. After they determine that you can repay the loan they will send you or your realtor a letter of pre-approval.  

 A check for the application fee.

 Paycheck stubs from the last 30 days that show your year to date earnings.

 W-2 forms for the past 2 years (or tax returns if you're self-employed).

 The names and addresses of all employers form the past 2 years.

 Checking and savings account statements from the past 3 months.

 Statements from CDs, IRAs, stocks, bonds, etc.

 Information concerning any real estate you own including address, current market value, lender's name and address, loan amount number, monthly payment amount or rents received.

 If divorced bring a copy of your divorce decree plus alimony or child support information.

 If you've filed bankruptcy or have had a foreclosure or any judgments against you in the past seven years, bring information on the proceedings.

 

Choosing the Right Mortgage Loan for You


To find the best loan for your needs, think about your short- and long-term plans, your financial goals and your risk tolerance. Here are some scenarios to consider, along with the best home loan types for each. If you… 

Plan to live in your home for many years. Look for a low interest rate over a long period of time. Since you're going to be making payments for many years, your best strategy may be a fixed rate loan and pay points to get your rate as low as possible. 


Plan to sell or refinance your home in just a few years.   You may wish to avoid points and closing costs, since the difference in interest payments won't typically make up for your out-of-pocket expenses at closing. Also, look for a loan that enables you to commit to a smaller down payment. An ARM is usually a good choice for holding rates down for a set number of years.

 

Want to pay off home loan by the time you retire or your kids are in college.  Shorter-term loans such as a 15-year fixed-rate home loan are an excellent way to ensure that you can use your income for other goals later in life. Another benefit is that you build equity faster.

 

Want to budget for a fixed payment each month, or don't want to risk paying higher interest rates.  A fixed-rate loan has a principal and interest payment that stays the same for the entire term of the loan. Avoid adjustable-rate or balloon loans. 

 

Are comfortable with the higher interest rates if it means you can qualify for a larger mortgage right now.
Adjustable rate mortgages are a great solution for people with incomes that are going to grow and who will quickly refinance or be able to afford a larger payment in a few years if interest rates rise.

    

Types of Loans 

Fixed-Rate Loans
A fixed-rate loan offers the same interest rate, monthly principal and interest payment throughout the entire life of the loan. You can choose a variety of repayment terms, with 15 and 30 years being the most common. The fixed-rate mortgage loan is the "traditional" choice and is still the most popular because it offers stability and predictable monthly payments.  The longer the term, the lower the monthly payments and the more cash you'll have for other expenses. A longer term also provides maximum tax-deductible interest (ask your tax advisor for more details). With a shorter term, you'll have higher monthly payments and you'll qualify for a smaller loan amount, but you'll save on interest costs over the life of the loan and build your equity faster.   

Choose a fixed-rate loan if you: 

  • Like the current rate and want to keep it for the life of your loan
  • Are purchasing or refinancing at a time when interest rates are comparatively low
  • Plan to stay in your house for a long time
  • Prefer regular payments with no surprises 
  • Are on a limited or fixed income 

 

Adjustable-Rate Loans (ARMs)
Adjustable-rate mortgages feature an interest rate that periodically adjusts with changing market rates. ARMs are attractive because they offer start rates that are lower than the interest rates of fixed rate home loans. This typically enables you to begin with lower monthly payments and qualify for a larger loan.  ARMs are available in government, conforming and jumbo loan amounts. A start rate, also known as the initial interest rate, gives you a special low monthly payment for a set amount of time, which is typically 1, 3, 5, 7 or 10 years.  After the start rate period is over, your interest rate is based on the performance of a financial index, such as the average interest rate or yield on treasury bills. Before you agree to an ARM, be sure you can afford the highest payments that would result.  

Choose an adjustable-rate loan if you:

  • Need extra borrowing power
  • Need a lower initial rate to afford to buy the home you want
  • Want to save money in the first few years of home ownership
  • Plan to move or refinance in a few years
  • Are confident your income will rise enough in the coming years to handle any increase in payments
  • Are purchasing or refinancing at a time when interest rates are comparatively high

  

Federal Housing Administration (FHA) Loans
FHA mortgages help low-to-moderate-income homebuyers purchase homes with low down payments and flexible qualifying guidelines. These loans are insured by the Federal Housing Administration (FHA), which sets loan limits that vary by area. With an FHA mortgage, you can use a gift or unsecured loan for down payment and closing costs.   FHA mortgages are available in fixed-rate and adjustable-rate options and have no maximum income/earning limitations.   

Choose a FHA loan if you:

  • Need a low down payment (usually 3% of the FHA appraisal value or the purchase price)
  • Have limited savings and/or moderate incomes
  • Are a first-time homebuyer concerned about not having enough for down payment and closing costs 

  

Low and No-Down Payment Programs
Even if you don't have much money saved for a down payment, contact a lender anyway.There may be programs available for you.If the buyer does choose to put money down, that money can come from a gift.  

Choose a low or no-down payment loan if you:

  • Are first-time homebuyer who needs a little help getting started.
  • Are in a low to moderate income bracket.
  • Have limited cash for a down payment and closing costs.
  • Are using other sources to get money for closing costs. 

 

The Rushing Team

 

 314.706.9663  or  636.578.7253

 

 

Berkshire Hathaway HomeServices Select Properties in St. Louis offers an easy one-stop mortgage service through our partnership with Preferred Home Lending that allows you to interact directly with loan officers located in our branch offices.
Select Leasing & Management offers a multitude of leasing and property management services with superior service to both renters and landlords.
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