How to Get a Residential Loan

A mortgage gives a borrower the necessary financing to purchase a home.

In most cases, when a borrower is looking for a residential loan, he is actually looking for a mortgage. A mortgage is a debt used to finance the purchase of a home or residential lot. This is typically the largest debt the borrower will face in his lifetime and takes about three to six weeks to complete the process, from application to closing. This type of loan requires several pieces of documentation, along with an application.

Things You'll Need

• Uniform residential loan application
• Two months bank statements
• Two months pay stubs
• Two years tax returns
• Appraisal
• Home inspection (optional)

Instructions

1. Ask friends and family for three mortgage loan officer referrals. Ask your current bank if they have a mortgage loan department. Pick two to three referrals to use as your basis for shopping for a mortgage.

2. Fill out a Universal Residential Loan Application with each lender. Provide the lender with two months pay stubs, two months bank statements (all pages) and two years tax returns. Additional documentation may be required, depending upon your financial situation.

3. Ask each lender for a copy of the Good Faith Estimate and Truth in Lending Statement for the proposed mortgage. The Good Faith Estimate will outline the closing costs associated with the loan. The Truth in Lending Statement will disclose the Annual Percentage Rate (APR) on the mortgage. This represents the total cost of the loan, including the interest rate and closing costs. The mortgage with the lowest APR is the cheapest option.

4. Ask your preferred lender to match the best priced mortgage, if they are not the lowest priced option.

5. Allow your chosen lender to process your application, pull your credit report and score and order an appraisal on the house. If so desired, order a home inspection to ensure there are no major issues with the property.

6. Sign all closing documentation, once approved for the mortgage, to complete the process.

Tips & Warnings

• Pull a copy of your credit report and score prior to applying for a mortgage. Check the report for errors and report any mistakes to the credit bureaus immediately. To quickly raise your score, pay down your credit card debt to less than 30 percent of the limit. To limit the number of times your credit is checked, bring the copy of the credit report with you to your appointments with potential lenders. They can use the copy to create a quote for you. Only allow the chosen lender to check your credit. This will limit the negative impact on your score.

• If your credit score is below 580, you will not be able to secure a conventional mortgage. You will more than likely have to shop for a subprime mortgage, which offers borrowers with lower credit scores the ability to purchase a home. However, these types of loans come with much higher interest rates.

References

• The Free Dictionary: Mortgage
• Freddie Mac: Mortgage Application Checklist
• Federal Reserve: Understanding the Home Mortgage Process