Guide: How to Get a Home Loan & What You Should Know When Buying a Home

Apr 02 2021

In this handy homebuying guide, we answer your top 10 mortgage questions and show you how to get a mortgage.

How much home can I afford

Your Top 10 Mortgage Questions Answered

Between interest rates, mortgage points and loan programs, taking out a mortgage can seem overwhelming – whether you’re a first-time homebuyer or you’ve done this before. But with the right guidance, it doesn’t have to be a stressful process. We’re here to tell you what you need to know when looking for a home loan.

 

1. What Should I Do First When Buying a Home?

Once you start thinking about buying a home, the best place to begin is with a mortgage lender (also called a mortgage banker or loan officer).

Many people mistakenly think this step comes after you’ve already found your dream home and are ready to make an offer. The truth is many Realtors (or real estate agents) won’t even show you a home until you have a pre-approval letter from a lender, and most listing agents won’t even entertain an offer without a pre-approval. Plus, it makes the initial house search easier when you know how much home you can afford.

A mortgage lender will help you meet your homebuying goals by reviewing your credit, down payment options and loan programs available. When you meet with a mortgage lender for a free pre-approval before shopping for a home, real estate agents, builders and sellers will know you’re a serious buyer who knows what you can afford. This also ensures you won’t miss out on being a contender for a home if you happen to see one you love and want to make an offer right away.

2. How Do I Choose a Mortgage Lender?

Your home is often the biggest purchase you’ll ever make, so when it comes to choosing the person who will help you with that loan, pick someone you can trust. It might seem easier – or more convenient – to shop for your mortgage online, but that’s a common misconception. In addition to being easier and more convenient – having someone you trust walk you through the process – there are 3 big advantages to working with a local, reputable lender:

  1. Local lenders know the market. Not only do they regularly work with local title companies and agents, they’ve also likely driven through the neighborhoods, walked the nearby parks and shopped at the local stores.

     

  2. You can meet with local lenders face to face. A mortgage can be complicated. It’s easy for misunderstandings to happen via email or phone. But when you can meet with a lender face to face, you can clear up a lot of that potential confusion.

     

  3. Local lenders are available if something goes wrong. If there’s an issue with your appraisal or closing, a local lender who has formed a relationship with you and understands your situation is more likely to be able to help you than a call center that may or may not be open.

There’s something to be said for working with a lender who cares about you – not just your loan – and who will walk you through the mortgage process, providing unequaled personal service along the way. After all, you shop for shoes online – not your mortgage!

 

Why Work With Bell Bank Mortgage?

Your loan is not just another deal to us. We understand it’s a dream of homeownership that could unlock a future of possibilities.

 

At Bell, we treat our clients how we would like to be treated. When you work with us, you’ll benefit from our highly competitive rates, wide variety of loan programs and reputation for exceptional service, integrity and on-time closings.

 

Every step of your financing is handled in-house, which means faster answers, fewer headaches and peace of mind. Built on a solid foundation of doing the right thing means we put our clients’ best interests first, always.

 

Find a Bell Bank Mortgage lender near you.

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3. How Do I Get Pre-Approved?

The first step to ultimately getting the keys to your new home is getting pre-approved for your mortgage. You’ll need to gather your financial documents (listed here) and apply online or schedule an in-person appointment. Your lender will follow up with a phone call or email as soon as possible.

 

Tips for Success

During the pre-approval process, your full credit report will be pulled. Follow these tips to ensure your credit score and history are in their prime:

• Make bill and credit card payments on time
• Avoid applying for additional credit or making any significant purchases on credit
• Keep your credit card balance below 30% to 50% of the credit card limit

If your credit history is preventing you from qualifying for a mortgage now, remember, it is not a permanent obstacle.

Two big ways to improve your credit are paying your bills on time and paying down debt.

  1. Set up automatic payments to make sure your bills are paid by their due dates.
  2. To help pay down debt, pay more than the minimum balance on higher interest debts, like credit cards. Once you pay off one debt, put the money you had been spending on that bill toward other debts to pay those down even faster.

Our lenders can work with you and offer recommendations to improve your credit score – and your opportunities for homeownership.

(Learn what you need to know about credit scores, credit cards and avoiding credit conundrums here.)


4. How Much Home Can I Afford?

A mortgage does not necessarily cost more than paying rent. When interest rates are low, mortgage payments become more affordable.

CalculatorOur loan payment calculator can help you figure out how much your loan payment might be. 

And this calculator can help you figure out if it makes more financial sense to rent or buy. (Your mortgage lender is also happy to help you with this step!)

Once you have an idea of how much home you can afford, make a list of the things that are important to you in a home. Deciding what type of home you are looking for, location and space requirements will help you stay focused when you start your search. Keeping a list wants vs. needs will also help you narrow down home options in your price range.


5. How Do I Get the Best Mortgage Rate?

With so many factors determining a mortgage interest rate, it can be confusing to understand whether you’re getting the best possible rate. No matter what current interest rates look like, make sure you do your homework before sealing the deal.


4 Things To Know About Mortgage Rates

1. Keep in mind waiting can be costly.

When interest rates go up, the cost of a home can rise by tens of thousands of dollars – affecting the loan amount you may be approved for. Your mortgage lender can work with you to determine a comfortable monthly payment, taking all factors into consideration.

2. Look at the annual percentage rate (APR) and interest rate when comparing loans, even if you’re quoted the same interest rate from different companies.

  • The nominal interest rate is the percentage charged for borrowing money. When shopping for a mortgage, you’ll generally be quoted an interest rate. It’s considered the base rate, or starting point, which directly affects the monthly loan payment.
  • The APR is the rate calculated when the fees associated with making the loan are added to the original loan amount. This is important because the fees charged can change from lender to lender, and the fees associated with the APR can vary as well, so the APR may not be the same even if the interest rate is. The APR shows you the annual cost of a loan, including fees.

3. Ask about an origination fee.

That’s the fee a lender can charge to process the loan. Bell Bank Mortgage’s no origination fee program – available on most home loans – can save qualified homebuyers thousands because they’ll need less in closing costs.

4. Use caution when talking to others about interest rates.

The rate one person gets isn’t necessarily the rate someone else will receive. Many variables go into determining an interest rate, including:

  • Type of loan
  • Credit score
  • Value of your home
  • Market location of the property
  • Loan amount
  • Down payment amount
  • Length of loan
  • Purpose of loan

Lenders are required to disclose a loan estimate to all borrowers showing the loan’s APR. Looking at your interest rate, loan fees and APR will give you a better understanding of what the loan will cost you over the long term.

 

6. What Are Mortgage Points & Should I Pay Them?

Mortgage points are fees lenders charge in exchange for a lower interest rate. Commonly called discount points, each point is equal to 1% of the loan amount.

See the chart below to see how not buying mortgage points compares to buying 1.125 mortgage points on a $300,000 conventional 30-year loan.

In this hypothetical example*, you would save $25.39 a month or $304.68 a year by purchasing mortgage points. Over the course of a 30-year loan, you would save $5,765.40 (after taking out your initial cost for the discounted interest rate). So if you plan to stay in your home long-term, it may be worth purchasing mortgage points, if you had the funds available to put down at closing.

Your mortgage lender can help you figure out whether it’s worth paying additional discount points to obtain a lower interest rate.

*These estimates are provided for illustrative purposes only. The information contained in this document is not guaranteed or binding and does not constitute an offer to extend credit. Payment estimates don’t include taxes and insurance (if applicable) and an actual payment obligation would be greater. Get an official loan estimate before choosing a loan.

 

7. Which Home Loan Is Right for Me?

With our wide variety of home loan programs, there is something for nearly every situation – and in some cases, more than one program can be used for the same mortgage. This is just one more reason it pays to work with a local lender instead of an online mortgage company.

Here are just a few examples of the variety of mortgage options available:

Conforming loans 

Often referred to as conventional loans, these mortgages conform to financing limits set by the Federal Housing Finance Agency and meet underwriting guidelines set by Fannie Mae and Freddie Mac. They are often have lower interest rates, standard qualifying requirements and are offered by most lenders.

Examples include:

  • HomeReady program – extends qualifying income to others living in your home, offered through Federal National Mortgage Association (Fannie Mae), a government created enterprise that buys conforming loans
  • BorrowSmartSM program* – offers grants to help with down payments or closing costs, made possible through the Federal Home Loan Mortgage Corporation (Freddie Mac), which also buys conforming loans
  • Home Possible® mortgage – allows for more options and credit flexibilities to help low- to moderate-income borrowers
  • First-time home buyer programs*, including down payment assistance
  • Investment loan
  • Second home financing, including seasonal cabin* or vacation home loans, which have different requirements than a loan for a primary residence

Non-conforming loans

These mortgages don’t meet Fannie Mae or Freddie Mac purchase standards, are often government insured and allow for larger loan limits, lower down payment requirements, lower credit requirements and are available for more property types.

Examples include:

  • Federal Housing Administration (FHA) loans –offer people looking to buy their first home lower down payment options and a little help qualifying
  • Veteran’s Administration (VA) loans – allow qualifying veterans, service members and military spouses to purchase a home with competitive interest rates, often no down payment and often no private mortgage insurance requirement
  • U.S. Department of Agriculture (USDA) programs – provide loan and grant options to low- to moderate-income borrowers in rural areas
  • Jumbo loans – exceed the conforming loan limit backed by Fannie Mae or Freddie Mac ($548,250 in 2021)

Construction lending

  • New construction (including one-time-close loans*)
  • Lot loans*
  • Rehab home loans* to roll renovation costs into your mortgage

 

There are even county-specific programs and bank programs – such as Bell – Moving Forward*, a unique Bell Bank Mortgage loan available in certain markets that offers greater flexibility on credit score qualifications.

Because of the wide variety of home loan options available, it’s helpful to meet with a mortgage lender to talk about which programs might work best for you.

Find definitions to common mortgage terms in our mortgage glossary

*All programs not available in all markets. Restrictions and qualifications apply. Please contact your Bell Bank Mortgage lender for terms, conditions, availability and questions specific to your situation. 

8. Which Mortgage Term Is Best?

Your mortgage term is the amount of time you have to repay your loan. Mortgages often come in 15-, 20-, or 30-year terms. Choosing the best term depends on your financial goals.

Shorter terms might come with a lower interest rate and will help you pay off your home sooner; however, your monthly payment will be higher. Longer terms usually have a higher interest rate and take longer to pay off, but your monthly payment will be lower.

Remember, if your financial goals change and you want to change your term, you can explore mortgage refinance with your lender. (When you refinance, you also usually have to pay refinancing costs, and your interest rate may change.)

 

9. What Is Mortgage Insurance & Will I Need It?

In some circumstances – such as if you make a down payment of less than 20% – you may need to pay mortgage insurance. This is not the same thing as homeowners insurance, which covers financial loss to your home and belongings should disaster strike.

Mortgage insurance lowers a lender’s risk and is included in your monthly mortgage payment. (In some cases, borrowers will need to pay a lump sum initial premium at closing in addition to the monthly payment.)

 

10. How Much Should I Save for Down Payment & Closing Costs?

It’s a common misconception that you have to put 20% down on your mortgage. With more than 20% down, you don’t need to add mortgage insurance to your monthly payment. And a larger down payment reduces your monthly payments. But there are programs available that allow for zero money down.

Closing costs – the fees charged when you take out a home loan – vary greatly, but they average between 2% and 5% of the home’s purchase price. On a $200,000 home, that’s roughly $4,000 to $10,000.

 

That’s a chunk of change that can seem prohibitive, especially if you’re already burdened with car payments and student loan debt.
But it doesn’t have to keep you from owning a home.

  • Down payment assistance programs can help first-time homebuyers.
  • You can sometimes negotiate to have the home seller pay your closing costs. (You may need to pay full asking price or more than the asking price to make this happen.)
  • Saving small amounts can make a big difference over time. (Learn some tips & tricks to make saving simple here.)

Once you have reviewed your credit and program options with your lender, you will have a better idea of how ready you really are. It’s okay if you need a few more months to save or resolve any credit issues.

And if you have a home to sell, start to get things in order and make any updates and repairs so you have less to do when it’s time to make your move!

 

 To take your first step toward buying a home, connect with a Bell Bank Mortgage lender near you.

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