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Anxious about mortgage process? Start here

Real Estate » Anxious About Mortgage Process? Start Here

Let's be frank: It's not easy to get a home mortgage. Nor is it impossible. In fact, millions of people apply for and obtain a new mortgage every year.

If you want to get a mortgage but you're anxious about the process, you might want to start with online research and self-education.

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Online is where most people begin, according to research from the National Association of Realtors, or NAR. Researching online can help you get comfortable with the process and find professionals to contact.

Eventually, you'll have to reach out to a live person to move forward. As Ken Pozek, a Realtor with Keller Williams Realty in Northville, Mich., says, "You can't figure out everything using an app.

"Until you talk to someone who's very knowledgeable, you might forget to ask about private mortgage (insurance), homeowner association dues -- there are so many little idiosyncrasies. It's the mortgage professional's job to walk you through that," Pozek says.

Realtor, lender teamwork

Typically, you'll need to choose a lender before you can start seriously shopping for a home, though it's fine to contact a Realtor first to get a referral to a lender, says Jay Dacey, a mortgage broker for Metropolitan Financial Mortgage Co. in Minneapolis.

"Unless you're a cash buyer, you're going to need to get a mortgage," Dacey says. "A good Realtor is going to want you to get preapproved before they put you in their car and take you out driving and showing you houses."

Realtors want to help buyers get started with the mortgage process, says Amy Butterworth, associate broker at Gibson Sotheby's International Realty in Boston.

"We make sure we're involved in the mortgage process as well, so if buyers are putting in an offer on a property, (we know) they're ready to go from the finance standpoint as well," she says.

The 20 percent down payment myth

Fearful first-timers need to let go of two common misconceptions about getting a mortgage, Dacey suggests.

The first is that you'll have to save at least 20 percent of a home's purchase price for your down payment. In fact, if your credit score is acceptable, you can get a conventional home loan with a down payment of just 5 percent, and the entire amount can be a gift from a family member, Dacey explains.

An FHA loan insured by the Federal Housing Administration requires just 3.5 percent down.

A July 2013 NAR survey of 8,767 homebuyers and sellers found that nearly 90 percent of buyers financed their purchase. The median down payment for first-timers was 5 percent.

Top 5 sources of down payment, first-time homebuyers

Many first-time homebuyers tapped more than one source of money for their down payments.

Source of moneyPercentage who used that source of money
Savings78%
Gift from relative or friend27%
401(k), IRA or pension, including a loan11%
Sale of stocks or bonds9%
Loan from relative or friend7%

Source: National Association of Realtors

Not everyone qualifies for help

The second misconception is that first-time buyers are automatically entitled to tap some sort of broad generic first-time homebuyer program. Assistance programs do exist, but each is unique and many are restricted to certain geographic areas, Dacey explains.

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"If you're buying a house for a special program, you're going into it with the wrong intentions," he says. "Find the house first, then see if there are any special programs."

Get ready for the paperwork

First-timers also need to get ready for the lender's inevitable onslaught of requests for financial documents. The amount of paperwork can amaze, humble and frustrate borrowers, says Ed Conarchy, a mortgage loan originator at Cherry Creek Mortgage Co. in Gurnee, Ill. A good tip is to ask for a list of all -- underline that -- the documents that might be necessary, and be prepared to provide them.

Comfort level to buy, own

First-timers also need to get comfortable with how much they feel they can afford to spend to buy and own a home. That amount might be less than the maximum they're qualified to borrow, Conarchy says.

"What you can get approved for and what you're comfortable with are usually two different things," he says.

One reason: Home repairs and maintenance can be more costly than many new homeowners realize. That means the tradeoffs between renting and buying might not be clear without some number crunching. It's not adequate, Conarchy suggests, just to compare monthly rent to a monthly mortgage payment.

"Don't concentrate on just getting approved and having a mortgage salesperson tell you, 'We can get you a mortgage and get you into that house,'" he says. "Make sure it's going to be a fit for your personal situation."

Bankrate Audio

Anxious about the mortgage process?

Transcript

First time with a mortgage? A little homework can help reduce the stress. I'm Mark Hamrick with the Bankrate com Personal Finance Minute.

A home purchase can bring excitement, along with anxiety. What if the sale doesn't go through? Will you qualify for a mortgage?

Fortunately, there's a wealth of information online to help you overcome your fears. While most people begin their search online, working with the right Realtor or buyer's agent is the next step.

The professionals are also key in working with private mortgage insurance and homeowners association dues -- some of the little things that can add up.

Once you've found the Realtor you want, get preapproved for a mortgage. Then, you'll be regarded as a potentially more serious and financially qualified buyer.

First-time buyers also can be overwhelmed by the onslaught of requests for financial documentation. And knowing how much of a payment you truly can afford is important to ensure that your purchase is ultimately successful.

For more on this and other personal finance issues, visit Bankrate.com. I’m Mark Hamrick.

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