What a loan officer says you need to know about mortgage and refinance applications

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Yulanda Munford is the assistant vice president/mortgage operations manager at Citizens Trust Bank, based in Atlanta. Munford said now is a great time to apply for a mortgage or refinance your home, but there are a few things you should know before you do. Above all, she said, educating and empowering yourself about the mortgage process and personal finance is key.

She gave Bankrate tips for first-time mortgage and refinance applicants on how they can take advantage of historically low interest rates. This conversation has been lightly edited for length and clarity.

What should first-time mortgage applicants know?

First-time homebuyers should know how much they can afford before they start looking for a new place to live. An assessment of monthly obligations and monthly household income should be completed by a mortgage lender before the process starts.

The first tip we try to give is making sure they understand where they are from a credit profile. That way they can tell if there’s anything that needs attention right away.

Mortgage officers will look at a couple of things: your credit, your income, the length of time at your current job and your residential history. We want to make sure you’ve been in your job for at least two years and you can show some stability by being at a residence for two years or longer.

If all those elements aren’t in order, we try to educate people on what steps they’d need to take. We try to give you a road map to homeownership. 

What are some of the biggest mistakes first-time mortgage applicants make?

One of the biggest and most common mistakes for first-time homebuyers is not knowing how the mortgage loan process works or what options are available. Prospective buyers should always research loan and down payment options. If you’re not familiar with down payment requirements and assistance programs and credit score requirements, it can be difficult to determine what mortgage product is best for you.

A lot of the time, people just don’t know what’s on their credit report. Not knowing where you are personally from a credit standpoint can be a roadblock.

A lot of people may not understand what it means if you’re a slow payer of your credit cards or your car loan, too.

Another huge thing in our millennial market are the student loans. They may not be in a position where they’ve been focused on making regular payments on those student loans or may be paying slow. If you’re delinquent in your student loans, you will not be eligible for homeownership, even if you’ve landed a great job in the industry you went to school for.

For self-employed borrowers, when you file your taxes, you may be writing off a lot of the income when it’s time to file. That hurts your loan application because the more you write off, the less we can use to show how much income you make to support your mortgage.

What advice do you give to all first timers?

When starting the homebuying process, all first-time homebuyers should obtain a copy of their credit report to begin working on items that reflect negatively against their homeownership dream. Next, they should avoid making any major new purchases or adding new financial obligations like opening another credit card. It’s also important to keep on top of existing debt obligations.

Credit is the largest factor when determining interest rates and loan terms. It’s vital for the homebuyer to know what is on their credit report. We recommend that first-time buyers enroll in a credit monitoring program to ensure their report is monitored for any erroneous activity that will need to be disputed.

You also want to make sure you have an opportunity to utilize funds for down payment, so regularly contributing to your savings is important. You definitely have to exercise discipline if you are trying to truly get to homeownership.   

What do you need to know if you’re refinancing your mortgage?

If an existing homebuyer is interested in refinancing their current mortgage, the lender will still analyze their credit and income to make sure the applicant has met the initial loan parameters. But, when refinancing, the loan you choose can affect the process.

You’ll have to pick between a rate and term change — a change in interest rate and/or repayment period — or a cash-out refinance, which allows you to use the equity you’ve built up in your home to get access to cash or consolidate other debt.

For cash-out refinances, the interest rate could go up, and you may need to get your home re-appraised to determine its current value.

Your home value and your equity are going to make a big difference in a refinance transaction. Credit and income will still play a very big role, but the biggest piece will be to determine what the value of your home is.

What are some of the pitfalls of the refinance process?

In most cases, when a homebuyer refinances their existing mortgage, it can lower the monthly payment and interest rate. However, it will also restart the loan terms, so it’ll take you longer to pay off. And, refinancing comes with closing costs similar to closing on a house when you first purchase it.

If you’re looking to do a cash-out transaction, you might not be able to get a new loan if you haven’t built up enough equity.

Is now a good time to buy a home or refinance your mortgage?

This is the perfect time for two reasons. Values are starting to go up if you’re looking to refinance and interest rates are going down. Interest rates are at an all-time low right now. If you were interested in purchasing, this would give you an opportunity to afford a little bit more because you have the opportunity to get a lower rate. This is the best time, this is the prime time, I’ve never seen rates this low before in about 19 years in the industry. 

What else should people know?

I like for anyone that comes to us to stay educated and empowered. The more you know, the better opportunity you will have to get what you are looking for. Know your financial health and credit to get prequalified for a mortgage before you start looking for a home.

Know how to get your credit where it needs to be, know how to save. When you come as a strong candidate, you leave with better options. Being educated means you are a better consumer and you’re more easily able to get what you’re looking for.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
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