Heres a video listing the DO and DONT steps to follow in the process of getting a mortgage loan. To ensure you wont fall victim to loan fraud, make sure you follow all of these steps in the process of applying for a loan. DO: Be honest about residency; if youre not going to live in the house, say so. Be clear and honest about any questions related to your credit history. Report your finances — debt, income and everything else — accurately. Do NOT: List fake co-borrowers Change tax return figures Overstate assets or valuations Fudge employment records Provide incorrect files to answer questions Exaggerate income or investments Buy property for someone else. Of course, do not sign ANY blank documents, and be sure you have read and understood anything that you do sign. And DO keep your own records of everything.

The terms "pre-qualify" and "pre-approve" sound similar, but they fit at opposite ends of the journey to a loan application. Pre-qualification should be done early. Its an informal estimate, without any commitment from a lender, to assess how much you might be able to borrow. Pre-approval is "just about ready to apply", typically when you have everything except a purchase contract. It involves completing a loan application, which lets the lender begin verifying your information. Successful pre-approval gives you a "pre-approval letter" that confirms the lenders offer to lend a specific amount. This letter may be helpful in shopping and negotiating the actual purchase.

Debt-to-Income (DTI) is one of the key ratios lenders use to assess and approve loan applications. Determining your current financial obligations versus your existing earnings is one part of a lending institutions necessary evaluation of your capability to pay back a loan. Like the video states: financial obligations are existing monetary obligations; a vehicle payment is a financial obligation while a grocery expense is not. To compute your debt-to-income ratio, assemble your month-to-month financial obligation payments and divide them by your GROSS regular monthly earnings. (Gross earnings is the money you make BEFORE taxes and other reductions.) The Federally-established debt-to-income target is currently 43% for Qualified Mortgages, although some experts advise aiming for a more conservative figure — less than 36%. If your DTI is greater than the Federal guidelines, other loans might be available. These may also involve more documentation and data to establish your ability to repay. Rates for these are likely to be different from those offered for Qualified Mortgages. High debt-to-income ratio puts a property owner at higher threat of challenges to making regular monthly payments. Review your scenario and risks thoroughly if DTI is an obstacle.

How do you apply for a mortgage? First, assemble this information: Tax returns and bank statements for the past 2 years. W-2 forms for the past 2 years Pay stubs for the past 3 months Documentation of any long-term debts Proof of any non-payroll income When youre far enough in shopping for a home to make an offer, add these things: Address and description of the property A sales contract on the home Identify lenders and submit a loan application. If your credit is frozen, be prepared to unfreeze it for the credit history and credit-rating reports the lender will order. The lender will order an appraisal and (in some cases) possibly an inspection. Expect additional questions and clarifications as they go through the process of evaluating your ability to repay the loan. The process usually takes more than a week, and delays of up to 6 weeks arent uncommon. Be patient, and keep copies of everything.

If financial circumstances arent working, and you are falling behind on mortgage payments, hoping the lender wont notice isnt a solution. Talking with them about loss mitigation options is better. Lenders may be able to arrange a "workout package" to help get things back on track. Mortgage loans are often "sold"; the lender who is servicing the loan — the lender to whom you send checks — has the financial interest in your situation. Talk with that lender, not the original lender. If Fannie Mae or Freddie Mac — both government-sponsored enterprises involved in mortgage lending — have acquired your loan, there are Federal guidelines that they may apply to your situation. They are not there to deal directly with borrowers (you), but they may be able to work with the lender of record to determine the loss-mitigation guidelines that best fit your situation. Be vigilant about companies that "just want to help". Look out for: Financial counseling agencies with high fees; they may be charging for advice you can get for free. Equity Skimming — companies (or individuals) who offer to repay the mortgage or sell the property if you sign over the deed. And do not sign anything related to your home until you understand it thoroughly.

Mortgage insurance is a policy that covers the lender in the case of loss. For some borrowers, the FHA (Federal Housing Authority) provides mortgage insurance. For other borrowers, a policy from a private mortgage insurer (PMI) may a better option. PMI companies usually have larger down-payment requirements and more-stringent qualification guidelines than the FHA. They may also cover loans that are large than the FHAs limits. Premiums from these lenders are often lower than FHA premiums, though. Most lenders will have guidelines and information about PMI options, for situations where mortgage insurance will be required. Ask your lender if PMI is an option for your situation.

The term "mortgage insurance" can be a bit confusing; this video might help. Mortgage insurance covers thelender, not the homebuyer, but mortgage insurance premiums are paid by the homebuyer. Confused? Read on. If a home buyer cant make a large enough down payment, the lender is taking a bigger risk that they might not be repaid. Its a silly example, but if you made a $1 down payment on a $1M dollar house, you wouldnt have a very big reason to stick around if market conditions or personal situations go bad. In general, if the down payment is under 20% of the loan (including that $1 down payment), the lender wants insurance that they will be repaid. So you, the buyer, agree to pay mortgage insurance because the lender is taking a bigger risk. If the borrower cant repay, the lender might foreclose on the property, and file a claim with the mortgage insurer for losses. If mortgage insurance comes up in your loan shopping, ask about FHA programs; there may be options that help you. If you do take a loan that requires mortgage insurance, keep track of your equity. You will probably have the option of dropping mortgage insurance when your equity is high enough.

"Do you want to pay points?" is the kind of mortgage question that leaves many people thinking "I dont even know what that is!" Heres a simple explanation. Points are pre-paid interest. You pay interest now (which is frequently tax-deductible) to lower your long-term rate. "One point" is 1% of the total loan amount. If your lender is willing, ask to compare a loan package with 0 points to options with 1, 2 or more so you can see the short-term and long-term effect. As an example and general guideline, on a 30-year mortgage, your interest rate will go down by about 1/8 (0.125) for each point paid -- 3% interest would drop to 2.75% with 2 points paid. If you plan to stay in the home for a while, points can reduce your monthly payment, while the up-front tax deduction might help with first-year finances. PRO TIP: In some market conditions, negotiating to have the seller pay points may be an option. Talk with your real estate professional and lender.

The month-to-month home mortgage payment primarily pays off principal and interest. Many loan providers likewise consist of regional real estate taxes, homeowners insurance coverage, and home mortgage insurance coverage, if appropriate. If you are re-financing compare what is and isnt consisted of in your funding alternatives. View this video and it should make sense.

Understanding the building-blocks of a mortgage may help you compare your options. Your monthly payment is based on a complex calculation that changes over time, so "getting the picture" can be tricky! The biggest pieces are: Loan Amount Interest Rate Term (years to pay off) Payment Schedule Down Payment Equity Down payment and equity are of course closely related, but remember that your equity changes as loan payoff proceeds. This short video visualizes the way these factors relate to help you make sense of the math.