Top questions asked about mortgage companies

Quick insights

• Working with a mortgage company can offer many benefits such as personalized service, expert guidance and access to a range of financing options.
• A mortgage company can help streamline the homebuying process and provide you with resources to make a well-informed decision when purchasing a home.
• It's essential to provide proper documentation to show you can repay the loan. Lenders typically ask for proof of income, employment and other information.

What is a mortgage company?

A mortgage company is a company that loans money to borrowers who are looking to buy, build or renovate their home. You can get a loan from a large bank, local credit union or specialized mortgage lender. Mortgage companies come in different forms but there is one common theme between all of them: when they lend you money, they expect it to be repaid in full plus interest according to the agreed-upon terms.

Do you need to use a mortgage company?

Technically, you don’t have to use a mortgage company to buy or renovate your home. There are unique circumstances where you don’t need to use traditional mortgage loan servicing companies such as all-cash buyers. However, most people use mortgage companies to purchase a home. There are many benefits of using a mortgage provider:

• Variety: You have access to a wide range of loan products.
• Guidance: You can work with professionals whose specialty is mortgages.
• Transparent rates: You have the ability to check current mortgage rates early in the homebuying process.

Different types of mortgage loans

The most common types of mortgage loans include conventional fixed-rate mortgages, conventional adjustable-rate mortgages (ARM) overnment-backed loans and jumbo loans. One major benefit of using a mortgage provider is having the ability to discuss different loan terms and options. Government-backed loans are insured by government agencies such as Federal Housing Administration (FHA) loans and Veterans Affair (VA) loans. Jumbo loans are an option for borrowers looking to purchase a more expensive home.

Is it beneficial to consider local mortgage companies?

Yes, it can be beneficial to consider contacting home mortgage companies especially if you prefer hands-on support to help you find the right deal. Local mortgage companies have greater insight and a wealth of knowledge about the value of properties in the area. They also have a network of real estate agents, contractors and real estate attorneys that can support you during the homebuying process. If you want to work face-to-face with an expert who has in-depth knowledge of the local market, consider reaching out to a large bank, financial institution or national mortgage company with a local footprint.

Can you use an online mortgage company?

Mortgages can be acquired online or by phone without visiting a physical location. The biggest advantage is the convenience of comparing multiple online lenders from the comfort of your own home. Many major mortgage companies now offer the ability to initiate the preapproval process online without visiting a physical location. This can be a time-saver for future homebuyers because some local mortgage providers offer online approvals and digital closings in addition to physical branches to form an in-person relationship.

What do mortgage companies require?

Before you apply for a mortgage loan, you will need to provide lenders with paperwork to verify how much money you make, debt obligations, assets and other documents. Depending on your financial situation and the mortgage company, you will need to provide the following documents:

• Income verification: Pay stubs, W2 or 1099 tax returns, bonuses, child or spousal support and employer contact information to verify employment status.
• Proof of assets: Bank statements, investment and retirement accounts, and a gift letter if you are using financial gifts from family members.
• Debt and credit history: Lenders can verify your current debt obligations through a credit pull. Verbal debt amounts may be requested at preapproval to determine a credit offer. They typically use your financial information to calculate your debt-to-income ratio. Lenders request a credit report to determine your creditworthiness. Your credit score goes a long way in determining your eligibility for certain loans and terms (including APR).
• Identification: You need to prove that you are who you claim to be by providing your Social Security card, Driver’s license and/or other forms of ID. Valid state issued IDs are required or a valid passport that is not expired.
• Rental history: Mortgage companies may request documentation to show that you pay your rent on time, especially if you don’t have a long credit history.

How long does it take to get a mortgage preapproval?

The mortgage preapproval process is relatively quick and could take as little as a few minutes to a few days depending on the lender. A basic preapproval letter can take anywhere from 3-10 minutes. A full-scale preapproval will require a credit check, verification of financial documents and additional documentation. On average, a full-scale preapproval can take 7-10 business days. Depending on the lender, most preapprovals are usually valid for 90 days.

Why do mortgage companies sell your loan?

You may be surprised to know that most mortgage companies sell your mortgage to investors. This is referred to as a service transfer. The customer is typically notified 30-60 days prior with details and instructions for payments. The main reason why mortgage companies sell your loan is to free up their credit and get a surplus of cash back right away to lend money to new borrowers. Mortgage companies don't have the capacity to hold mortgages for 15-30 years, so selling your loan frees up their resources.

Can you switch mortgage companies?

Yes, you can switch mortgage companies by refinancing your loan. When you refinance your home, you do not have to refinance with your existing mortgage provider. This is a unique transaction and can be executed with a new mortgage company. Refinancing can possibly reduce your monthly payments and lower your interest rates. Note: There are potential cons such as higher costs and delayed closing.

In summary

Buying a home can be both an exciting and time-consuming process. It's important to perform your due diligence by shopping around for mortgage firms and securing favorable terms/rates. Partnering with a reputable mortgage provider can make it easier to build a more personal relationship with your lender and speed up your path to homeownership.