House

Source: Flickr user fitzgene.

It's easy for home buyers to go online and search for that perfect house in the perfect neighborhood. You can view pictures, check out the "Street View," and even find the property's tax and ownership history. It's almost too easy.

Getting approved for your first mortgage, though? That's a different story.

For first-time buyers in particular, the mortgage process is a mystery. You know that some appraisal must be done, and you probably know that you have to provide your financial information to the bank, but beyond that, the process seems murky at best.

To help first-time home buyers understand what to expect in the mortgage application process and to get some advice for navigating it, I spoke with Teri Williams, president and chief operating officer of Boston-based OneUnited Bank and author of I Got Bank, a personal finance self-help book for young Americans.

To Williams, the key to success can be broken down into three major areas.

1. Trust

The first question that needs to be answered is, "Who can I trust?" Having trust in your lender is critical because buying or refinancing a home is likely to be one of the largest financial decisions you will make. If you do not already have a relationship with a lender, a local community bank or credit union are good options. They know your real estate market, and they are interested in a long term relationship with you ... rather than just a transaction.

Another key here is to comparison-shop. Ask around. Talk to multiple banks. You'll be surprised by the variety of offers, rates, and fee structures available from bank to bank. The right bank for you will offer you the right mortgage for your needs (more on that in a moment) and will also give you the personalized support and guidance that you need.

2. Planning

Once you decide on a lender, it's important to be clear about your goals and your financial condition.

  • Are you interested in the lowest rate or monthly payment or are you seeking to pay off your mortgage quickly?
  • Do you plan on staying in your home for another five years or more?
  • What is your credit score?
  • Do you have savings for a down payment?
  • Do you have equity in your home?

The answer to these questions will help your lender identify the right program for you. There are many options including fixed vs. variable rate, 15 vs. 30 year, points vs. no points, as well as some programs specifically designed to assist first time home buyers.

This part of the process can be the most daunting for the uninitiated, and that's why it follows establishing trust with your banker. A good mortgage banker will help you figure out, based on your finances and circumstances, the best loan structure for you.

This is particularly true for first-time home buyers who want to take advantage of a government program to allow for a reduced down payment or other advantage over a traditional mortgage. A banker with experience originating these loans can make all the difference in successfully getting your loan approved.

3. Follow the process to a "T"

Finally, once you decide on the right loan with your lender, you should understand the importance of following the home loan process. The current process is heavily regulated to protect you as a consumer. It requires lenders to disclose information to keep you informed and protect your privacy. Your lender will provide you with a checklist of information they need. Follow it. They will send you disclosures. Read them. If you have questions, ask aggressively. You deserve simple answers. By the time you close on your home loan, you should feel confident in your decision.

Millions and millions of American's have been through this process before, but that doesn't mean you can breeze through the details. There are hundreds of thousands of people today with underwater mortgages because they took on more debt than they could really support. Government regulations are intended to help you avoid those predatory situations, but at the end of the day, it's up to you to read and understand everything you agree to and sign. You can do it! Just make the effort to understand the details.

"Now is a good time to act on a home loan ... with care"
That's Teri Williams' final advice. Home prices in many markets remain attractive in the wake of the real estate bubble, and interest rates are still quite low. Make sure you find someone you trust to work with, set aside plenty of time to plan exactly what you need, and then work with your realtor and mortgage banker through the established process. Good luck, and happy house-hunting!

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