by Mike Kravitz
on Monday, March 6th, 2017 at 4:39pm.
One of the scariest parts about buying a home is figuring out the mortgage. Many prospective home buyers wait too long to start setting themselves up for the best mortgage rates and pay for it dearly when they can’t afford the home of their dreams or it gets purchased out from under them because they couldn’t get approval for a mortgage in time.
Looking at listings before getting your ducks in a row with a mortgage is ill-advised. As you begin to realize your dream of being a homeowner, before you even look at a single home, you need to figure out what your credit is, and what type of mortgage you may receive. This prevents you from getting your hopes up on a home you may not be able to afford within the timeline you want it. If you are aware of what you can afford you are able to set reasonable expectations for your potential home.
In highly competitive markets some agents won’t even bother with showings if you are not preapproved for a mortgage.
Keep in mind if you don’t have a lot of cash to put down for a home, or you are self-employed, getting a great mortgage rate or even being approved can be difficult. You may want to consider saving up more so you don’t need to rely as heavily on a mortgage. Sometimes you must sacrifice renting instead of owning for a bit longer in order to purchase the type of home you really want later. Setting long term goals is a good thing.
“Talk to several lenders or mortgage brokers. Not all lenders offer the same loans, so it makes sense to shop around. Be careful that you’re comparing apples to apples. All lenders let you choose whether you’d like to pay more upfront, in the form of “points,” to get a lower interest rate. If a lender offers you a ‘no closing costs’ loan, find out where you’re being charged extra to compensate for that.” Teresa Mears said in a recent US News article.
During your mortgage search a broker will expect a lot of documents so be ready for that. They will want about three years of tax returns, several months of bank statements, proof of income, and any debts you have. Keep in mind if you are an independent contractor and you claim a lot of expenses, thus lowering your income, this is the amount a mortgage company will take into consideration, not how much you made without expenses.
The general rule of thumb is 20 percent down of the total cost of your home, but you can still purchase a home with less than 4 percent down if you qualify for a Federal Housing Administration mortgage. There are also lower percent rates for military veterans.
Lastly, consider your debt. When thinking about a new house payment, add that to your total debt. If that number is 43 percent of your current income, getting approved for a mortgage is highly unlikely. As mentioned before, there is nothing wrong with waiting a little to pay off debt in order to get the mortgage you need.
One of the biggest mistakes we see is people making major purchases while their loan is still pending. Despite all of the information you’ve submitted, if you make a large purchase and put it on your credit card, that alone may cause your loan request to be denied because it then becomes debt. Hold off on buying new furniture, a car, and the like.
Another thing many buyers don’t know is what is expected by the lender up front. You’ll need to give about a year’s worth of homeowner’s insurance and property taxes down. This is on top of the amount you are putting down to purchase the home.
In some unique cases, the home itself may need to have certain qualifications in order to qualify under an FHA mortgage or a standard mortgage. Remember this may mean you incur inspection fees to confirm that your home qualifies for the type of mortgage you are getting.
The Good News
The reside360 team is here to help. The whole process of home-buying is scary, but having an agent you trust and has experience in the market truly helps alleviate the angst. Most agents are familiar with brokers in the area and mortgage companies, and a good agent’s first priority is what works best for you. Don’t be afraid to ask questions. When it comes to purchasing a new home, don’t assume anything. Your agent is here to help, and easing your nerves is never an annoyance.