Things To Consider When Shopping For A Mortgage
Getting Pre-Qualified For A Mortgage Is Step One Of Your Home Search
Ideally you want to be pre-approved for a mortgage before you start looking for a home. Knowing what type of loan you qualify for is very important because it is a major consideration for deciding which homes to focus your search on. You don’t want to waste your time looking at houses that you don’t qualify for.
For instance, if you are going to use an FHA, VA, or Rural Development loan, the property you are buying has to be in move in condition. The home must be structurally sound and safe. It is OK if the home is cosmetically dated as long as it is in move in condition.
If you qualify for conventional financing and have at least 20% to put down, you will have more flexibility when it comes to the condition of the property you want to buy. However, even in that situation the property must still have all utilities on, and the plumbing, electrical and HVAC systems must be in good working order before a lender will make a loan on the property.
There are also some rehab loan products available for qualified buyers but again in my experience the property must meet certain minimum qualifications.
It May Not Be A Trip To The Dentist – But It Can Feel Like It
In my experience, the one thing that holds people back from even thinking about owning a home is the thought of having to ask for a loan. The simple idea of applying for a mortgage is stressful for many of us. However, unless you have the luxury of paying cash for a new home , eventually you will have to start shopping for a mortgage.
Something to Keep in Mind
Banks need you as much or more than you need them. Banks charge interest on the money they lend, and that interest is how they pay their employees and investors. If home buyers don’t borrow their money, bankers do not get paid.
There is nothing that can hurt you about making an appointment with a reputable lender and finding what your credit score and buying ability is. If you don’t have a banking relationship, then talk to someone you trust and ask for a referral. If nothing else comes out of the meeting, you will learn what you need to do to qualify for a loan in the future.
Beware of ‘To Good To Be True’ Internet Mortgage Brokers
There are some very good internet lenders out there. However, most of the loans they make are what I call ‘slam-dunk’ loans. These are loans for people with impeccable credit, steady documented income, a down payment, and little to no additional debt. They specialize in ‘friction-free’ transactions.
When I am representing a seller on a sale, and an offer comes in with a pre-qualification letter from a lender I am unfamiliar with, I often suggest the seller counter the offer with the request the buyer provide a pre-qualification letter from a lender known to the seller’s agent. This ‘second opinion’ protects not only the seller, but the buyer from a frustrating, and avoidable, outcome.
There is simply no substitute for a lender that is experienced and active in the communities they do business
The Loan With The Lowest Rate May Not Be The Best Loan For You
What often appears to be the lowest interest rate in town, may not be the best loan for your situation. Let me explain.
First of all, there is always a balance between the interest rate, and the closing costs the lender requires up front to make the loan. Often the loans advertised with the lowest interest rates have the highest closing costs. Consider the following copied and pasted from the website www.usbank.com:
The annual percentage rate (or APR) is the amount of interest on your total loan amount that you’ll pay annually (averaged over the full term of the loan). A lower APR could translate to lower monthly payments.
In many cases, it makes the most sense to choose a mortgage loan with a lower APR. However, sometimes a loan offer with a lower APR may require you to pay mortgage points or other fees. If you’d rather use that money toward a down payment or to buy appliances and furniture for your new home, you might choose a loan with a slightly higher APR that doesn’t have these requirements.
While the APR makes it easier to compare mortgage offers, you’ll want to weigh all of the factors involved in getting a mortgage loan. These include the size of your down payment, closing costs and money you’ll need to set aside to furnish and maintain your home. The mortgage rate and payment calculator is a good place to start.
A Couple of More Things to Watch Out For
We are starting to see mortgages again that are not that different than the ones that helped plunge the world into the Great Recession of 2008 and 2009. I don’t want to sound like a cranky old man, but you have to be alert to unscrupulous players in both the real estate and banking games. Some people make a living preying on the less informed.
Be aware of mortgages with suspiciously low introductory interest rates. They usually jump dramatically after the first year or two. Also, be aware of ‘too good to be true’ monthly payments – they are sometimes based on interest only payments with a large balloon payment due at the end of the term. If you don’t have the cash to pay off the loan at the end, or the ability to qualify for a new mortgage, you could lose your home.
Your best bet, 90% of the time, is a fixed rate mortgage amortized over 30 years. A fixed rate means that no matter what happens in the economy, your interest rate will stay the same. If you want to pay off the loan sooner, fantastic, but if your circumstances should tighten up, you can always fall back on the minimum required payment.
Every buyer’s situation is unique. You want a lender that understands that and mortgage that’s right for you.
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