There’s nothing worse than finding the home of your dreams only to discover that it’s just slightly out of your price range, or that small changes in your financial habits made a few months ago would have made the property within your purchase power… Getting your financing in order early on is very important.
CHOOSING A LENDER
Finding a lender that will work for you and your unique situation is a crucial first step in homeownership. Each lender is slightly different, and you are encouraged to interview several, also known as Mortgage Shopping. Finding the lowest rates, and the loan terms that work best for your individual financial needs will help you move forward confidently as you view properties of interest. Please refer to the Local Lender List as a resource for finding the right financing.
UNDERSTANDING THE COSTS OF BORROWING MONEY
Many buyers don’t realize that getting a loan can be expensive. Be sure to discuss closing costs with your lender, and if needed, make a plan early on to save for those extra expenses. Closing costs can be 2-5+% of the loan value, so understanding how this fits into your budget is a crucial step.
Just because you’ve met with a lender, doesn’t mean you’ve been pre-approved for a loan. The lender will look over your financial situation, and can give a simple assurance that they will likely be able to get a loan for you based on the information you’ve given, were you to complete a formal loan application. It isn’t recommended that you do so until you’ve identified a property and are under contract to purchase it. In the meantime, if you’re house shopping and writing offers, your lender can give you a pre-approval letter which you can provide to your seller as part of your offer showing that you’ve done your part to assure that you can obtain financing for the purchase.
TIPS FOR MAKING OBTAINING FINANCING AN EASIER PROCESS
Save your down payment – Conventional Loans usually expect a 20% down payment, plus closing costs. There are some loan programs which require a smaller down payment, but having little-to-no down payment will limit your purchase power. In some cases, it can be a better financial decision to postpone a purchase for some time in order to save an appropriate down payment amount. Also, if saving isn’t an option, consider getting creative to procure your down payment. Sometimes people do side-jobs, ask for money as gifts from friends and family, start a go-fund-me or downsize and sell off their extra possessions. Ask your lender about down payment assistance programs.
Create a budget and stick to it – Creating and sticking to a budget can help you get any unruly parts of your finances in order. Sometimes buyers need to save more money than they thought they needed, and having a working budget can help a lot when sorting out the costs associated with purchasing a home.
Pay off your debts – If you have debt, it’s important to know that it’s still possible to get a loan, but paying off those debts is one way to increase your credit score, and make your loan application look more attractive to lenders.
Get your paperwork in order – Having your tax returns, name documentation, income information and other relevant documents at hand and ready to share with your lender will help expedite the process. When you call for an appointment, ask the lender what paperwork they’d like you to bring when you come.
Think about what your AFTER-closing/move-in expenses will be – Wether it’s simply the cost of a moving van or if it’s the costs of repairs that you want to complete prior to moving in, knowing your after- purchase costs will help you stay in control of your financial situation. You can include these items in your budget, which can help you create a moving timeline, or in some cases, will help you realize that the house you thought was perfect, might actually be financially out of your range.
Find mortgage calculators online and learn how to use them – You can make estimations by using online mortgage calculators which will factor in all the various costs and give you an idea of what your overall purchasing power is, or what your monthly payment would be.
BUYER CREDIT MISTAKES TO AVOID
Being out of touch with your credit score – Chances are that if you don’t know what your credit score is, it might not be good enough to get you a loan. One of the first steps in being sure you can secure financing is to demonstrate credit worthiness. Take the time to look up your score online. Many companies provide this as a free service to their customers. You can talk with a financial advisor, or browse the web for resources on how to best maintain a healthy credit score.
Applying for mortgages over a long period of time – Too many inquiries into your credit score can negatively affect it. Each time a lender creates an official mortgage application, your credit score might suffer, and if you’re shopping for the right loan, doing so over a period of 2-5 weeks should protect you from this pitfall.
Opening new lines of credit at this time – Each time you apply for credit, the lending institution makes a formal inquiry into your credit score, and as mentioned above, too many inquiries can have a negative effect. Often, buyers are interested in new lines of credit as a source for funding renovations or touch-ups for their new home, which can be a good option, but it’s best to wait until after your Escrow has closed!
Maxing out existing credit lines – Your existing lines of credit and the debt they carry are part of an application for any financing you are or will be seeking for the purchase of your home. Keeping your balances low, or at zero is ideal.
Buying a house you love today that might not be the best choice for tomorrow – When looking at properties, first-time buyers are often unaware of hidden costs in a house for sale. Familiarize yourself with the basic up-keep of a house and the long-term expenses and deferred maintenance that can affect your property’s longevity and long-term value. Items to look at in this category would be:
* Upgrades like double paned windows, appliances, fixtures or finishings
* Age/Condition of Wiring, Plumbing, Fencing, Roofing, Flooring, Heating Systems, Septic Systems, Etc.
* Huge Compromises in buyer’s needs