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Step by Step Guide to Shopping for a Mortgage
by Robin M. Root, Platinum Mortgage
With so many loan programs to choose from, home buyers are often a little intimidated by the financing process. Before you begin searching for the perfect new home -- and the best mortgage loan -- take the time to ask yourself a few key questions. By doing so, you can narrow your search and find a loan program that truly suits your needs.
How will I use the home and how long do I intend to keep it?
It makes sense to start with the basics, such as whether the home you are purchasing will serve as your primary residence, a second home or an investment property. You will also want to think about how long you plan to keep the property. When determining the answer to this question, think in terms of 3-5 years, 7-10 years and 15-20 years, etc.
For example, if you plan to move to a larger home within a few years, it will probably not be in your best interest to secure a 30-year fixed loan. A loan fixed for 5 years or an adjustable rate mortgage could save you thousands of dollars the first few years vs. the 30-year fixed.
The answers to the above questions do not have to be exact, but they will help you determine what type of mortgage you are looking for and narrow your search.
What is the maximum payment I want to pay?
This figure should include your principal, taxes, insurance, mortgage insurance and any association dues. This is important because it will give you a price range which is comfortable for you, rather than the maximum amount you qualify for. This way, you'll have a realistic price range in mind when shopping for your new home.
How much cash do I have to put into the transaction?
This amount must include your down payment, non-recurring, and recurring closing costs. Conventional lenders also require two months of your housing payment in the bank after you close. The amount of cash you have will be a factor in determining what type of mortgage loan to choose and whether you will be required to pay for mortgage insurance.
When do I plan to move?
This is extremely important when shopping because you cannot lock in your interest rate until you are in contract on a home. Interest rates change on a daily basis and sometimes a few times on any given business day. The longer a buyer needs the lender to hold a rate the more it costs the buyer. If you are barely qualifying, make sure to lock your rate. If the market goes up before you lock in, you will no longer be able to buy the home on the loan program you chose.
How is my credit?
Lenders use a scoring system to determine a borrower's credit worthiness. The higher your score, the better you are perceived by the lender and the more options you have available to you. Every time your credit is pulled your score will decrease. Do not let everyone pull your credit while shopping for a loan.
Shopping for your loan"
Now that you have a basic idea what your needs are, you are ready to begin shopping for your loan. Are you inquiring with a banker or a broker? There have been arguments on the pros and cons of the two for years. The main difference is the banker is limited to the products his or her bank offers. The broker can shop for the best product, rate and service for your particular situation. Determine if the people you are speaking with offer the product you need. If you are looking to get in with no money down, make sure they have those types of programs. After speaking to a broker or banker, ask them to send you the quote in writing.
Securing your loan"
When you find a loan officer you trust and feel comfortable with, allow them to pull your credit. This is necessary to get your loan approved. Once you have an approval you will have less stress and more buying power because you can offer a fast close to a seller. Depending on the type of loan program you choose, you will need to complete a loan application and provide information regarding your income, liabilities and assets, employment history, etc. Plan to have funds available to pay up-front costs required by the lender. The standard up-front fees range around $350- $500 for an appraisal and $50 for a credit check. The builder or seller will also ask for a deposit when you make an offer on the home. Deposits vary depending on the price range of the home. Plan to have $1,000 to $5,000 for your deposit. Budgeting for up-front costs can help you avoid last minute stress.
It is important that you maintain an open line of communication with your loan representative. Don't be afraid to call whenever you have a question. You should know when your rate is locked in and when your lock expires. You will want to sign your paper work 3-5 days prior to the date you want to move into the home. The transaction must be on record with the county you live in before you become the legal owner and take possession of the keys. The above process can take as long as 4 business days. Do not make your 30-day notice hit the day you have to move out. Allow for an overlap in case the loan process is delayed a few days.
Buying a home is one of the biggest investments of your life. Asking yourself some preliminary questions and following the steps outlined will help you maintain control over a process that can often feel overwhelming. You will also have peace of mind knowing you have a new home and a loan that truly suit your needs.