Financing
The process of buying your first home or refinancing is much like putting together a puzzle. It starts by finding out what your budget can afford in payment, how much down payment you can accumulate,and then those pieces need to be matched to the loan. Choosing and working with a quality lender is one of the most important pieces of that puzzle for purchasing your new home, refinancing or doing a reverse mortgage on your existing home.
Explore Low Down Payment Options
You know you can make the monthly payments, but where will the down payment for purchasing a home come from?
How can you possibly save enough money when you're pouring your money into rent each month?
Fortunately, you may not need as much as you think. There are many low down payment, even zero-down programs are available. Ask your Real Estate Agent for information and get referrals to lending institutions. Also look in the yellow pages of your local phone book under home loans or go online to the Internet and research mortgage or home loans, where you will find Home Loan Center or other lending agencies. Federal Government programs designed to help renters become homeowners are also available.
Most lending institutions allow borrowers to use gifts for their down payment. Perhaps a friend or family member is in the financial position to help you purchase your first home by making a gift to you to help with the down payment. While you explore your options, continue to save on a regular basis, even if it is only a small amount. Not only will this get you closer to your goal, it will show lending institutions you have a record of responsible savings.
The steps to successful financing
Get pre-approved
Don't skip this step. Getting pre-approved is fast, easy and free. A written pre-approval includes a completed credit application and a certificate guaranteeing you a mortgage to a specified amount. With one in your pocket, you won't waste time looking at homes you can't afford. Instead, you can invest your time shopping for the home of your dreams - and in your price range.
Examine your finances
How much can you afford to spend? While a lender will tell you how much you qualify for, it's up to you to figure how big a payment fits into your budget. What monthly dollar amount do you feel comfortable committing to? Remember to consider related costs such as insurance and taxes, as well as interest and principle.
Consider what type of loan is best for you
Compare fixed-rate with adjustable rate mortgages. Look down the road. Where will you be in 15 years, 30 years?
What obligations might you have? Take those things into consideration as you choose a loan.
Check your Credit Report
A lender will run a credit report on you (it only takes a few minutes), but you'll be ahead of the game if you acquire a copy first.
You'll know exactly what's on it and be able to correct any inaccuracies.
Shop Around
When you're ready to get a loan, explore your options. You can choose either a direct lender or a mortgage broker. A direct lender has money to lend and makes the final decision on your loan. Brokers are intermediaries who choose from many lenders. A broker may be able to help find you a loan if you have special financing needs, but he or she will also receive a percentage of what you borrow.
While you're shopping for a loan, also look for the best loan costs.
These may include:
• Interest rates
• Broker fees
• Points (each point is one percent of the amount you borrow)
• Prepayment penalties
• Loan term application fees
• Credit report fees
• Appraisal costs
Be aware
Don't let hidden costs sneak up on you. Ask your lender for a written estimate.
Apply for a loan
Gather all the documents you'll need to verify your loan application. Lenders will want to know your job tenure, employment stability, income, assets (property, cars, bank accounts and investments) and your liabilities (auto loans, mortgages, installment loans, credit-card debt,household expenses and others). You'll need to provide documents such as paycheck stubs, bank account statements and tax returns. Check with your lender or broker for more information.
Lock it down
With interest rates changing daily, locking down your rate can prove a big money saver. A rate lock - in writing - guarantees you a certain rate and terms for a specified period of time. Lock in all the costs you can including interest rates and points. And try to set the lock at the time of application, not at approval. This will protect you from rising rates. Your lock-in period should be long enough to allow for all processing time. Most lock periods range from 15 to 60 days. Make sure to check with your lender or broker about the average time it takes them to process a loan.
Ask about Pre-payment
You can shave years off the length of your mortgage by restructuring the way you pay back your loan. Simply paying more frequently can save thousands in interest. So can making a lump payment toward the principle - or paying a little more each month. These methods are called pre-payment. Not all loans allow for pre-payment. If you want the option, discuss it with your lender or broker.
Clear up any financial problems
Do you have credit problems or owe money to the IRS? Buying a new home may still be a possibility.
Contact a financial adviser or tax resolution service to find solutions.
Find out what your monthly mortgage payment and total housing budget could be.