Home Financing Fundamentals
Now that you’re ready to buy a home, it’s time to consider how you’re going to pay for it. Unless you’re paying cash, you will need to borrow funds from a 3rd Party. Buyers can borrow money from credit unions, banks, and mortgage companies. They way you approach mortgage shopping can literally save thousands of dollars. Take time to understand the system and make educated decisions. Remember, every household is unique. So be sure to evaluate your financial situation and short term and long term financial goals, and how the investment in a home factors into those goals.
Given that your monthly payment will likely be your highest recurring monthly expense, you really want to make sure it fits your budget and is comfortable to you. Your monthly payment is based on a variety of factors, all of which will be discussed with you and your lender:
- Gross annual income
- Cash savings available for dowpayment, closing costs, and reserves
- Secured & unsecured debt
- Credit scores & credit history
- Mortgage type
- Current interest rates
- Property taxes and home owner’s insurance
Each buyer and loan is unique. Know that there are a plethora of options available to you these days. For financing references, contact Marie Haydock.
The steps to successful financing
- Check your credit report. As part of the loan application process, a lender will be ordering copies of your credit report. These reports have a calculated credit score, list of outstanding debts, and information about your credit history. Each lender will value the information in the credit reports slightly differently. There isn’t much you can do about how the reports are interpreted by lenders. However, there is somthing you can do to move the loan application process along smoothly. Sometimes there are errors in the credit report. Fortunately, the reporting agencies have systems in place to correct errors. If you find an error, contact the credit reporting agency to make the necessary changes before you apply for a loan.
- Get Pre-approved. Once you have one or more suggested lenders, it’s time to see what they will qualify you for. Contact the lenders, and let them know you’re interested in buying a home. After an introductory interview, the lender will provide a list of materials they need in order to pre-qualify you for one or more types of loans. As of January 2010, loan officers and mortgage brokers have a fiduciary responsibility to provide you the best loan products for your unique situation, at competitive rates.
- Examine your finances. How much can you afford to spend? The lender will provide you with the upper limit of how much you qualify to borrow. However, it’s still up to you to determine what feels the most comfortable financially. Waht monthly dollar amount do you feel comfortable committing to? Remember to consider related monthly costs, such as insurance and taxes, as well as teh interest rate and principle amounts for the loan.
- 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 5 years, 15 years, 30 years? What obligations might you have? How will your income change (expected promotions and pay raises, perhaps reduced income if one person in the household stops working to raise children). Take those things into consideration as you choose a loan.
- Shop for a home. Once you and your lender have narrowed down the selection to a loan type you’re comfortable with and a price range you’re comfortable with, you can begin shopping for a home in earnest! Be sure to print out a copy of your pre-approval letter for your real estate agent. The pre-approval letter lets sellers know that you’re serious about buying a home, and is usually one of the three requirements for submitting a written offer for a home.
- Apply for a loan. After you’ve got a valid contract for the purchase of a home. You will need to contact your lender within 5 calendar days and officially 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). This is a labor-intensive timeframe for you as a buyer. You’ll need to provide documents such as paycheck stubs, bank account statements and tax returns.
- Lock down your interest rate. With interest rates changing daily, locking down hyour rate can provide a big money saver. A rate lock – in writing – guarantees you a certain rate adn 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. Lenders usually want to see a signed written contract before locking in an interest rate. Interest rates are not locked down indefinitely, so be sure that your approved lock down timeframe matches the timeframe of you home purchase contract. Be sure to work with your real estate agent closely during this timeframe, making sure everbody is aware of the steps being taken.
- Transaction closes, and you’ve just bought a home! As a part of the home purchase process, you will be verifying and signing your loan documents during the escrow signing appointment in Washington State. Your home loan is complete.
Questions about financing a home purchase?
Contact Marie Haydock at 425-495-0394 or email Marie.