| Home Financing Overview |
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One of the first steps in the home buying process is to analyze your financial situation and find out how much home you can comfortably afford. Prior to your home search, I strongly recommend getting pre-qualified or better yet pre-approved for a certain loan amount. Have a good idea of what your down payment will be. Take a look at your personal finances and figure out what you would be comfortable paying each month towards your home. If you take time to go over your financial situation prior to your home search, you will be in a much better position to make important decisions along the way. Loan requirements Ask lenders to explain the different loan programs they offer. Loan programs and qualification requirements constantly change, so it's important to find out what options are available to you. Some buyers are surprised to discover they can qualify for a larger mortgage than they thought they would be able to obtain while others are dismayed to learn their dream home is financially out of reach at this point in their lives. It is the latter situation that can be avoided by talking with your lender prior to starting your home search. Check your credit report Prior to visiting different lenders, access a current copy of your credit report and make sure there are no errors or incorrect negative remarks on it. If there are errors on your report, address and rectify them immediately. Knowing what is on your credit report ahead of time will put you in the best position to borrow money and limit any surprises. It will also allow you to prepare to explain any derogatory information that may arise. You are entitled to one free credit report every 12 months - I recommend www.annualcreditreport.com to check your report. Pre-qualification and Pre-approval In the first part, I talked about getting pre-qualified or pre-approved prior to home hunting. A common question is: what's the difference between the two? With pre-qualification, the lender will ask you questions about your income, your debts and your credit history and then use that information to give you a reasonable estimate of your borrowing potential. Pre-qualification doesn't obligate you to obtain a loan from the lender, nor does it obligate the lender to provide a mortgage for you. With pre-approval, the lender will perform a more comprehensive review of your credit worthiness, including such verification of income, resources and other matters as is typically done by the institution as part of its normal credit evaluation process. When you are pre-approved, the lender gives you a written loan committment valid for a designated period of time that extends to you a home purchase loan up to a specified amount. Pre-approval can be used as a negotiating tool, since it allows you to close much more quickly and provides the sellers with a level of comfort surrounding the purchase contract. Determining what you can afford After the lender pre-qualifies or pre-approves you, it is time to assess your own comfort level regarding loan payments. Just because you CAN take out a certain amount of money does not mean that you should. It makes no sense to take out a loan that you cannot pay back. Take a good hard look at how much you are willing to sacrifice and what payments you feel comfortable making each and every month. It is important that you not only factor in the mortgage payments, but also insurance premiums, taxes, future home maintenance costs and unforeseen expenses. If you have any questions about home financing, it is always best to speak with an experienced mortgage lender. Visit the mortgage rates page to get a list of local banks and contacts. I would also be happy to give you names and numbers of mortgage bankers that I deal with on a consistent basis. |
