Financing Your New Home

DON’T GO HOUSE HUNTING FIRST. It is very discouraging to find the house of your dreams, only to find that it is way out of your reach.

So, what should be the first steps if I what to buy a house?
You need to find out what you can qualify for and more importantly the amount of your budget that you feel comfortable committing to a house payment. Call or email us and we will be glad to go through this process with you.

• The payment includes principal, interest, taxes, insurance and possibly mortgage insurance.
• You need to plan for the fact that your mortgage payment WILL go up each year. With a fixed rate the principal and interest WILL NOT CHANGE, but taxes and insurance increase almost every year. So if you can just barely handle the prospective mortgage payment, then you need a lower loan amount.
• There is no landlord to call when the A/C is stops working. This means YOU are the maintenance person and YOU pay the bills for any repairs.

Obtain a copy of your credit report. Ideally you should have this before you meet with us so that we can review it together.

• You can get a copy of each of the three reporting credit companies through www.annualcreditreport.com. This will let you know what a lender will see when they review your credit report. You must pay to receive the credit scores. Invest the money to get the scores, you need to have all the facts to determine your course of action.
• Review the report for accuracy, often there are mistakes. For more information on dealing with mistakes go to our information tab and choose credit scores.
• Call and we will review the report to put together a plan of action to improve your credit score.
• It’s worth the effort - Improving your credit score will make a difference on your interest rate and the type of loan you can qualify for.

Do you have any savings? You need to because:

• It will improve the likelihood that your application will be approved.
• Most loans require that your down-payment and closing costs come from your savings.
• If the proposed mortgage payment is higher than your current rent and you have no savings then either, you can’t afford the new payment, or you will have to decide to make some lifestyle changes to afford the payment.
• You will probably find yourself purchasing a lawn mower, the patio furniture that will look to fabulous on your deck, new window treatments or maybe the BIG screen TV you’ve been wanting. With some savings you don’t have to add to your debt for these purchases.

Create a folder than consolidates all the financial information the lender will need. See our loan checklist for more detail. If you are renting make sure to pay for your rent with a check and then make a copy of each cancelled check for the file.

What are your “must haves” in a house?

• The number of bedrooms and bathrooms
• The size of the house
• A large yard, small yard or no yard
• Formal room layout or a more open and informal design
• Age of the house – a newer home will have lower utility bills, lower insurance costs and lower initial maintenance costs.
• A dream kitchen or bathroom
• Style of the home

Then narrow down the neighborhood or types of neighborhoods to look for a house.

• How far will the commute be to my job?
• What schools would children attend?
• Is it convenient to my house of worship?
• Is shopping nearby?
• If you have children is the neighborhood one with younger families or mostly empty nesters?

After going through the process above you now have a better idea of what you can afford and what you want in a house. You know that your credit is in good shape and you have consolidated all of your financial records. It’s time to come back and see us to get a qualification letter. You will need this to show the realtor that you are a serious buyer, not just a “tire kicker”.

A realtor will help you narrow down the choices. They can quickly put together a list of homes that fit your criteria and will appreciate that you have done your homework.
Currently interest rates are near historic lows.
Let’s look at the type of savings you might expect.

What should I consider if I want to refinance?

• Is there enough current value (determined by an appraisal) to be able to pay off my existing mortgage and the closing costs?
• How long do I plan to stay in my home?
• How long will it take to recover my closing costs with the lower rate? We can help you calculate the cost recovery period.
• Would I benefit from consolidating some of my installment or credit card debts to lower my overall monthly costs?

How can I find out what my home is worth?

• DON’T have an appraisal done. The lenders require a totally independent appraisal so they will not use an appraisal you have ordered.
• Do consider getting a “Broker Price Opinion”. This an assessment that is prepared by a realtor that gives their estimate of the value of the home. Generally the Broker Price Opinion will cost $75 - $100, as compared to appraisals that range in cost from $300 to as much as $700 for a multi-family property.

How long will this take? With the new appraisal and lender underwriting guidelines all types of financings take longer than when you first bought or refinanced your home. Why?

• Appraisals are now ordered by the lender from “appraisal management companies - national companies that contract with local appraisers to do the appraisal. This adds time to the process, sometimes as much as a week or more for the appraiser to assess the property.
• The appraisals are much more comprehensive in terms of the market research required of the appraiser. This gives the lender a better idea of the trend of sales for homes similar to yours.
• Underwriters scrutinize applications much more carefully than in prior years. Between mortgage fraud and the sharp declines in real estate prices the lenders are requiring more information from borrowers and appraisals and taking more time to review files for inconsistencies or items that need more explanation.
• Lenders now request verification from the IRS for the tax returns on ALL loans. This can take two to three weeks or longer. The loan will not be approved until they can compare what you have submitted with what the IRS reports.

The Bottom Line:

• Expect the process to take longer.
• Expect to have to provide more information
• There is even more paper work.

But in the end you will have a great rate and save money!