Financing & Mortgages

Purchasing a new home can be exciting, adventurous and challenging all at the same time. With so many financing options available, it’s important to educate yourself on the process to ensure you’re making the best, most cost-effective long-term decisions.

Assembling The Right Team

As your qualified real estate professional, I can help you create the best team for the entire home-buying process. To purchase a home, you typically will need an agent, a mortgage company, title company, various inspectors, an insurance company and in some instances, a real estate attorney.

Creating A Housing Budget

A real estate agent can help you establish a housing budget. The budget should be based on numerous factors including income level, amount available from the lending institution, your debt and budget, the amount of money available for the down payment and the interest rate. A real estate agent will help you determine the maximum price you can afford to pay for a home. The agent will also factor in taxes, insurance and any renovations (if needed) to give you a firm budget with which to plan. Your agent can also help you budget for incidentals, such as window coverings, new furniture and any alterations planned for the home.

Finding The Right Financing

A lender will evaluate your financial situation and provide you with a figure outlining the maximum amount you qualify for in the form of a mortgage. Before looking at homes, consider obtaining a pre-approval letter from your lender. This lets potential sellers know that financing is in place and that you’re serious about the transaction.

Documentation

To start the loan qualifying process, lenders will request a list of documents that provide a snapshot of your current economic condition. Lenders are taking great care these days to ensure all paperwork is in order and that proof of income is verified. Be realistic in setting your budget before you start house hunting and be prepared to provide detailed financial, tax and employment paperwork during the process.

Documents Lenders Want to See

Employment Information (for all those applying)
Address for two full years
Gross monthly income
W-2s
Proof of pensions, retirement, disability or Social Security
Proof of income
Proof of child support or alimony
Year-to-date pay stub
If self-employed, two years 1040 tax returns and current year profit and loss statement

Creditors

Each creditor’s name, address and type of account
Account numbers
Monthly payments and approximate balances
Amount of child care expenses
Banking
Names and addresses of banking and savings institutions
Account numbers for all accounts
Type of accounts and present balances

Other

List of assets in stock, bonds and land
Life insurance value
Copy of sales contract
Social Security numbers of all parties
Email addresses
Previous addresses if current address is less than two years
Veterans – Certificate of Eligibility & DD-214
Cash or check to pay for application fee
Estimated purchase price
Estimated property value
Loan amount
Estimated down payment

Instructions on how a lender’s appraiser can gain entrance to property being financed
Most lenders will offer homebuyers the option of “locking in” an interest rate and points before a deal is finalized. As a buyer, you need a clear and precise understanding of the rules under which the lender will lock or float a loan. This information should be provided in writing.

Credit Check

Before applying for a home loan, it’s a good idea to secure a copy of your credit report. This will eliminate any surprises when talking to a loan officer. It also will allow you to verify the information on the report and clean up any errors that might exist before applying for a loan. A credit score or “risk score” is a number that the lender uses to help them decide how likely you are to repay the loan in a timely manner. A high score demonstrates a solid repayment history, while a low score sends up red flags.

What is your score? Get copies of you most current credit report with one of three major credit reporting agencies:

Equifax
800.685.1111
equifax.com

Experian
888.397.3742
experian.com

TransUnion
800.888.4213
transunion.com

Interest Rate

In addition to the dollar amount of the loan, pay special attention to the interest rate you’re being offered. Lower rates enable buyers to afford a more expensive home without becoming “house poor,” a condition in which the homeowner can afford the house but little else.

Points

If possible, steer clear of origination points, which lenders use to cover the expense of making a loan. According to bankrate.com, one point equals one percent of a mortgage loan. To help lower the interest rate of your loan, you may want to “buy down” points by paying upfront for a lower interest rate. Points paid are eligible for deduction from federal income tax for the year in which they are paid; however, if the seller pays any of the points – a popular negotiation tactic – both the buyer and seller need to agree on the deduction before it’s taken.