Financing matters

Few people can buy a home for cash. According to the National Association of REALTORS® (NAR), nearly 9 out of 10 buyers finance their purchase, which means that virtually all buyers require a loan. The real issue isn’t so much finding the loan, but rather finding a loan that is right for you. For those on the house hunt, here’s what steps to take to get the mortgage process going:

Evaluate your financial situation.
Calculate your debt-to-income ratio by adding your potential mortgage payment to monthly payments for credit cards, car loans, child support and student loans. Divide the sum by your gross monthly income. If the result is higher than 35%, consider paying off some debt before purchasing a home.

Consider the down payment you can afford
Financing a home with a down payment of less than 20 percent will require mortgage insurance and can limit your options. If you’re not in a rush to buy a new home it might be wise to spend some extra time saving money for your down payment. It is not uncommon for home buyers to purchase houses with minimum down payment loans of 3% to 5%. However, saving for longer and putting down 20% can improve your chances of a mortgage approval, keeping the mortgage payment low, and eliminating the need for mortgage insurance.

Check your credit score
A good credit scores can translate into the ability to borrow more money at lower interest rates. To make sure you get the best possible deal, you can check out your credit score by ordering a copy of your full credit report. Do this well in advance of applying for a mortgage, so that you will have time to take steps to improve your credit or fix any inaccuracies that may have occurred. If your score is lower that you would like it to be, spend about 6 months making all loan payments on time, paying down or paying off the balances on your credit cards, closing cards that you don’t use, and refraining from opening new cards or incurring other debt.

Meeting with a loan officer
It is always a good idea to start the mortgage process before you start the search for a new home. I can recommend loan officers who can carefully review your financial situation, including your credit report and other information. This way you can discover which available programs meet your needs and how much you can afford to pay for a house. It is good to set boundaries on exactly how much home you can afford, narrowing down the search by eliminating properties out of price range. By taking care of financing matters in advance you can avoid disappointments or having to make a rushed decision later in the process.

Getting pre-approved
“Pre-approval” means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a pre-approval letter. ‘A letter of pre-approval can give buyers a competitive edge by showing sellers they’re serious when it’s time to make an offer’, says Eric Tyson, co-author of Home Buying for Dummies. For this reason I highly recommend that you obtain your pre-approval before we make an offer. If you would like to pre-approved please contact me and I can recommend trustworthy loan officers to you who can guide you through the mortgage process.