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Thinking of Buying a Home? What Should You Know About Financing?

By
Real Estate Agent with Wesely & Associates BRE 00560598

Today I'm starting a 10 part series of what you should know before starting the house hunt.

TIP #1. Before you start looking for a home; get pre-qalified for a loan.

Now you say, that sounds "just like a Lender"... Get Pre-qualified"!  Yes, but when talk to a real estate professional the same "get pre-qualified" encouragement will be espoused.

There are several reasons to take the time to connect with a lender.  You'll want to find someone that is professional and trust worthy. Unfortunately, there are still a few folks that don't take time with their customers.  If you are buying your first home it is especially important to work with someone that is patient, and a good communicator.

The first step will be to find out if your credit is worthy of moving forward with the process.  If your mid credit score is below 640, chances are pretty slim of your being approved for a purchase.  In my next post we'll look at options if you have marginal credit.

If your scores are acceptable, then the next hurdle will be income to debt ratios.  The 1st ratio is based the percentage of your income that will go to your new proposed housing expense and the second ratio is the percentage of your income that will go towards your house payment plus all current liabilities - credit cards, car payments, student loans etc.

When it has been determined how much you can borrow, then the purchase price (range) of your new home will be established.  Your lender will also want to establish the validity and continuance of your income. 

How about cash to close?  Often buyer's confuse cash to close with down payment.  They are two uniquely different numbers... although the cash to close number will include your down payment. -Confused?? Example,  FHA requires a 3.5% down payment.  This means that you have to have 3.5% of the purchase price in the bank (or available as a gift from a family member) for the down payment.  Then additionally, you will need to pay both recurring and nonrecurring closing costs.  Those costs can be another 3%+ of the sales price.  So, lenders talk "cash to close" and look for that money in your bank account.  In an upcoming blog we will review sources for down payment and closing costs... other than you checking or savings account.

We will touch on why or when you will want to pay points and how points can save you money in the long run.  Join me over the next few weeks... for an in-depth look at how to make the most of your home buying financing options by working with a good lender.  Until then... call or comment or e mail questions... Always looking forward to hearing from you. ~i~

Comments (4)

Brian West
imortgage - Gilbert, AZ
Arizona Lender

Nice and informative post Ingrid.. I love educating my buyers with stuff like this. I should have been a teacher perhaps...

Jan 18, 2011 05:18 PM
Suzanne Taylor
Ultima Real Estate - Corpus Christi - Corpus Christi, TX
Home Sales In Corpus Christi, TX

Ingrid: Agree with Brian, nice post, I have suggested it be featured.  Thanks for taking the time to write it.

Jan 18, 2011 05:35 PM
Ingrid Pierson
Wesely & Associates - Auburn, CA
Making Friends & Helping Friends with Real Estate

Brian, Often I think that's what we are - teachers.  I'm finding that more and more mortgage professionals are learning how beneficial it is for customers to understand not just the process but also the why behind the need for items requested.  Additionally, todays customers want to make informed decisions about the type of loan and the terms.  We can point to the mortgage debacle and say that this is a good result... ownership of decisions to be made.  ~i~

Jan 19, 2011 04:11 AM
Ingrid Pierson
Wesely & Associates - Auburn, CA
Making Friends & Helping Friends with Real Estate

Suzanne, Thank you for your support. Wishing you all the best for 2011...

Jan 19, 2011 04:13 AM