If you watch any of the home buying programs it all seems so easy and quick. Call a real estate agent and hey presto half an hour and three homes later you make an offer and it is accepted.
But the reality of buying a Tredyffrin Easttown, Main Line home is before you start looking at homes you need to do some leg work and educate your self to be ready.
So what do you need to do?
1. What is your Credit Score?
Discover - first you need to find out what your credit score is, and then realize the number you find won't be the exact same number a mortgage professional will be given.
Improve - you may need to take some steps to improve your score and clean up your credit report to make sure it is accurate, all this will take some time, it won't happen in half an hour.
Protect - Finally you will need to protect that new credit score and make sure it is protected from anyone who might get access to your personal details.
2. Find and select a loan officer or mortgage professional
There are many lenders out there, like real estate agents and not all are created equal. Before you start the application process you need to do some research. Ask for referrals from people you know who have recently bought homes, or if you already know a real estate agent ask them. You are going to share a lot of very personal information with this professional and you need to have a good relationship with them and know they are available to answer questions. How smoothly this process is going to go is dependent on that relationship and on you. You will need to provide information and how slow or fast you are doing that will impact how the whole process goes.
3. Obtain a pre-approval for a mortgage
Before you start shopping for a mortgage you need to understand what is required to purchase a home. A mortgage is just one element, there is a required amount of cash you will need to buy a home. This will include the closing costs, those extra amounts used when buying a home for inspections, taxes, fees, etc. as well as the amount you will use as a deposit. There are many programs today that allow you to put little money down. But there are still other costs for which you will need cash and it adds up pretty quickly. Also realize when you move into a new home you will no doubt have some expenses decorating the home or replacing things like locks, or making any repairs you have agreed to handle during the negotiations rather than have the seller take care of them. So you also need a buffer amount of cash to tackle these post settlement costs as well.
To obtain a pre-approval the loan officer will take some basic information including social security number, pay, savings, liabilities such as student loans any gift you might receive to help you purchase this home, grants from first time buyer programs etc. and then run your credit report and give you an answer on whether you will qualify and if so how much home you can afford.
This is where you also need to decide on what type of lifestyle you want to live. Often you may qualify for a larger loan than you were considering, but it might impact how you live your life, you may not be able to eat out as often, go to the movies, or vacation to afford that amount. So you may want to borrow less and buy a smaller or less expensive home.
When shopping for a mortgage you will come across all sorts of phrases specific to the mortgage industry, like PITI. As much as I understand by this time you will want people to take pity on you, this is only the beginning of the process.
P - Principal, the amount of the loan you repay each month
I - Interest, the amount of interest you pay each month
T - Taxes, the amount collected by the mortgage company each month into an escrow account to pay your taxes when they are due
I - Insurance, again the mortgage company collects an amount on a monthly basis to pay your insurance bill each year as they want to make sure their investment is covered by insurance.
4. Rates vs APR
Your rate varies depending on your credit score, the better your score, the lower your interest rate will be as the lender decides there is less risk, the more risk the higher the interest rate. The rate you are quoted will vary from the APR. The APR is the annual percentage rate, this includes any fees included as well, which is why your interest rate may be lower then your APR as it will include other fees. You may have a low interest rate but very high fees associated with that loan, whilst another loan may have a higher interest rate but much lower fees and therefore have a lower APR than the first loan.
There are ways to lock a rate for a period of time or to lower the interest rate over the term of the loan by paying points. A point is an amount of money paid calculated by charging 1 percentage point of the amount of the loan. What the mortgage company is doing is offsetting their risk by lowering the risk by collecting funds up front.
These may include credit reports, appraisal fees, and origination and or underwriting fees as well as notary fees. These fees are what alters the interest rate and gives you a higher APR.
7. Pre-approval versus a full approval
Some lenders will not even pull your credit to give you a pre-approval, others will put your numbers into an automatic underwriting system to determine your eligibility for a pre-approval. However if you submit all your required paperwork, bank statements showing the funds you have for purchase, pay slips, tax returns etc then you can be fully approved and the only outstanding issue may be the appraisal of the home for value and the title work, this puts you in as strong a position as a cash buyer.
8. Mortgage broker versus mortgage banker
Sometimes the loan officer represents multiple banks and lenders, he is a mortgage broker. He is not lending his own money, he is just acc.ting on your behalf to help you find the best deal, in theory, for purchasing a home. A mortgage banker is lending the money of the firm he represents, it may be his own money, if he owns the firm or is a partner in the firm. Often a mortgage banker can give a quicker response and better customer service than a mortgage broker because you have removed one layer of the process.
9. What if you are a foreign buyer?
If you are moving to America or simply buying an investment home here obtaining a mortgage may be more of a challenge. It can still be done, but may require more paperwork and proof of assets to a lender than a US citizen who has a social security number, credit history etc.
I hope this helps you get ready to buy a home in the Tredyffrin Easttown School district on the Main Line. If you need help with any step of this please reach out to me at Nick Vandekar, Tredyffrin Easttown Realtor, Selling the Main Line with Long & Foster Real Estate Inc., office 610-225-4700, cell or text 610-203-4543, email Nick@VandekarTeam.com, website www.SellingTheMainLine.com.