Taking out a mortgage to buy a house is a huge step. The amount and terms of the loan will have a major impact on your financial picture for decades. That’s why you should choose a lender carefully.
When Should You Talk to Lenders
The answer to the question of when you should start talking to a lender is simple. You should start talking to a lender as soon as you think you want to buy a home.
With even the best credit, there may be mistakes on your credit report. If you are like most buyers, you may benefit from a little credit repair by paying down credit cards or even opening new accounts. These improvements to your credit score may take a few months but they will benefit you with a better loan rate so you should get started now.
What to Do Before You Apply
In order to qualify for an attractive interest rate, you need to prove to lenders that you are a good risk. That means you need to get your financial house in order before you start applying for a mortgage. I encourage all my clients to talk to a good lender even before you consider applying for a mortgage.
Working with the lender, you can get copies of your credit reports and have any errors corrected. If you have a lot of credit card debt, your lender can give you advise on how to pay down the balances, which ones to target first, and thereby lower your debt-to-income ratio.
Take a hard look at your budget and figure out how much you can afford in monthly mortgage payments. Are you comfortable with your current rent? Do you think you would be okay with a slightly higher payment? You are the only one who can answer those questions.
A lender may approve you for a bigger loan than you will feel comfortable with. handle. Write down all of your monthly expenses, look at your monthly income after taxes and figure out how much you can want to pay for a mortgage without stretching yourself too thin.
Applying for a Mortgage
Gather all of the information you’ll for lenders to process your application. This will include pay stubs, tax returns, bank statements, a list of all financial accounts, a list of all your monthly debt payments, proof of employment and income, and information on any accounts in collection, lawsuits or bankruptcies. Lenders may have different requirements on how far back they want the records to go.
Lenders offer a wide range of interest rates, fees, points and other terms based on each applicant’s specific circumstances. Some people get the best deal from a traditional mortgage lender, while others are offered better terms by a credit union, retail lender, correspondent lender or wholesale lender. The lender that offered your friend a great rate might not offer the same rate to you, but you could get a good deal somewhere else.
If you don’t shop around, you could spend thousands of dollars more than you have to over the life of the loan. If you don’t have the time to contact multiple lenders yourself, a mortgage broker can get quotes from several lenders in exchange for a fee. Then you can compare them to make a decision.
Getting preapproved for a mortgage can help in the home-buying process because it demonstrates that you’re in good shape financially and able to move forward quickly. Once you get preapproved, you still need to carefully manage your finances. The lender may review your income, assets and debts again before finalizing the mortgage.
Choose Carefully
Obtaining a mortgage is a significant step that will impact your finances for many years to come. You should not rush it or take it lightly. Do what you can to improve your current financial situation, be realistic about what you can afford and shop around to find the most favorable terms.
Verify that Your Lender is Easily Available
This is not the time to go with an unknown lender that you "met" on the internet. A good realtor representing the seller will call your lender to double check your ability to get a mortgage and move forward wtih the home purchase. If that lender is unavailable on weekends or if there is a lending company but no specific lender assigned to work on your file, you may miss out on your dream home.
Obtaining a Mortgage
Being pre-qualified or pre-approved does not necessarily mean that you’ll be approved for a mortgage by that lender. The company may require additional documentation to process your mortgage application and may learn more facts that influence their decision. Getting pre-qualified or pre-approved by a particular company does not mean that you’re obligated to obtain a mortgage from that lender. You can and should shop around for the best terms.
Voice of Caution - Choose Carefully and Commit
In the DC Metro area you can switch lenders after your contract is ratified. However, if you gave a pre-approval or pre-qualification letter from one particular lender and you switch to another lender, make absolutely certain that your new lender can close the transaction in time for closing. If you switch lenders and that new lender misses the closing date, you can be considered in breach of contract and your earnest money deposit can be at risk.
Bottom line.... it is better to do your lender shopping before the contract is ratified.
THIS DOESN"T HAVE TO BE CONFUSING!
Call Lise Howe and Attend Our First Time Homebuyer Session
Why not start the process of getting ready to buy a new home by consulting with a professional Realtor and helpful lender. We will be glad to spend an hour or more with you talking about the market, buying strategies, good neighborhoods to consider, and how to get your finances in order for the spring buying season.
We promise it will be painless, helpful and worth the hour or so of your time. At the end you will have a good sense of the home buying process in today's market and five easy steps to take to maximize your homebuying potential without breaking the bank.
The next homebuying seminar is January 15 from 7 to about 8:30. David Lumb with George Mason Mortgage will be there with me at 4646 40 th St NW to answer all your questions. We are across from Wilson High School and just two blocks from the Tenleytown metro. Feel free to bring a friend.
The homebuying seminar is February 13th from 7 to about 8:30. Scott Story with First Home Mortgage will be there with me at 4646 40 th St NW to answer all your questions. Feel free to bring a friend to this one too.
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