Before contacting any lenders, perform some calculations to estimate monthly payments and see if any fit within your budget.
Try to limit your monthly payments to about 30% of your monthly gross income.
Ball Park Example: Divide the 30% of your monthly gross income by $6 to get a ball park loan amount in $1,000's. For example, $900 monthly payment (30% of $3,000 monthly gross income)/$6 => $150,000 loan (e.g., 900/6 x 1,000). Look for homes below your upper price range. If you find something less expensive that you like, you will be able to save money. It has been my experience that every $10,000 in home price means a noticeable difference in features of a home. This is just a guess at the principal & interest. Your final monthly mortgage payment you'll actually make will also include property taxes, mortgage insurance and hazard/homeowner's insurance (and don't forget any monthly allocation for HOA dues).
Use my Payments & Loans Worksheet for a more thorough calculation.
Note: You'll hear about front end & back end ratios. Front end ratio = ratio of monthly mortgage payment to gross income (Conventional loans require 28% or less). Back end ratio = monthly mortgage payment plus monthly auto loan, credit card, or other loan payments. (Conventional loans require 36% or less.) If neither ratio can be achieved, you may want to try an FHA loan.
The loan type you choose is determined by..."What's important to you?"
Become familiar with the different types of mortgages available:
Conventional (usually requires 5-20%+ down & less stringent appraisal guidelines and you may avoid mortgage insurance);
FHA (usually requires only a minimum of 3.5% down but mandatory PMI); or
VA (if you qualify, can be a 0% down program up to a certain loan amount but still carries a funding fee which can be financed).
STEP #4
Use my WORKSHEET OF QUESTIONS TO COMPARE LENDERS below as a guide when talking with lenders.
You know your personal financial situation better than anyone else. To get a competitive comparison, talk with at least three mortgage companies within a 30 day period without a major reduction in credit scoring and learn about the rates and terms of their loans. Ask about the types of loans that fit your situation. Select one lender that offers solutions to your financing needs before you make an offer. You really don't want to be trying to select a lender at the same time you are making offers on a property because the contract will normally limit the amount of time to perform certain tasks to days not weeks. Ask each lender for their "par" rate of interest. (This is the interest rate you would pay without paying discount points. Each discount point will cost $$$ to reduce your rate by about 0.125%. Divide monthly savings into cost of discount point(s) to determine payback period.)
You'll need to prove two things to get a mortgage to buy a home:
(1) You're legally earning enough money to make your monthly mortgage payments (i.e., what you can afford), and
(2) You're an "acceptable" credit risk (i.e., your FICO score is sufficient) for making future payments.
Once you provide proof to a legitimate, licensed mortgage lender, you should then be prequalified but not preapproved.
The lender should give you a document (i.e., loan qualification letter) to prove to your agent and the Seller that you are "qualified" to purchase the property.
The difference between "prequalifying" and "preapproval" could make a major difference in your negotiations process. Generally, Agents and Sellers put more credibility into a pre-approval, since it suggests that the potential buyer has a stronger financial position.
Lender Comparison Worksheet | ||||
QUESTION | LENDER #1 |
LENDER #2 | LENDER #3 | COMMENTS |
---|---|---|---|---|
___________ | ___________ | ___________ | ___________ | |
# | # | # | - | |
Loan Program Names |
- | - | - | - |
Loan term & Conditions Are there any limits on seller contributions: |
- | - | - | - |
Amount of down payment required for the specific program (Note: some programs offer NO money down programs) |
- | - | - | - | Interest Rate: |
- | - | - | - |
Cost of Discount Points: (Percentage of Loan to drop interest rate) |
- | - | - | - |
How can I eliminate Private Mortgage Insurance?(PMI or MIP on FHA Loan)Note: PMI on loans generated on or after 1-1-2007 is tax deductible, but only under certain circumstances. |
- | - | - | - |
Loan Prepayment Penalty on Any Program I like? |
- | - | - | - |
Documentation: |
- | - | - | - |
Length of time |
- | - | - | - |
Using IRA Funds: Note: IRS Publication #590 states the will permit up to $10,000 for down payment without penalty, but appropriate taxes are charged and you have a period of time to pay it back without penalty. |
- | - | - | - |
Escrows/Prepaids: |
- | - | - | - |
Property Survey: Does the lender require one? (If not & you want it, ask the closing attorney to order it. 2-3 weeks.) |
- | - | - | - |
May I make additional payments toward principle without penalties? |
- | - | - | - | Lender costs: |
- | - | - | - |
Flood Certification: When can I get certification that property is not in a Flood Zone? (Note: Usually a fast turnaround on this.) |
- | - | - | - |
Loan Estimate (LE):
|
- | - | - | - |
After contracting for a property, the lender you make loan application with needs to furnish you a Loan Estimate (LE) which provides total closing costs, monthly payments, and an estimated amount to bring to closing. See the last question in the list below to understand what information the LE provides.
The term "closing" simply means that you sign the final loan paperwork at an attorney's office and at the same time the title (i.e., ownership) of that property is transferred to you (i.e., sign on the dotted line on lots of forms). This "loan closing" (i.e., home purchase) process is where Buyer, Seller, and Lender finally meet to transfer money, property ownership, and keys.
The closing attorney places all lender, attorney, Buyer and Seller related closing costs onto one three-page form (===Click here to review the ALTA Real Estate Settlement Statement that you will see with final numbers in the columns perhaps within 24 hours prior to closing or at the loan closing in the attorney's office.). The first page summarizes what the Buyer and Seller will pay or receive. The second page details closing costs, prepaids(homeowner's insurance & property taxes), etc., and the balances are transferred to the appropriate Buyer/Seller columns on the first page. Important: Compare the numbers that the lender gives you with the Settlement Statement form with your Exclusive Buyer Agent to understand if "all" closing costs are accounted for and within reason for Georgia
Go to these other helpful areas of www.abuyeragent.com | ||||
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