FINDING A MORTGAGE LENDER

Before you can make an offer on a home, you should have a pre-approval letter or be pre-qualified for a loan. You should also have an idea of what amount you can spend on a home and how much your monthly payments will be. You should talk to a few lenders to find out their loan packages.

If this is your first home, you have the option of getting a conventional loan or an FHA loan. If you served in the military, you can also get a VA loan. An FHA loan is backed by the federal government and usually offers a lower interest rate than a conventional loan. Some sellers don’t like dealing with FHA loans because they are backed by the government and require inspections. They also require the seller to pay points and expenses that are normally assumed by the buyer. This is usually reversed outside of closing.

A VA loan operates pretty much the same way, only it is backed by the Veteran’s Administration instead of the federal government. Again, some seller’s don’t’ prefer to deal with these type of loans, although they do give the first time home buyer a break.

If you put less than twenty percent down on a home, chances are that you’re going to have to pay PMI. This is Premium Mortgage Insurance. PMI is not like home insurance or mortgage insurance for you – it’s a policy that the lender is getting to insure them against loss if you default on your loan. If you buy a home with a VA or FHA loan, you don’t have to worry about PMI. This is because the federal government or Veteran’s Administration is prepared to back up the loan for the lender. This can save you a substantial amount of money each month on your mortgage.

If you get a loan for $120,000 and have PMI, chances are you’ll be paying $130 to a couple hundred dollars a month or there about for this charge. This is not tax deductible and will just be incorporated into your loan. If you got the same deal with an FHA or VA loan, you would save $130 to a couple hundred dollars each month or there about (a $120,000 loan on a home where you put ten percent down).

You can only use an FHA loan one at a time. You can use a VA loan several times. Aside from that, you may have to go for a conventional mortgage. Lenders are so eager to make loans with today’s market, so make sure that you shop around for a good mortgage package. Be sure to ask what the bottom line monthly payment will be. The monthly payment quoted should include real estate taxes, homeowner’s insurance and PMI (when applicable), as well as the principal and interest of your mortgage.

You should try to get the lowest interest rate possible, but when the rates are very low, stay away from adjustable rates. Lock in at a 30 year fixed rate if you are planning on staying in your home for at least 5 years. If you are planning on moving in 5 years or less, you may opt for an adjustable rate mortgage that will save you money.

You may or may not have to pay points in today’s market. Points are based upon the purchase price of your home. Lenders used to require one or two points that were paid to get a lower interest rate. Each point is one percent of the purchase price. This is cash that you have to pay up front for your home. Points are paid one time only and are deductible on your income tax return. However, because of the current market, most lenders are not trying to get people to pay points.

After you’ve decided on a lender, you should get a pre-qualification letter or pre-approval letter. There is a difference between the two.

Pre-Qualified
This means that based on the information that you gave the lender, you are pre-qualified for a loan up to a certain amount. You can get this in writing or the lender can just tell your agent that you are pre-qualified up to a certain amount. It doesn’t take long to get pre-qualified. Generally a lender can even do this over the phone. You are not at the point where you need to supply documentation. A credit check is usually run so that they know how you are rated.

Even if your credit is very poor or you have had a bankruptcy, you can still get a competitive rate in today’s market. Even if you have to go to a sub-standard mortgage company, it can be done. Don’t worry about them “selling” your mortgage. Who cares? Your payments are the same in any case. Chances are, if you are looking on the secondary market, your loan will not be sold as quick as if it was on the primary market.

Pre-qualification is easy and only takes a little bit of time. This is a good way to get started in looking for a house in your price range.

Pre-Approval
This means that you are willing, able and ready to close on the house. You have provided the lender with all the necessary documentation and have been approved by the underwriter for the loan. You need only to find a home and close. Closing can usually commence as soon as a week or so after pre-approval. In today’s market, it can even occur sooner.

A pre-approval letter is the best armor you can have when you begin looking for a house. This will give the seller an incentive to sell the property to you as you have already been approved for the loan and they need only get the appraisal and set the closing date. When looking for a new home, you are better off to have a pre-approval letter from the lender than a pre-qualification.

The pre-approval letter will have a stipulation. It will say how much you are approved to borrow and how much the home will have to appreciate at in value. It will be contingent on the home appraising out. This will be the only contingency to the letter. If the seller has priced their home competitively in the market, there should be no problem. If the seller has inflated his price, which would be really foolish to do in today’s market, there might be a problem. There can also be a problem in an area where the house prices are rapidly declining in value. This usually occurs in a blighted area when residents are desperate to sell. Buying a home in a blighted area is not really a good idea, anyway, and we will talk more about that when we discuss “location.”

Before you go looking for a house, get a pre-approval letter or at least get pre-qualified. You will be in a better bargaining position if you have no contingencies on your real estate contract.

Until next time…
Take care of yourself, and those around you!

TX Veteran,
REALTOR ROB

Legal Notice:
CENTURY 21® Judge Fite Company is a trademark of CENTURY 21®. BRAINS OVER BODY CONSULTING Digital and Information Publishing Firm is not associated or affiliated with CENTURY 21®, nor are the views, opinions, or information expressed within BOB CONSULTING to be taken as those of CENTURY 21® or CENTURY 21® Judge Fite Company. The packages and digiproducts offered under AIR FORCE VETERAN and TEXAS REALTOR ROB are not affiliated or associated with, neither endorsed by CENTURY 21® or CENTURY 21® Judge Fite Company.