Go from Renting to Owning...
Let’s face it, applying for a real estate loan can be a daunting experience.
King Realty can assist you with locating an appropriate source for your mortgage and provide you with some resources to learn what you need to know to successfully navigate the ins and out of mortgages.
To start with, here are a few simple things you can do to lay the groundwork for a smooth mortgage process:
Check your Credit Report
Before applying for a mortgage, obtain copies of your credit report and your FICO credit score. Your FICO score is the three-digit number that’s used in 75% of mortgage-lending decisions. You can order your FICO score on the Web, which includes a copy of your credit report. http://www.myfico.com/
Allow at least six months in advance to allow plenty of time to challenge any errors on your report and ensure that they’re removed by the time you’re ready to apply for a loan.
You can also see the legitimate factors that are hurting your score and do something about them, such as paying off an overdue bill or paying down credit card debt.
Pre-approved vs. Pre-qualified
It’s easy to confuse being “pre-qualified” with being “pre-approved.”
For pre-qualification, a lender tells you how much money you most likely can borrow based on income, debt and how much cash you have for the down payment. This is a pretty casual process, and may not include important types of documentation, like income tax returns and bank statements.
Pre-approval, however, is a much more rigorous process and involves applying for an actual loan. Typically, you will be expected to submit tax returns, pay stubs and other important legal and confidential information. The lender you’ve selected will verify your information; check your credit report and other financial responsibilities. If your income and indebtedness are in keeping with the loan amount request, the lender will agree in writing to make the loan.
In an active real estate market, the house hunter who is only pre-qualified will have little opportunity to complete the needed steps in time to secure an offer a home. For this reason, when you’ve made the decision to buy, take the steps needed to complete your loan pre-approval process.
Borrow Only What You Need
It’s easy take out the biggest loan possible, thinking that your income will increase enough to make the payments comfortable.
However few first-time buyers have a good idea of how expensive homeownership can be. Mortgage payments are often more expensive than rent, and then there will be property taxes, homeowners insurance, higher bills for utilities, as well as maintenance and repair costs.
Keep your loan amount conservative and minimize your mortgage payment.
Set realistic limits on your housing costs: mortgage payments, property taxes and homeowners insurance at about 25% or so of gross income is more sustainable level than the 33% lenders often loan.
Check Rates and Terms with More than One Source
Borrowers with decent credit can accept loans meant for people with poor credit. These so-called “sub prime” loans are often more profitable, so less ethical mortgage brokers may not offer appropriate options. Buyers should be sure to ask and try multiple sources.
Know prevailing interest rates for your credit standing. Listings of loan rates by credit score are available at MyFico.com. Another source of comprehensive listing of prevailing rates and fees can be found in MSN Money’s Banking area.
First time buyers qualifying for Federal Housing Administration (FHA) loans may not be the best offer, so keep in mind that checking private-sector lenders may be advisable here as well.
Plan for Closing Costs
Be prepared for the expenses you may encounter once you close your loan. When you’re scheduled to get your loan, some of the customary expenses that typically become due include attorney’s fees, taxes, title insurance, prepaid homeowners insurance, points and other lenders’ fees. Together, these are known as closing costs, often as high as 2% to 7% of the selling price of the house.
You can allow for closing costs by getting a good-faith estimate from your lender as early in the loan process as possible. Keep this amount set aside to accommodate these expenses.
Allow for Homeowner Emergencies
With the cost of moving, closing costs and other expenses, it’s easy to lose sight of the fact that if something breaks, it’s you’re your responsibility to fix it.
It’s easy to get so tapped out by the process, that meeting your first mortgage payment can be a challenge. More and more lenders suggest or require borrowers have three months’ reserves after closing.
Having three months’ reserves, which means a fund equal to three months’ worth of expenses, will help you handle the added costs of homeownership with much less stress.
Know Your Realtor
Find a realtor you feel will listen to your needs and spend the time needed to assist you throughout the process of finding and buying a home. A licensed real estate agent with a solid community reputation can guide you through the steps of the process and steer you clear of many road blocks and potential problems. Doing this before you need to buy will take some of the pressure out of the process.
Whatever your real estate goals, King Realty’s experience, solid reputation and service will help you make your dreams a reality..