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| Lending Options | |
| In addition to savings accounts and the proceeds from
a home you already own, there are other less obvious sources of funding
as well. These include: Home Equity Loan — Your parents or other family members may have a considerable amount of equity built up in their own home that they were planning to borrow against in order to gift money to you for your upcoming home purchase. Life Insurance — If you have a cash value policy, it may have accumulated an adequate amount of “available” funds from which you can borrow. More often than not, the interest rates on this type of loan are very favorable. Stocks and Bonds — If you do not wish to sell your portfolio or feel this is an inappropriate market in which to do so, then perhaps you can use it as a form of collateral. Company Profit Sharing or Savings Plan — Check with your employer to see about the possibility of withdrawing or borrowing from what you have in your account(s). Retirement Savings Plan (401k) — If your employer offers this type of plan in place, inquire about the possibility of withdrawing or borrowing from this account as well. If the above suggestions do not apply to you, there are still other possibilities: Mortgage Insurance — Purchasing this form of insurance (usually through the lender) can reduce the down payment required. Private Mortgage Insurance (PMI) protects the lender in case of default and allows for an approval of a larger loan amount. First-time Buyer Financing — If you have not held title to real estate in the past three years, you could qualify as a first-time buyer, which could mean special financing from your state or local housing agency. This usually means a smaller down payment or a lower interest rate, and in some cases both. VA Loans — If you qualify for this loan type, many times you can get financing with “zero down.” There are also many types of government-backed loans for various situations, and literally thousands of loan programs offered by different lending institutions. Your lender can tell you about the ones for which you may qualify. Determining your target price for a house is dependant upon the financing terms available to you as well as the amount you have available for a down payment. The monthly payment usually consists of principal with interest, plus taxes and insurance, also known as P.I.T.I. Some lenders, however, also may require mortgage insurance when the down payment is less than 20%. When you consider these added expenses, you’ll soon realize the term “affordability” means more than just the price of the house itself. |
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| Banks vs. Brokers | |
| While there are many people who prefer to
deal only with their regular banking institution, it is suggested that
you shop around to find a lender and a loan most suited to your needs.
There are so many different options available to consumers today, and
with today’s competitive market, it may literally pay you to
do as much homework as possible upfront. Banks are not the only source
anymore for obtaining a loan to buy a home; there are plenty of other
options available as well: Mortgage Lenders — These lenders specialize in loans only for the purpose of purchasing or improving real estate. Mortgage Loan Brokers — Sometimes these people are also referred to as third party providers. They are in the business of matching up buyers and homeowners with lenders that are likely to finance them. The buyer usually picks up the fee for this service. Financial Institutions — Commonly known as traditional banks or “prime” lenders. Private Lenders — Usually refers to sellers who are open to “owner financing.” Credit Unions — Some do issue mortgages for their members and generally can beat the rate of the bank, or at least offer the same. Finance Companies — Most will issue mortgage loans, and, to stay somewhat competitive, usually offer “no prepayment penalty” as a selling point. Their interest rate may be slightly higher than that of a traditional lender, but finance companies are generally more lenient in qualifying borrowers. |
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| Pre-approval | |
| Once you narrow down which type of lender can best meet
your needs, the next step is to get preapproved for a loan. Pre-approval
is not the same as pre-qualification. What’s the difference between
pre-qualification and pre-approval? In the world of real estate, the
terms “prequalification” and “pre-approval” are
often used interchangeably. But they have different meanings. Pre-qualification is an estimate of how much you can afford in a mortgage payment. It is based upon the information provided by the borrower, which will later be subject to the approval process and additional information, including a credit report, appraisal, and income verification. The information provided by the borrower is not routinely verified as part of the pre-qualification process. Pre-approval, on the other hand, is a firmer commitment on behalf of the mortgage company. Obtaining pre-approval is a more formal process that includes a credit check and employment verification. During a pre-approval, the mortgage company does all the work of a full approval except for the appraisal and title search. The lender obtains a credit report to verify monthly payments on installment loans and credit cards, and to check payment history on these loans. If you’ve been pre-approved for a loan, you can shop for a house with more certainty and less anxiety because you’ll be able to sail through the entire process without having to worry about whether the mortgage will be approved. Additionally, the seller is likely to view you as a more capable buyer. This can give you an advantage as a buyer in the marketplace, especially when the seller is considering multiple offers. However, neither a pre-approval nor a pre-qualification means you are guaranteed a mortgage. Lenders still need to look at property appraisals, verify information, and, in many cases, re-check credit before agreeing to make a loan. Still, it’s worthwhile to obtain pre-approval at the beginning of the buying process to know how much home you can afford and to avoid the headaches and embarrassment of not qualifying for a home you have under contract. |
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| Interviewing the Lender | |
Although, lenders have many questions, and
sometimes even stringent, guidelines that you must conform to, do not
forget that you too have the option of “interviewing” your
lenders to make sure they meet your needs as well. Here are some questions
that you can, and should ask a prospective lender:
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| Back to Buyer Resource Center | Top of Page |
Todays
Rates*
May.17.2008 |
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30yr fixed- 5/1 ARM- 3/1 ARM- JUMBO- |
5.50
5.00 5.25 6.75 |
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©2008 Encompass Realty and Investments LLC| Scottsdale Arizona Real Estate Agent