Financing Your Home Purchase – Dealing with Mortgages

Take Care of Financing BEFORE You Start Your Home Search

The financial troubles in the recent past has possibly affected home mortgage processes more than anything else.  Lenders made it too easy for people to forget about the tremendous financial responsibility of purchasing a home.  As a result, many homeowners were devastated.  Here are a few tips for dealing with the dollar signs so that you can take down that “for sale” sign on your new home.

Pre-Approved not just Pre-Qualified.  By getting pre-approved as a buyer, you can save yourself the grief of looking at houses you can’t afford.  You can also put yourself in a better position to make a serious offer when you do find the right house.  Unlike pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.  By doing a thorough analysis of your actual spending power, you’ll be less likely to get in over your head.  Furthermore, an offer you make with prior pre-approval is a compelling signal to a seller that you are a serious buyer making a strong offer.

Use caution when choosing a Mortgage Lender.  Better yet, get a list of recommended lenders from your Real Estate Agent.  There are plenty of tools to research available mortgages.  You should use that research to shop wisely for a mortgage.  Many factors can affect the “cost” of the mortgage you choose.  Be clear as to your objective.  Do you want to have the lowest total interest rate, the lowest monthly payment, pay off the principal early, take the risk of a floating interest rate for lower initial payments, lower the cash required to close?  Mortgage products widely vary on many dimensions.  Once you are clear on your objectives and have researched the market, shop the mortgage with 2-3 lenders recommended by your REALTOR.  Many offers that sound too good to be true … are too good to be true.  The underwriting of the loan may fall through, hidden costs may be added, the lender may not understand the local market.  A reputable lender and a good Real Estate Agent can help you evaluate the alternatives and pros and cons of different mortgage products and evaluate them against your objectives.

Do your homework before bidding. Before you make an offer on a home, do some research on the sales trends of similar homes in the neighborhood.  Don’t trust the online sites, ask your REALTOR for a fact based market analysis showing critical data for the specific community – median price appreciation or depreciation, inventory absorption rates, sales price to list price ratios, etc.  The analysis should be done on recent sales in the last 3 months to 6 months.  Listing prices are an indicator of competition for a home but reflect more what the Seller would like to get for their home.  Sold price analysis shows what the market says about home values.