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Buying a home is the largest investment for most Americans, and thereby requires much thought, research and documentation before purchasing.
Here are some tips that could save you a lot of time, money and trouble.
Plan ahead. Establish good credit and save as much as you can for the down payment and closing costs.
Get pre-approved online before you start looking. Not only do real estate agents prefer working with pre-qualified buyers; you'll have more negotiating power and an edge over homebuyers who are not pre-approved.
Set a budget and stick to it. Use an Online Calculator to help you determine a comfortable price range.
Know what you really want in a home. How long will you live there? Is your family growing? What are the schools like? How long is your commute? Consider every angle before diving in.
Make a reasonable offer. To determine a fair value on the home, ask your real estate agent for a comparative market analysis listing all the sales prices of other houses in the neighborhood.
Choose your loan (and your lender) carefully. For some tips, see the question in this section about comparing loans.
Consult with your lender before paying off debts. You may qualify even with your existing debt, especially if it frees up more cash for a down payment.
Keep your day job. If there's a career move in your future, make the move after your loan is approved. Lenders tend to favor a stable employment history.
Don't shift money around. A lender needs to verify all sources of funds. By leaving everything where it is, the process is a lot easier on everyone involved.
Don't add to your debt. If you increase your debt by financing a new car, boat, furniture or other large purchase, it could prevent you from qualifying.
Timing is everything. If you already own a home, you may need to sell your current home to qualify for a new one. If you're renting, simply time the move to the end of the lease.
This depends on two things: your comfort level and the lender's approval. If you're young and upwardly mobile you may feel comfortable stretching
to afford a bigger home, knowing that eventually your increasing income will make the payments easier as time goes by. But if you're older or retiring
soon, you may want a lower mortgage payment that won't require as much of your income.
The lender, on the other hand, will be looking at your credit rating, your income and other factors to determine how large a mortgage you can support. back to top
You may wish to compare loan programs with other lenders. So here are some questions that can help you sort it all out. And when you review the detail feedback, you'll find a printable comparison form that makes it easier to compare the loans you're considering.
What type of loan will be best for me?
A good lender can point out other loan options you may not be aware of.
What will my closing costs be?
Ask your lender for a general summation of the fees and commissions that will be required of you at closing.
Will I be charged points?
Sometimes a loan is only available if you pay points, so ask your lender if the loan quoted requires points.
What items must be prepaid?
Your lender should let you know what items, such as property taxes and insurance, must be paid in advance.
How long will I be guaranteed the quoted interest rate?
This is called "locking in" a rate. Ask your lender how long your rate can be reserved and if there's a fee involved.
How long will the approval take?
This varies, so get an estimate, especially if you're on a deadline.
Does the loan have a prepayment penalty?
If you think you may refinance or pay off the loan early, you should ask if there's a fee involved for doing so.
By opting for a shorter term, you can save thousands of dollars in interest - not only because you'll be paying off the loan sooner, but lenders
generally offer better interest rates on shorter-term loans. And though your payment will be more each month, it may not be as much as you may think.
The grid below illustrates the savings on a $100,000 loan at 5.375% interest.
|Term||Monthly Payment||Total Interest Accrued|
Lenders look at three criteria: Capacity, Credit and Collateral.
The lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan. They'll also need proof that you have the cash available for down payment and closing costs by verifying funds from sources such as bank accounts, stocks, bonds, mutual funds, sale of an existing home, or gifts from family members.
To determine your credit risk, the lender will look at previous mortgage payment history, rent payment history, credit card use and installment debt payment history. If you pay your bills regularly and on time, you're demonstrating the integrity that lenders are looking for in a borrower.
When you ask for a home loan, you're putting the home itself up for collateral, so the lender will want to know what the home is worth.
Every situation is different. Once you submit your loan application you'll automatically receive a customized list of the documents you'll need to provide. back to top
Lender sometimes offer special loan programs that include low documentation or even no documentation. You can indicate how much documentation you'll be able to provide in your application, or you can call your personal loan consultant for more details. back to top
Your monthly payment is the sum of four factors, commonly referred to as PITI (Principal, Interest, Taxes, Insurance). You may also be required to pay PMI on a monthly basis.
Principal - The amount of the payment that is applied to the loan balance.
Interest - The charge paid for borrowing money.
Taxes - Property taxes. May also be paid separately to your local government.
Insurance - Lenders require you to maintain adequate insurance to protect your home. This may also be paid separately.
PMI (Private Mortgage Insurance) - For a detailed explanation of PMI, consult the question about Private Mortgage Insurance in this section, or see Mortgage Insurance in the Glossary.
In most cases, if your first mortgage amount is greater than 80% of the property's value, the lender will obtain Private Mortgage Insurance (PMI) to safeguard its investment against the possibility of default. PMI premium is collected monthly along with the mortgage payment. Within three days after your loan application is submitted you'll be sent an estimate projecting the amount of the monthly PMI premium. As your equity increases, you may qualify to have PMI removed. There may be ways to finance your home so that PMI is not required. Your loan consultant can provide you with more information. back to top
Depending on your credit and the loan amount, you may be able to get a home with 0% down. However, the more you put down, the lower your monthly
payment will be. And if you can provide a 20% down payment, you'll avoid the extra monthly cost of Private Mortgage Insurance (PMI).
Closing costs generally add 1% to 2% to the final bill. You'll be asked to provide the down payment and closing costs in the form of a cashier's check at closing.
Your loan consultant can be quite helpful in finding ways to lower these costs. back to top
Instead of paying large, lump sums to cover the costs of homeowner's insurance and property taxes, these payments are divided into installments which are paid to the lender monthly along with your loan principal and interest. The lender will hold the money in an impound/escrow account and make the payments from the account when they are due. Impound/escrow accounts may be optional, or they may be required by the lender, depending on the location of the property, the size of the loan in relation to the value of the property, and the loan type. back to top
Homeowner's insurance is designed to protect your home. It is also known as hazard insurance, or fire insurance. While the lender requires this coverage, you determine which insurance company will carry the policy. Homeowner's insurance premiums are either paid directly to the insurance agency or by your lender through an impound/escrow account. back to top
This can occur with flexible-payment loans which allow you, at times, to choose to make a payment that is lower than the monthly interest you incur. The difference in interest is then added to your loan balance. This is called negative amortization. If the value of your home does not increase, the amount of equity you have in the home decreases. However, this type of loan allows you to qualify for more home because the initial payments are substantially lower than those associated with a fixed-rate mortgage. back to top
Soon after your loan is approved, your loan consultant will send a list of documents you'll need to bring to the closing. You'll also be sent an
Estimated Settlement Statement that tells you the funds you'll need to bring to closing in the form of a cashier's check.
Before closing you should conduct a final walk-through of the property to make sure all repairs and construction work have been completed, that there's no new damage, and anything meant to be sold with the home is still in place.
At the closing itself, the legal purchase of your home is completed. You'll sign final documents and provide the cashier's check. Depending on where you live, the closing could be a meeting involving all related parties or a transaction conducted by a closing agent without a formal meeting. back to top
Yes. As long as the property you are buying or refinancing is in the United States, you can apply right here online. Some lenders offer special programs for foreign nationals and resident aliens. back to top
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