For most people, their largest purchase is a home. In fact, nine out of ten Americans take out a mortgage or home loan, to purchase a home. At Team Sadler Realtors, we encourage our home buying clients to carefully choose and work closely with their lender – take the necessary time to consider how much they can afford to spend on a home, and always provide a pre-approval letter during the contract negotiation phase.
Determine How Much You Can Afford
Once you have made your prioritized list, it’s time to decide how much house you can afford. It’s important to remember that when you take out a mortgage loan, your home will become collateral to the mortgage provider, which is most commonly a credit union, mortgage banker or a commercial bank. Once the mortgage is paid in full the lender (lien holder) will release the title back to you free of any claims and liens that they held against your property. However, should you default on the lenders monthly payments, the lender has a claim on the house and has the ability to foreclose on the home.
When you enter a mortgage agreement, you’re agreeing to make a down payment on a house, followed by a period of payments – including interest – over a period of time. Typically, home-buyers put 20% of the home’s sales price down, and usually choose to pay off their debt over a period of 15 or 30 years at various interest rates.
Typically, your lender will advise you of the size of your loan and what your payment will be each month. However, there are many things that factor into what you can afford such as: credit ratings, income, current monthly expenses, interest and down payment. Ultimately, only you know what you’ll be able to comfortably afford to pay each month. Remember, your homeowners insurance and property taxes are included in your monthly payment.
Mortgage Calculator
This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home’s sale price, the term of the loan desired, buyer’s down payment percentage, and the loan’s interest rate. You can even use this Mortgage Calculator to plug in what-if scenarios based on interest rates, down-payment, and how long is the term of the mortgage. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
Down-Payment – Interest – Monthly Payments
Apply For A Loan
All mortgages start with an application process. The lender you choose will review your credit report as well as the state of your personal finances (income, assets, debt) to determine how much you are able to borrow. This process ultimately helps you narrow your home search and will provide the information needed for a pre-approval letter.
When you are choosing a lender, consider more than advertised mortgage rates and your current relationship with a vendor. We’ve seen frustrated buyers who choose online lenders or large lending institutions and end up feeling lost in the mix, without an advocate. This is not to say all online lenders or large lending institutions are bad – past history reflects that the local, independent mortgage brokers have exhibited going the extra mile by getting things done. Lenders that have created relationships with locals and that exhibit strong ties to the local community will generally serve as an advocate for the potential home-buyer.
Team Sadler Realtors encourages you to work with your lender early in the process to understand your financing options, such as mortgage rate and duration, long before you are under contract to purchase a home and the clock is ticking. Additionally, between the time you first meet with your lender and the time you close on your home, don’t do anything that will change your financial situation (e.g. open a new credit card, open a dept. store credit card, purchase a new car, etc.) or you may no longer qualify for a specific loan.
Pre-Qualification vs. Pre -Approval
Once you are decided upon a home, you can request a pre-approval letter from your lender, stating that you are pre-approved to purchase a home at a specific address, or for a specific dollar amount. When you submit a pre-approval letter with your offer, sellers will take you more seriously because a third party has considered your ability to purchase the home. If you only have a pre-qualification (pre-qual) letter to present with you offer – the seller may not think of your offer as a strong offer. See Importance of Getting a Pre-Approval Letter.
Though many use the terms interchangeably, there is difference between pre-qualified and pre-approved. A pre-approval letter is stronger than a pre-qualification letter because it shows the seller that your lender has done all the necessary work, even as far as submitting your loan request through an underwriting review, to ensure you are qualified to purchase the home. In a sellers market, a pre-approval letter will make your offer stand out, and if a quick close is important, you and the seller will benefit since the preliminary financing paperwork work has already been done.
Underwriting
The lender underwriting begins around days 21 and 30 possibly sooner. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed an acceptable loan. If more information is needed, the loan is put into “suspense mode” and the borrower is contacted to produce more documentation.
Mortgage Insurance
Mortgage insurance underwriting occurs when the borrower has less than 20% of the loan amount to put towards a down payment. This is when the loan will be submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default. As mentioned above, if more information is needed then the loan will go into “suspense” until further documentation is provided. Otherwise, it is generally returned back to the mortgage company within 48 hours.
Under Contract – Now What?
If you have done the necessary steps upfront with your lender, you’ll spend your time during your *financing contingency securing a loan. You’ll be asked for documentation supporting your income, assets, and debt, and your loan will go through the underwriting process. Remember, be patient – be ready to answer questions and be ready to provide any additional paperwork requested by the lender during this period. With so many government regulations in the mortgage industry, your lender has a lot of bases to cover. Once everything is in place, you’ll be approved to close on your home. If you want to know more about what happens between signing the contract and closing on your new home, check out our Under Contract page.
Closing
Closing usually occurs between days 25 and day 45 of the loan (depending on the designated length of your escrow). If the purchase is an all cash purchase the closing can be completed as soon as the title company give the go ahead after receiving notice of clear title. At the closing, the lender “funds” the loan with a draft or wire, certified funds or a cashiers check made payable to the selling party in exchange for the title to the property. At this time the borrower will complete the loan process and actually take possession of the house.
CONTACT TEAM SADLER REALTORS FOR MORE INFORMATION
*Financing Contingency: A contractually agreed upon time to settle your financing needs, which is usually two to three weeks from contract commencement. If you find you are unable to obtain financing during this time, you can back out of the contract without penalty.
