Once again let’s welcome guest blogger, Trey Bowden of Redbud Mortgage Group. Each month Trey shares his insight as a lender on the home buying process. With more and more people considering the purchase of their first home, Trey offers suggestions on getting the best mortgage. Here is Home Mortgage 101 by Trey Bowden of Redbud Mortgage Group.
More home buyers are dialing the phone numbers of Realtors asking to tour properties. The local home mortgage market is heating back up. So in the interest of helping you keep more of your hard earned money in your pocket instead of your lender’s pocket, let me offer up six suggestions that can help you get the best mortgage for your money.
1. Get Pre-Approved for a Home Mortgage –Imagine the disappointment a home buyer faces when they have already picked out their dream home and find out they don’t qualify for the mortgage. Waiting until the last minute to get a pre-approval is not only disappointing; it can cost you hundreds of dollars in unnecessary fees because you put off your financing until the last minute.
A pre-approval is a fairly simple process. Contact a home mortgage provider you trust or one that is recommended to you. They will ask you to complete a loan application then pull credit and prepare some estimated interest rates and closing cost scenarios. Armed with this information, you’re on your way to negotiating a solid deal on a new home. Even if this isn’t your first time buying a home, it’s best to visit with a lender before making an offer on a home. In recent years, underwriting guidelines have undergone several significant changes that could affect your specific transaction. Better to know these things in advance.
2. Fix Your Credit – If you have issues that negatively impact your credit rating it’s a good idea to fix these before making an offer on a home. This is not to say that the issues on your report will prohibit you from getting a home loan, but they could impact not only your interest rate, but your closing costs as well. The lender you choose should be able to help you understand why certain items can negatively impact your scores and provide advice on the best ways to fix the issues to maximize your buying potential.
3. Be Knowledgeable about Rates and Loan Terms – Everyone who has ever bought an automobile knows that the same exact car can end up costing hundreds of dollars less at one dealership than it does at another, primarily because of the chosen financing. It’s the same with finding financing for our homes. The interest rate you choose and the cost for that rate as well as the term of the loan have everything to do with how much the home will cost you over the life of the loan. If you’re unfamiliar with the costs or credits associated with interest rates, make an appointment with a trusted lender and ask them to bring you up to speed. Knowledge in this area is power.
4. Don’t borrow too much money – Every week I speak with potential buyers that have been referred to me. After we process the loan application it’s obvious they qualify for a new home loan, but not nearly for the amount of money they want. After I break this news to them their next question is usually, “Well then, what’s the most I qualify for?”
Many home buyers will qualify to borrow more money than they should realistically borrow. I see this among first time home buyers the most and I remind them that life has a funny way of throwing curve balls. When we least expect it there are unexpected medical bills, car repairs or changes to our income. It’s better to buy a home that allows you to afford the payments when the hard times come.
5. Don’t Pay Junk Fees–The Estimated Fee Sheet is a form provided by your lender and it itemizes the costs associated with the financing. Review this sheet carefully and ask your lender to give you an explanation for any of the fees you are unfamiliar with. There are quite a few and it can be overwhelming, so take your time, ask questions.
6. Plan for Closing Costs – Every mortgage has closing costs and you should plan on. Depending on the loan program you are using, closing costs can be a gift from relatives, or by using a “Seller Paid Down Payment Assistance” program (consult your lender for further explanation of these types of programs). Some loans will allow between 3% and 6% seller concessions to cover these costs. Again, ask your lender for this information.
(Trey Bowden is co-owner of Redbud Mortgage Group in Edmond, OK. www.redbudmortgage.com)