Before you start looking for a home you need to know you can get the financing to buy it. Nine out of 10 buyers finance their purchase, which means that virtually all buyers — especially first-time purchasers — required a loan.
The real issue with real estate financing is not just getting a loan. Instead, the idea is to get the loan that’s right for you — the mortgage with the lowest cost and best terms.
It is now time to choose a lender so that you are ready once you find your dream home.
The loan process can seem somewhat daunting with all its terms and steps. And you want to make sure you don’t get in over your head. However, if you are ready to take the plunge, by doing a little homework and getting the help of a professional you will be enjoying your home buying process with reasonably little concern.
There are things you should know about…
Shopping for a loan
When you are ready to shop for a loan you have two basic types of mortgage stores to shop — direct lenders and mortgage brokers.
Direct lenders have money to lend. They make the final decision on your application.
Brokers are intermediaries who, like you, have many lenders from which to choose. Lenders have a limited number of in-house loans available. Brokers can shop many lenders for each lender’s store of loans. If you have special financing needs and can’t find a lender to suit them, an experienced broker may be able to ferret out the loan you need. Mortgage brokers, however, are paid with a slice of the amount you borrow, some more than others, some less.
Along with shopping for the source, you’ll also have to shop loan costs, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal and a host of others.
Finding your lender, your loan
Looking for the Best Mortgage: Shop, Compare, Negotiate will help you make the best choice for a loan. It also provides a mortgage shopping work sheet that will help you in the process
Types of mortgages
Let’s start with the biggest difference between home loans … fixed-rate vs. adjustable-rate. With a fixed-rate mortgage loan, your interest rate will never change, regardless of what the economy does. On the contrary, adjustable-rate mortgages (ARMs) have interest rates that adjust periodically during the life of the loan.
- Fixed Rate Mortgages
- Adjustable Rate Mortgages (ARMS)
- Deciding: Fixed Rate or Adjustable?
- Other loan types: Jumbo, Balloon
Getting “pre-qualified” is the initial step in the mortgage process to give you an idea for the mortgage amount you qualify for, and it’s generally fairly simple. There is no consideration of credit score. Because it is based only on the information you provide to the lender, the amount you pre-qualify for is just an estimate.
“Pre-approved” for a loan really puts you at an advantage. To get pre-approved you’ll complete an official mortgage application (and usually pay an application fee), and then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. From this, the lender can tell you the specific mortgage amount for which you are approved. By law, lenders must provide a good faith estimate (GFE) within three days of your loan application. You’ll also have a better idea of the interest rate you will be charged on the loan and, you might be able to lock-in a specific rate.
Loans for first-time homebuyers
There are many programs to help you finance the home and arrange a payment you can afford.
If you are a first-time home buyer, be sure to check with the Washington State Housing Finance Commission for a down payment and a loan:
- Attend a Free Homebuyer Education Class — Home buyers can attend a Washington State Housing Finance Commission Sponsored Home Buyer Education Seminar; this 5-hour seminar is a requirement for receiving a loan from the Commission.
- Other Loans Are Available Now: Look into the House Key Program for first mortgages for first-time home buyers; and, there are Second Mortgage Loans for Down Payment Assistance available through the Commission when using the House Key Program. There are down payment assistance programs for those with disabilities, for teachers, veterans and those who live in certain rural areas!
- Refer them to a participating lender now: Have them meet with a House Key trained loan officer and determine if the client qualifies for a mortgage loan according to FHA, VA, Rural Housing Services (RHS), or conventional loan standards.
Information and help with all these services are available through the Washington State Housing Finance Commission’s Homeownership Division