Have you ever checked off every item on your to-do list Friday, so you can relax all weekend?
It’s smart to apply the same strategy to homebuying.
First, you worry about what you can afford and whether you qualify for a mortgage. Then, comes the fun part: touring homes and envisioning yourself living there.
In the wake of the credit crisis, the business end of buying has taken a more serious turn. Lenders are asking borrowers to fully expose their financial life and are tougher on credit and other factors before they lend out mortgage money.
It can be intimidating, especially for first-time buyers who are totally unfamiliar with the process. Here, a look at your “to do” list – a step-by-step guide to finessing financing:
Evaluate Your Lender
Yes, a lender will scrutinize your money life. But before you let that happen, make sure the lender passes your test first.
Although it feels like seeking a mortgage is akin to asking a favor, lenders are in the service business. They should be attentive to your questions, keep you abreast of the status of your application, and keep the loan on track for a timely closing once you’re approved.
Ask for the name of a good loan officer at a lending or banking firm from a real estate agent who sells a lot of homes, suggests David Reed, author of “Decoding the New Mortgage Market: Insider Secrets for Getting the Best Loan Without Getting Ripped Off” (AMACOM, 2009).
“Good loan officers rely on steady referrals from top agents and they know that if they mess up a transaction they no longer get that agent’s business,” Reed observes.
If you’re already banking with an institution you’re happy with, ask them for a mortgage, suggests Leslie Linfield, executive director of the Institute for Financial Literacy, a Portland, Maine, nonprofit.
Applying where you bank often means you don’t have to gather records showing your savings, since the bank has the information, adds Jim Linnane, senior vice president of Wells Fargo Home Mortgage, Chicago.
Do a little comparison-shopping before you walk in, suggests Barry Zigas, director of housing policy for the Consumer Federation of America. Study mortgage ads in the newspaper, or call a few firms, asking what their best rate on a mortgage of a certain size is and ask what the fees are for applying for a loan, and what other fees are included, Zigas says.
Also, if you have limited funds for a down payment, you may only qualify for a government-insured FHA loan. You’ll want to make sure the lending company offers FHA; a state-by-state listing is available at www.hud.gov. Moreover, first-time buyers with limited incomes may qualify for mortgages backed by states or localities, says Linfield. Many of these state programs are also listed at www.hud.gov (click “Buy a Home”).