Although the mortgage financing crisis is getting less play in the press, it is important to note that the fall out from the crisis is still causing financing issues for many people trying to purchase a home. Although you may have been told by your lender that you are "preapproved" to purchase, the type of property you are buying or the specific loan you are seeking, might cause you to be "unpreapproved" when the time comes to obtain the mortgage.The most sensitive areas are condos and jumbo loans.
Banks are increasingly recognizing the fact that a homeowner who spends money to improve the energy efficiency of their home ends up having extra money in their pocket at the end of the month - and this can help tip the balance in your favor of getting a higher mortgage amount with an Energy Efficient Mortgage!
Shopping for a mortgage is a bit like stepping into an ice cream parlor with chocolate chip on your mind only to be confronted with a chalk board display of exotic flavors hitting you in the face! Suddenly you have to make a decision that isn't so easy. You agonize and indecision sets in. Same goes in choosing a mortgage. How do you decide which one you want? Try starting with these parameters:
The Big 4: Rate, Term, Points, Closing Costs
Rate: There are actually two to consider: The rate that is used to calculate your monthly payment- this is the rate that you see advertised- and the annual percentage rate (APR) which is the total interest rate you will actually pay. This rate includes both the interest rate involved in calculating your monthly payment, and the interest paid as points at the origination of the loan.
Term: The length of the mortgage, or the number of years the mortgage will run, the term, is usually 15 or 30 years. The length of the term will greatly affect your monthly cost - shorter terms = higher monthly costs.
Points: The amount of money you will need to pay the bank for a particular rate on a loan. It is the interest you are paying upfront to get a lower interest over the life of your loan. Some Buyers prefer not to pay points and work with a higher rate, ask your banker to do the calculations for you and make the comparison.
Closing Costs: The amount of money you will need to pay for the services involved in processing the loan varies from bank to bank. Be sure to ask for your estimate before committing .
There is no shortage of advice for 1st time buyers right now. A lot of the advice is informative, sometimes overwhelming and frankly never ending. Credit scores, bank rates, realtors, home inspectors, lead paint info, lenders, FHA financing, attorneys, blah, blah, blah.
So, how do you sift through this mountain of well-intended information and must-do checklists?
Why not start at the beginning?
Step one: What can you afford and are you qualified for the loan? Whether you're the sole purchaser or a couple thinking about Somerville real estate or an Arlington home, our first suggestion is for you to get a copy of your credit score. Banks are being more selective and have tightened their lending practices, so you need to look like a "good investment" to them. Some polishing and cleaning up of your credit might be necessary, so you can start that process immediately! Or if your credit looks good, you can proceed to look for a lender that best suits you.
Annual Credit Report.com will issue you one free report per year or you could purchase one for $15.95 from MyFico.com. Your FICO score is the "rating" that your individual credit history has earned you as a borrower. Banks are paying very close attention to this number when qualifying applicants for any mortgage.
In addition to your FICO score, be sure to do your home work on the $8,000 first time buyer tax credit before speaking to your lender.
Finding a lender (and we suggest speaking to several), and deciding on the type of loan that will be best for you and your future may take some time. It is best to sit down with a mortgage originator and start the application process before you are under the time line pressure of making an offer or feeling fearful of losing the property that is right for you.
Once you have your pre-approval letter in hand, you can match your approved loan amount to the prices of properties available in communities throughout the Boston area that are appropriate for you.
Sounds pretty easy?
Great, step one completed, see you in a few days with step two.
Here's some Additional Resources:
Service Providers ( Attorneys, Home Inspectors, Mortgage Originators, etc.)
Avenue 3 Quick Property Search (search all current listings, open houses and sold properties)