The excitement is building and you tremble as you sign the offer for the home of your dreams. Then the phone rings and it is your Realtor announcing to you that you won. “Oh my Goodness, I own a home.” Not so fast, the ABC’s of financing are about to be drilled into your brain.
Finding the perfect home, by the perfect Realtor is all great and fairytale land stuff, but it is only the beginning. Now you must find the perfect loan. As you search high and low, you will see hundreds of rates and loans available to first time home buyers or to investors buying tons of properties. These next steps will either make or break your deal.
Steps to find a bank:
1. Your broker should of had you prequalified with a lender of her choosing prior to writing the offer. With this prequalification letter, your credit should of been checked, so you now know what your credit score is.
Most Banks want a score of more than 700, so that is pretty close to perfect. Now with the increased foreclosures, you must be in good shape credit wise. If the lender assures you that you can get a loan with a score of less than 700, think twice about this lender. Most banks will require a co-borrower in this case.
2. Many deal are broken because the buyer insisted on going with his lender. The Broker has “clout” with their lender so the lender will do a lot to please the broker. You are offering the bank one loan and have no “clout.” Investigate the suggested lender that the Broker recommends, but do not sign on the dotted line yet.
3. Which type of loan are you looking for? If you plan to be in the home for more than two years, then always take a fixed rate loan. If your credit, income and source of down payment is shaky, then many banks require you to take an adjustable loan. They will tell you to take the adjustable loan and refinance after two years.
What they don’t tell you is that there are many additional cost involved with refinancing. An alternative to this is to have a co-borrower and then in two years, request to qualify for the loan on your own, avoiding the cost of refinancing.
All investors with possible turn-around will go for the adjustable rate mortgage. As the mortgage has a very low initial payment and it will take several months for the payment to get where the fixed rate mortgage is. Many investors will buy properties and turn around quickly and sell. In this case, the adjustable mortgage is great.
Never take an adjustable rate mortgage with a prepayment penalty. Any loan with a prepayment penalty should be refused as you do not know what will happen in your life in two years. Especially now with the job market in trouble and the rate of bankruptcies being very high.
4. Do not sign any blank documents. Many lenders ask you to sign several documents and they will fill in the blanks later. This is not wise to do. Only sign what is completely filled in.
5. Get a full disclosure of the cost involved: a net sheet. Let there be no surprises at closing.
6. Check on the lender in question and ask for references.
7. Look to the mannerism of the agent. If he is cold and harsh in the beginning, expect that at the end.
8. Double applications are always advisable. If one lender cannot follow through with his promise to get your loan through, the other one will. Competition is a good thing and should be used at all times.
Obtaining a good loan at the best rates is possible with study, research and careful planning. Trust yourself with your internal instincts and follow through with gut knowledge.