Tips for Financing Success
I encourage my clients to shop around for your money when buying a home. A difference in one interest rate point can equate to tens of thousands of dollars over the life of your loan, so a little extra research up-front can save you money down the road. Before you begin to look at houses, I recommend you understand exactly how much home you can afford by taking these important steps:
Take a look at your monthly finances – Even though a lender will put a limit on how much house you can buy, I recommend determining your own comfort level in your monthly budget. A lender may qualify you for more than you want to spend each month. Armed with this information, talk to a lender about your qualification amount target.
Check your credit report – Before you walk into a bank, take the time to review your credit report and fix any errors that you can. This may include any challenges with identity or any erroneous items on your report.
Get preapproved – There is usually confusion about this process. Getting prequalified means that a lender has done the minimal amount to qualify you for a loan, but you have not gone through the more-rigorous pre-approval process. Everything else being equal, a seller is more likely to choose a buyer who is pre-approved rather than just pre-qualified. Getting pre-approved for a certain amount puts you in a stronger buying position with a seller.
Get at least two quotes – I recommend getting pre-approved by at least two lenders who should be able to provide you with a list of the following costs related to getting a loan. Take the time to evaluate these fees and decide on the most favorable terms for your situation including:
- Interest rates
- Broker fees
- Points (each point is one percent of the amount you borrow)
- Prepayment penalties
- Loan term application fees
- Credit report fees
- Appraisal fees
- Discounts – some lenders offer discounts for veterans or other groups
Lock in your rate – Your lender will be able to advise you on interest rate trends. When there is a dip, there may be an option to lock in your rate which may save you a lot of money down the road, although some lenders require an imminent contract to do so.
Apply for the loan – Once you choose your lender, get a list of all the documents you will likely need up front from the lender. This will save you from frantically searching for an old tax return that you inadvertently already packed up. There may still be wayward documents that you are asked for – even up until closing. Don’t worry – this is part of the lending process in this day in age.
Respond to all requests in a timely manner – There may be days when your lender needs something from you in a matter of hours for their underwriting department. Be prepared to track down documents quickly as your loan is being processed and let your lender know if you will be unreachable for a period of time. This is a normal part of the process, and remember –the lender is working for you, trying to get your loan closed.