Knowing how much you can afford to spend on a home and exactly what your monthly payment will be can give you enough information to include or exclude certain homes during your search. Buyers Real Estate Group – Financing
A mortgage is a loan that home buyers can procure from a variety of sources. Buyers can go to a bank, a mortgage broker, a savings and loan, a credit union and, sometimes, sellers are willing to carry a mortgage for the buyer. This is called a Contract for Deed. Home buyers can also secure a Contract for Deed from other private lenders.
See what you can afford in a mortgage with our mortgage calculator
Before you start looking for a house, choose your Exclusive Buyer Agent and talk with them about how to get a specific loan product from among several lenders that would work the best for your current and future financial plans.
Before you speak to multiple lenders, be aware that any time you allow them to pull your credit, you are potentially lowering your credit score. Multiple credit score requests can lower your score dramatically. So be cautious on how you approach your lender with questions and let them know up front if you’re just asking questions or if you are prepared to have them look up your credit score. Also, be aware that paying off some credit cards or bills completely may or may not help you, depending on your financial situation, but, closing accounts may hurt your credit score. So, before you do anything, as the advice of your EBA on which loan program might suit you best. Then confirm with your lender how best to approach paying off debt and whether or not to close accounts. A great lender will give you detailed information on how your actions will likely affect your credit for the good or bad.
Every lender will inform you about their pre-qualification process. Home sellers require a mortgage pre-approval letter from the lender in order to have confidence in the buyer’s ability to afford the house. Once you and your lender know your buying power, have an idea of your credit score, loan limits and interest rate you can begin to search for your new home.
Some lenders offer no loan origination which can save you 1% of the purchase price of a home, if you’re purchasing a $200,000 home you would save $2,000 in closing costs!
Other lenders might offer a slightly higher interest rate which will lower your monthly payment by avoiding costly Private Mortgage Insurance or PMI which only protects the lender.
Your lender will determine your purchase power by perusing the information you provide for them regarding your income, your debt, your down payment money and your credit rating. Be prepared to share this information with your lender throughout the home buying process. You should feel confident your lender will protect your privacy and confidential information and maintain the highest standards of protection of your personal information. Ask your lender how they protect your privacy and personal information.
Most lenders will charge a fee to obtain your credit report. You will pay this fee up front to the lender.
When considering the down payment on your home, know that a 20% down payment is ideal because it allows you to avoid costly private mortgage insurance. There are varieties of loan programs available that require less money down, but they usually have more stipulations from the underwriter. Check out the mortgage calculator to estimate your monthly mortgage payment.
Once you decide on a lender, make sure to get an estimate of the closing costs. This is called a “Good Faith Estimate” and all lenders can provide a preliminary estimate initially, then, one that is more specific when you find the house you would like to purchase. They will tell you what your PITI will be, that is your house payment broken down in to (P) principal, (I) interest, (T) taxes and (I) insurance. Your annual taxes and home insurance will be collected by your lender on a monthly basis for an account that is held in escrow to pay taxes and insurance when they come due. Once you own 20% of your home in equity you can choose to pay these yourself outside of the mortgage payment.
What are Mortgage Points?
The lender may include points in what will defray your costs or your interest rate. A “point” equals 1% of the amount of your loan. Points are prepaid interest on a loan and are paid to your lender when you close on a home. A loan with points has a lower interest rate than one without points.
Your lender will also include the price of an appraisal in your estimate. The appraisal is an evaluation made by a professional appraiser for your lender. This estimates the value of your home for your lender to make sure its value supports the loan amount. The fee for the appraisal is another fee paid in advance out of pocket prior to closing.
A series of calculators here will help determine the loan terms that fit your plans before making the purchase. Find out how many years can be taken off your mortgage by making additional monthly and/or yearly house payments.
Contact your EBA to get a list of trusted Minnesota Mortgage Lenders with program options that might suit you best.