Without a doubt, the most anticipated part of buying a new home is the search. Many people think that the sequence of events leading up to a home purchase is to drive by one you think you would like to see, call the realtor listed on the sign to make an appointment and if you like it, buy it, or if you don't like it, drive around some more until you find another one you like.
This is a great plan- in a perfect world. Since we don't live in a perfect world, reality often intrudes. The search for a new home begins prior to ever setting foot into a potential house to purchase. In order to start the process that leads to home ownership you must start at the beginning.
What is it that every potential home owner needs to be able to buy a home? The financial wherewithal of course. If you have enough cash to plunk down on a purchase, you can quit reading now. Go back to your search. However, most of us require a mortgage loan to buy. That being the case, it is important to know that you can obtain the money to finance the house and how much money is available to you.
There is an old saying about buyers-they must be ready, willing, and able. The world is full of folks who are ready and willing. the key component is that you are able. In order to figure that out, you will need to become pre-approved by a lender. The lender will look at your credit history, your employment history, assets, and income to determine if you have the ability to be approved for a mortgage loan. The lender will also analyze what loan product is the best product for your unique financial situation. It is also important to understand that different types of mortgage lenders are different and what those differences are.
1) Your bank or credit union. Many people begin here because that is where you have your checking and savings, and it seems like the best and easiest route to the mortgage money. It may be...then again, it may not. If you have high credit scores-700 or above-money put away for a down payment, and consistent steady income at a job you have held two years or more your bank will probably approve your mortgage loan. However, given the economic damage that the recession of 2008 visited upon many people, your bank may tell you they appreciate your asking, but no, they can't offer you a mortgage.
What would cause them to turn down your loan? Many things, but chief among them would be an interruption in employment, bankruptcy or foreclosure on a previous property, or a credit score lower than the 700 mentioned above. The important thing to remember is that your bank is not your only option.
2) Many people seek out the services of a mortgage broker. A mortgage broker has relationships with different lenders. There is a base set of rules pertaining to mortgage lending that all sources of mortgage money have to adhere, but, lenders can add their own rules onto the base rules which leads to different criteria from different lenders to loan mortgage money. A broker has access to sources of mortgage money that offer differing rules which means that the chances are greater that you will be successful in obtaining a mortgage loan from a broker. And don't listen to conventional wisdom that brokers charge more money for their services. They don't. The Federal Government took care of that with the Financial Reform Act. Because underwriting and processing fees differ from lender to lender, brokers are often able to charge a bit less than banks. One other factor that conventional wisdom says about banks is that your loan will stay with your bank. That doesn't happen much any more. You may be able to make your payment to the bank that originated the loan but the loan in most cases will be sold to another much larger lender. That is the way more money is created for more mortgages.
So your first move when considering the purchase of a home is to go to your mortgage broker and become pre-approved. Sellers expect offers from pre-approved buyers. They aren't going to remove their home from the market if they don't have a good idea that your offer will result in a sale and that you can afford the house. Becoming pre-approved means that the broker has looked at your financial ability to obtain mortgage financing and can tell you what price range would be approved, a ball park on what your payment and costs will be, and the type of financing you can expect. Armed with that information you can move forward to the fun part of your quest for a home, the search.
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