How do I find a lender?
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When Lenders Compete - YOU WIN!
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If you have already used the Affordability Calculator to obtain an estimate of the
maximum loan amount, house price, and the types of loan programs for which you may
qualify, the next step is to find prospective lenders in your area that may formally
approve the loan. This is also the time for you to ask your local lenders about
opportunities in the following programs:
- Government Loan Programs: FHA and VA
offer loan programs particularly beneficial to low- and moderate-income individuals.
Contact your local FHA and VA lenders to learn more about these government loan
opportunities. Additionally, you may want to find out about
opportunities through the
Native American Programs and the
Rural Housing Service (RHS).
- State and Local Housing Programs: Potential home buyers can familiarize themselves
with the variety of state and local housing programs that offer additional benefits
in their local area.
- Ginnie Mae's Targeted Lending Initiative (TLI): A government initiative offering
increased mortgage loan availability in designated areas that have been traditionally
underserved. These service offerings are especially beneficial for low-income and
moderate-income home buyers.
How can I choose the right lender?
The lender that offers the lowest interest rates may not be the most suitable for
you. Always look at the entire loan package that the lender is offering.
- Is the lender charging you considerably higher fees (points, origination fees)?
- Is the lender approved in your local area?
- Does the lender offer competitive loan packages?
- Does the lender have a
solid reputation?
Should I get pre-approved?
It is a good idea to get pre-approval for a loan. Pre-approval is a formalized process
that can facilitate the loan application process.
Pre-approval is a commitment on the part of the lender to provide you with a specific
loan amount, however, it is not tied to a specific house. The lender will perform
a detailed review of your current financial status, and you will need to provide
the lender with documentation on income and debt-related information.
If you are pre-approved, it means that the lender has thoroughly reviewed your financial
history, evaluated your risk, and decided that you have the ability to pay back
the loan.
While pre-approval is not a requirement, it is advantageous for you to obtain a
pre-approval letter from the lender. This makes your case much stronger in the eyes
of the seller. In a competitive real estate market, presenting this letter to your
real estate agent and to the home seller may assist you in securing a contract on
a home. Since the lender has pre-approved you for a mortgage, the seller can be
assured that you are serious about your offer and that the contract is less likely
to fall through.
How does the lender decide the maximum loan amount that I can afford?
The lender considers your debt-to-income ratio, which is a comparison of your gross
(pre-tax) income to housing and non-housing expenses. Non-housing expenses include
such long-term debts as car or student loan payments, alimony, or child support.
According to the FHA,monthly mortgage payments should be no more than 29% of gross
income, while the mortgage payment, combined with non-housing expenses, 4 should
total no more than 41% of income. The lender also considers cash available for down
payment and closing costs, credit history, etc. when determining your maximum loan
amount.
What will my mortgage cover?
Most mortgages consist of 4 parts:
- Principal: the repayment of the amount you actually borrowed
- Interest: payment to the lender for the money you’ve borrowed
- Homeowner's insurance: a monthly amount, required by most lenders to insure the
property owner against loss from fire, smoke, theft, and other hazards
- Property taxes: the annual city/county taxes assessed on your property, divided
by the number of mortgage payments you make in a year.
Most loans are for 30 years, although 15-year loans are available, too. During the
life of the loan, you’ll pay far more in interest than you will in principal — sometimes
two or three times more! Because of the way loans are structured, in the first years
you’ll be paying mostly interest in your monthly payments. In the final years, you’ll
be paying mostly principal.
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