This can amount to a cardinal sin when buying a home. Imagine that you are the seller. You receive two offers on your property. One includes a letter of pre-approval and the other does not. Which one would you take – even if the offer with the letter of pre-approval is lower? As the seller– especially if you are planning to purchase another property and in order to do so you need to sell the one that you currently own – you would likely be more inclined to consider the offer that includes a letter of pre-approval. Pre-approval tells the seller that the potential buyer has done their homework and most likely has adequate funds to make the purchase. This means that the potential buyer is serious about the process – which will facilitate the next steps for the seller, including a real estate buy within the same time frame.
As the buyer, it is in your best interest to work with a qualified mortgage broker to obtain pre-approval before your sign the purchase contract. This will greatly reduce the chances of an issue coming up during the contract process that will require you to jump through hoops to satisfy your mortgage contingency and close during the limited time frame imposed by your purchase contract. This could result in the purchase transaction falling through if you are not ready with the required funds, also causing disappointment and a great deal of wasted time and effort. By working with a mortgage broker at An Opportune, Inc., you can avert such a risk and proceed in the purchase process prepared and confident.
When you buy a home, you must
take more than your down payment into account. Although it is the integral part
of the transaction, your down payment is not the only item for which you should
budget. You will need to allocate funds for closing costs, which may be
significant. For example, the city of Chicago charges home buyers $7.50 for
every $1,000 of the purchase price, so a $300,000 property will add an extra $2,250
in closing costs payable to the city. In addition, when buying a home, you’ll
need to pay for the appraisal (typically about $450-$500), lender’s fees,
title, homeowner’s insurance and attorney fees. You may also need to show a
month or two of reserve assets after closing so the lender knows that you will
be able to begin making monthly payments on the loan.
Speaking of which, you will also need to budget for those monthly payments. Keep in mind that your monthly payment comprises not only the principal and interest on your mortgage loan but also real estate taxes, homeowner’s association fees (if any), private mortgage insurance (PMI) or FHA insurance (if applicable) and homeowner’s insurance. The lender will take all of these costs into account when calculating your debt-to-income ratio. The bottom line is that these expenses are significant, and you should factor them into your planning.
It is always a good idea to check your credit report while getting pre-approved for a mortgage loan. Most likely, your interest rate will depend on your credit score. Your credit score is calculated based on many variables including open lines of credit, outstanding balances, late payments, collections, bankruptcies, length of credit lines and number of inquiries, among others. If your credit report contains errors, they will be easier to fix before you start the pre-approval process. Too many checks on your credit may decrease your score. Be ready to take steps to improve your credit score, such as paying down balances and correcting any errors including late payments and collections. At An Opportune, Inc. we will review your credit score with you and make recommendations.
Many times I have had clients tell me, “We are planning to buy a house, but we just bought a car.” In some instances, such a large purchase may greatly affect the buyer’s ability to qualify for a mortgage loan. I have seen clients who were planning to buy a home unable to obtain a loan because their debt-to-income ratio was too high due a major purchase, such as a car, within the same time frame. Sometimes buyers have no choice, but in most instances a major purchase can be postponed.
This mistake can add tens of
thousands of dollars to the expense of buying a home – and we at An Opportune,
Inc. can help you avert such a scenario. I always ask my clients many questions that
may seem irrelevant to the process, but the answers give me a clearer picture
of the buyer’s financial situation and needs. For example, a buyer who is
planning to spend only a few years in the property may consider a 5-, 7- or
10-year adjustable mortgage loan that may (but not necessary will, depending on
the economic climate) have a lower interest rate. Or the buyer may want to
minimize interest expense over the years by considering a 15-year fixed loan
versus a 30-year fixed loan. For example, borrowing $250,000 will incur total
financing costs of $416,000 over 30 years versus $316,000 over 15 years. By choosing
a shorter term and paying more into principal each month, the interest savings
would be a cool $100,000!!
The experienced mortgage brokers at An Opportune, Inc. have saved our clients hundreds of thousands of dollars by providing them with expert advice that enables them to avoid costly mistakes. This is reflected in our perfect record of 5-star Google reviews at the time of this writing. We invite you to check them out and encourage you to contact us when you are ready to begin the process of buying your home.