Buying a home can be so not-fun, especially if it’s your first time or you haven’t financed real estate in a few years. The most stressful part of home buying is probably not choosing a neighborhood or listing the “must-haves” for your next kitchen — it’s most likely your mortgage. To minimize heartburn, then, plan on nailing down your financing and resolving any issues before you go home shopping.
You’ll want to discuss these topics with every lender you contact:
How much do I qualify to borrow?
Answering this question is called pre-qualification, and it’s the first step in the home buying process. Lenders ask you about your income and your monthly obligations – payments for car loans, credit card accounts, student loans, etc. Your regular living expenses like utilities won’t be considered in this analysis. Lenders then come up with a preliminary amount that you can probably afford.
Understand, though, that amount is very preliminary. You don’t even need to speak to a lender to come up with this figure — try LendingTree’s Home Affordability Calculator to get some numbers on your own if you like.
It’s important to note that just because you pre-qualify to borrow a certain amount doesn’t mean you can realistically afford it. Lenders don’t know if you enjoy your weekends racing vintage cars, or spend $1,000 a month commuting to work. You might be planning to start a family or head off to graduate school. Or you may simply be uncomfortable with a house payment that exceeds X. So, ask another question.
How Much Can I Borrow at this Payment?
Say, for example, that you qualify for a mortgage payment (including taxes and insurance) of $2,000 a month, but you’d only feel comfortable paying $1,800 a month. In that case, ask your lender for mortgage options that would keep your payment in that range. Assuming taxes and insurance of $300 per month, you’d get something like this:
- Proposed Payment: $1,800
- Estimated Taxes and Insurance: $300
- Principal and Interest: $1,500
Program Rate Loan Amount
- 3/1 Hybrid ARM 3.00% $355,784
- 5/1 Hybrid ARM 3.25% $344,664
- 30-Year Fixed 4.25% $304,915
- 15-Year Fixed 3.50% $209,825
If you plan to make a down payment of less than 20 percent, your loan amounts will decrease further, because mortgage insurance will be added to your payment. LendingTree’s calculator allows you to include this in the calculation.
Is My Credit Good Enough to Get a Mortgage?
Getting pre-qualified is just the beginning. You’ll want to find out if you can actually be approved, or you risk annoying your real estate agent and embarrassing yourself with sellers. First, see what you’re dealing with, credit-wise, at www.annualcreditreport.com. You can get your credit report for free and buy your credit scores before speaking to lenders. If your credit is average or worse, you’ll want to ask lenders if they apply overlays, which are extra underwriting requirements on top of those demanded by Fannie Mae, Freddie Mac, the VA or FHA. For example, Fannie Mae allows lenders to approve mortgages for people with credit scores as low as 620, but many lenders set their minimums at 640, 660 or even 680.
What Mortgage Rate Can You Give Me? When Can I Lock it In?
You’ll want to get mortgage quotes from competing lenders, but quotes are worthless unless lenders know your credit score, loan amount and down payment. If you’re willing to provide this information, lenders should be willing to give you a solid rate quote. That quote may have a pretty short shelf life, however, and you may not be allowed to lock it in (if you don’t have a home under contract, you probably won’t be allowed to lock a loan).
How can you choose the best rate if you can’t even lock in the loan? You can’t. But what you CAN do is run your lender’s offer through LendingTree’s Mortgage Negotiator before committing to a loan and a pricing structure. That tells you if your offer is a good one.
Can I Get a Good Faith Estimate?
The Good Faith Estimate, or GFE, is a disclosure that mortgage lenders must furnish within three days — but only if you actually apply for a loan. If you’re still shopping, they don’t have to give you this list of mortgage costs. However, many lenders will give you one if you request it. Others might insist on providing a loan scenario or worksheet instead. Worksheets and scenarios don’t offer you quite the same protection that an actual GFE does, because by law, lenders must honor the terms disclosed on a GFE.
Getting these questions out of the way upfront should make financing a home easier and shopping for it a lot more fun.
LendingTree is the nation's leading online loan marketplace providing consumers an easy way to shop and compare funding for life's matters. With LendingTree's marketplace, you can connect with multiple lenders that compete for your business. You can also find an array of credit based tools and tips on LendingTree, including free monthly credit scores to help you stay empowered financially.
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