Unless you will be making an all-cash offer to purchase a home, getting a mortgage will be the most significant part of a real estate transaction. The choice of a lender is critical, as it can make your life easy or miserable. But it’s not rocket science; submit all the information required, and a good lender will do the rest.
First things first: get a pre-approval
Before you even start looking at homes, it’s wise to get a pre-approval from a lender. It costs nothing, it doesn’t obligate you to use that lender going forward and it will make your life—and mine—much simpler as we search for homes. I won’t be making appointments to show you $500,000 houses if your limit is $450,000, or you will be able to look at homes that you thought were beyond your reach.
A pre-approval is simply a lender’s initial opinion of the amount you can borrow, based on your income, debts, credit score and other factors. You will most definitely need a written pre-approval when making an offer to purchase a home; no seller will accept an offer without one.
The all-important mortgage
A mortgage is actually an agreement from a bank to lend you money to purchase a home, with the home itself as collateral. You can get a mortgage from a broker, a large bank or a small institution. Money is money, but how those different entities deal with you is important, and I will discuss that with you at the appropriate time in a transaction.
As I mentioned, you can get a pre-approval from bank A, then shop around for a better deal with lenders B and C. You don’t have to—and shouldn’t—apply for a mortgage until you are under contract to purchase the home of your dreams. The period called attorney review, after the seller has accepted your offer but before the attorneys have made necessary changes to the contract, is when you should be comparing lenders and chosing one to work with.
Can I get a ballpark figure of what my payments will be?
Here’s a quick & dirty calculation you can use as a starting point: Take your combined annual income before taxes and divide that by 40. So if your combined income is $120,000, the result is $3,000. That is a very rough calculation of what you can comfortably pay each month for housing.
Now go to the mortgage calculator page and plug in basic information to get a fairly good idea of what your monthly cost will be for principal, interest, taxes, insurance and any maintenance fee. (There will be an additional monthly PMI fee if you are putting down less than 20%, typically about $100 per $100,000 of the loan.)
If you have a lender you’ve worked with before, great! Otherwise I can give you my experienced opinion of which types of lenders to stay away from, and offer you several choices of banks that offer excellent rates and, more importantly, will work very closely with you to make the entire transaction smooth and painless.