A Banker’s Perspective
So, you want to know how to buy a house. After all, it’s probably one of the most important financial decisions you’ll ever make. Chances are, you’re already feeling pressure from family and friends as they discuss possible buying scenarios and all the concerns about what will happen after the new home is paid for. You may worry about getting a loan, whether you can qualify, the expenses involved, and so on. And while these concerns are valid, it’s also important to remember that your lender does not have to be the last place you turn to when you want to close a mortgage.
Before you even begin to shop for a house, you should look at your credit reports. Your credit report is basically an important document that shows your financial health. The contents of your report, called your credit score, can influence your ability to get a mortgage, which means that lenders use them when determining your interest rate and your monthly payment amount. A good credit score can save you hundreds of dollars a year in interest rates on mortgages and car loans, so you need to know how to buy a house with bad credit.
Another thing to consider is closing costs. These include appraisals, insurance, and escrow, which are simply the cost of paying down the mortgage over time. You might also want to factor in private mortgage insurance into your equation, which protects your lender in case you fall behind on your payments. Private mortgage insurance costs vary, so shop around first. You should get a few free quotes from different lenders, and then compare the prices and coverage.
Once you’ve reviewed your credit reports and heard what’s on them, it’s time to find out what your lenders require for pre-approval. In general, you can get pre-approved for anywhere from three months to three years. The exact timeframe will depend on the state where you live, but in most states you can be approved for a period up to nine months. For many buyers, three months is too long to wait. In Clark County, this is perfectly fine–you can typically get pre-approved for more than three months in any state.
You also have to check out your lender’s debt-to-income ratio. This is a number that represents how much debt the company has on its books compared to how much income it has available to the borrower. Ideally, the ratio should be no more than 30 percent, but if you have good credit and low debt-to-income ratio, you should be able to qualify for better mortgage terms.
If you’re not sure how to buy a house, you might want to consult a mortgage broker first. A good mortgage broker knows all of the requirements and guidelines required by your lender, so he’ll be able to find you a loan that meets your needs. Mortgage brokers work for either the lender or the buyer, so they have contacts on both sides of the spectrum. Sometimes, financial institutions will hire independent companies to handle the purchase of a home. Other times, they’ll go with mortgage banks that are members of the National Association of Realtors (NAR).
Your final step in learning how to buy a house is to find out what kind of terms you’ll be getting. Most lenders require that you agree to a purchase price, which is usually between the appraised value and the closing price of the property. You’ll also likely be required to agree to a mortgage payment. Most mortgage payments are set by the mortgage lender, but some lenders work with you to come up with a payment that is between the appraised value and the interest rate on the loan. And sometimes, you’ll be asked to provide a balloon payment to cover any unexpected costs. Make sure that your lender outlines all of these requirements before you close on the deal.
So, as you can see, learning how to buy a house involves much more than simply contacting a mortgage broker or a real estate agent. The process typically takes several weeks, if not longer, so you should be patient throughout the process. As stated before, when it comes to lending and negotiating, you should use the services of a trusted professional who has experience in the real estate market. Using a mortgage broker or an agent who has no experience with this type of transaction is risky.