Financing a Home
The Benefits of Pre-Approval
For most people, shopping for a home means shopping for a mortgage - a process that can be intimidating even for the financially savvy. When you shop for a home, you can choose to find the property first and then nail down the financing, but there is another, and potentially better, way to approach the financing puzzle.
Pre-approval
allows you to qualify for a mortgage and determine exactly how much home you
can afford to buy. Getting pre-approved for a mortgage has a number of important
advantages, some of which are outlined below.
It Gives You Additional Negotiating
Power
Shopping with a
pre-approval letter in your hand gives you additional negotiating power,
especially with a motivated seller or an owner who has been burned before.
Nothing is more frustrating to a seller than accepting an offer only to find
the buyer cannot obtain the proper financing. By getting pre-approved, you
reassure the seller that you have the financing needed to back up your offer.
It Helps You Set a Realistic Budget
Setting a
realistic housing budget is important when buying a home. Buying more home than
you can afford is a recipe for disaster, but it can be hard to know what that
limit really is.
When you go
through the pre-approval process, the bank or mortgage broker will carefully
examine all aspects of your finances, from reviewing your past tax returns to
verifying your current income. They will then use that information to determine
how much you qualify for, and give you a pre-approval letter to help you get
started.
It Simplifies the Buying Process
Few things about
buying a home are simple, but pre-approval gives you one less thing to worry
about. Instead of fretting over the mortgage application process and worrying
about whether or not you will qualify, you can focus on choosing the right
home.
Getting
pre-approved will also make working with the real estate agent a lot easier. If
you are pre-approved for a $150,000 mortgage, the real estate agent will not
waste his or her time (or yours) showing you a $300,000 home. Focusing on
houses in your price range will make shopping easier - and faster.
The process of
qualifying for a mortgage can be a difficult and intimidating one, but it
doesn't have to be. Getting pre-approved for a mortgage will make every aspect
of the home buying process, from negotiating with the seller to establishing a
realistic housing budget, a lot easier.
Shopping for a Home Loan - What
Every Buyer Needs to Know
Buying a home is
a difficult and sometimes intimidating process, and finding the right loan can
be one of the hardest aspects. Shopping for a home loan is quite different from
financing a car or other short-term purchase. After all, you will be living
with the consequences of the decision you make today for the next 15 to 30
years.
Whether you are
in the market for your first home or looking for a larger property for your
growing family, there are some things you need to know when shopping for a
loan. Here are some practical tips you can use to get the best financing for
your new home.
Know Where You Stand
If you do not yet
know your credit score, getting it should be your first step. Until you know
your credit score, you have no way of knowing where you stand or what kind of
rate you may qualify for.
Getting access to
your credit report and credit score is easier than ever before. Many credit
card issuers now print the score right on their statements, so the information
may be closer than you think. If your credit card company does not provide that
information, you can get it easily, and inexpensively, by contacting the three
major credit reporting bureaus - Equifax, Experian and TransUnion.
Check the Financial Press
Even if you are
not a regular reader of the Wall Street Journal or Barron's, it is a good idea
to check a recent issue. The financial press can provide a host of useful
information, from the current level of interest rates to future trends.
Knowing the
current state of the economy and interest rates can help you find the right
financing for your new home. If interest rates are expected to rise shortly,
locking in a low rate today could save you a lot of money. If rates are
expected to fall or stay the same, you can afford to wait as you ferret out the
best deal.
Shop Around
As with any type
of financial decision, shopping around is likely to yield the best results when
it comes to getting a mortgage. Expanding your search to a wide variety of
financial institutions, from independent mortgage brokers and large
money-center banks to local credit unions, is essential if you want to get the
lowest interest rate and best terms possible.
Shopping around
is important, but you can still start with your own bank. If you have a long
history with the institution, you may be able to get a great rate based on your
past history of financial responsibility. You can then use that mortgage rate
as a benchmark, comparing it to other competing offers as you shop around.
Financing a home
is not an easy process, but doing your homework and knowing how to prepare can
make it simpler. The tips above can help you get the best mortgage for your
money and the best deal on the home of your dreams.
The Benefits of Paying Cash
One of the more
unusual fallouts from the housing crisis has been a rise in the number of cash
sales. As property values plummeted, anxious investors were there to scoop up
the bargains, and they often did so with cash in hand.
You do not have
to be a real estate investor or house flipper to benefit from paying cash. Cash
sales have a number of important advantages for both buyers and sellers,
including the following.
Cash Sales Reassure Buyers
Many buyers have
been burned before, and they worry that the financing will fall through at the
last minute. When you buy with cash, you reassure the seller that the money
will be available.
That reassurance
can give you additional negotiating power and possibly a lower price. Since
there is no financing to deal with and no worry about the sale falling through,
the property owner may be willing to cut you a better deal.
Freedom from Fluctuating Rates
Buyers who
purchased their homes at the height of the housing market quickly learned the
danger or adjustable mortgage rates. Homeowners who had been paying $1,000 a
month on their mortgage suddenly saw their monthly payments spike to $1,500 or
even $2,000 or more. While the recent housing crisis was an unusual event,
anyone who takes out an adjustable rate mortgage is subject to the same
dangers.
When you buy with
cash, you free yourself of this danger. Since there is no mortgage, you do not
have to worry that a sudden increase in rates will send your finances into a
tailspin. This alone is sufficient reason to consider a cash sale.
You Free Up Money for Other
Purposes
For most people
the mortgage payment is their single largest monthly expense. If you take out a
mortgage when you buy a home, you resign yourself to decades of those monthly
payments.
When you pay
cash, you free up the money you would have spent on the mortgage for other
things. Whether you put the money in your retirement plan, use it to fund a
college education for your children or treat yourself to a new car, you will
have more money to work with.
You have a lot of
decisions to make when buying a home, from where you will live to what kind of
floor plan best suits your family. The financing decision is just as important,
and there are compelling reasons to forgo the mortgage process altogether and pay
cash instead.