HOME FINANCING
Before you begin shopping for your new home, determine what you can afford. Knowing this before you start your search will save you both money and time
and help you avoid the frustration and disappointment of looking at homes that
aren’t within your level of affordability.
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You can obtain financing through either your own cash reserves or a mortgage lender. Home financing is available from numerous sources, including mutual savings banks and savings and loan associations (collectively known as thrift institutions), commercial banks, mortgage companies, credit unions, home financing companies, stock brokerage houses, or seller financing. Also, certain income groups or other
target groups can obtain home loans through different government agencies. |
First, analyze your financial situation. Review your credit report and FICO score.
Make sure that the information contained in your credit report is accurate. The better your credit history, the better your FICO score. If your FICO score is above 700, you are assured to get the lowest mortgage interest rate.
Next, gather information on types of mortgage products available in the market. Compare terms among various lenders for similar loans. Consider both your present and future financial goals. Then, select a lender that offers the most favorable terms on the type of loan that best suits your financial circumstances and get pre-approved for a mortgage. |
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Once your loan is approved, the lender will issue a letter committing to lend you
a specific amount of money, subject to certain terms and conditions, such as:
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- Fully completed purchase/sales agreement, including any addendums, signed by all parties to the transaction.
- Clear and marketable title to the property.
- Property appraisal supporting the purchase price.
- Required inspections.
- The survey of the property, if required by the lender.
- Adequate title, hazard and liability insurance policy. In certain areas, flood insurance is also required. The lender will require the property to be insured for at least the amount of the loan.
- The mortgage insurance approval if required. Mortgage lenders often require mortgage insurance for loans where the down-payment is less than 20 percent of the property’s appraised value.
- Satisfactory confirmation that you have sufficient funds to close the loan.
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CAUTION: Get a realistic estimate of your purchasing power. You should never borrow more money than you can afford comfortably. When determining the price you can afford to pay for a home, consider the costs of home ownership and your other financial obligations. You should stay within your financial comfort zone.
Pre-qualification vs. Pre-approval
There’s a big difference between pre-qualification and pre-approval.
Loan pre-qualification is just a cursory look at your finances and the ballpark estimate of your buying power. Pre-qualification doesn’t carry a commitment from the lender to fund your mortgage. Being pre-qualified only means that the borrower is qualified to apply for a loan. Lenders use pre-qualification as a tool to market their services.
Loan pre-approval, on the other hand, makes you a virtual cash buyer. It gives you the confidence, knowledge, and substantial leveraging power in the negotiating process, particularly when competing with other buyers. In fact, the Seller may accept a lower offer from you simply because you’re financially able to complete the purchase. Also, the Seller can count on a timely closing. |
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