3 financing tips when buying a home
You found the house of your dreams, the perfect rate on a loan, and a loan officer that’s saying all the right things. Then, just when you thought it would all sail through, a big ole’ freaking monkey wrench gets thrown into the mix. Believe me, this happens far more than it should. However, you can protect yourself from most unforeseen problems by taking these three proactive steps in arranging the financing of your dream home.
1. Get pre-approved (not pre-qualified) before you start shopping for a home. Up until the advent of automated underwriting, a typical borrower would meet with a loan officer (LO) for an initial interview. The LO would look at your credit, income, and debts, then make an educated guess as to how big a loan you would qualify for. This was called a pre-qualification. The problem is, their opinion of what you qualify for may not jive with the actual decision maker’s (underwriter) judgment. Traditionally, the underwriter didn’t see the loan until well after the contract was signed, the earnest money secured, and your own personal heart strings were tired to the purchase of the home.
Today though, there’s a better way. During the late 90’s lending institutions worked to develop risk modeling software systems called “automated underwriting”. These systems allow your LO to take all that same information from your interview, input it into their lenders web site, and get back a conditional approval in less than a minute. Now, so long as all the information you submitted can be properly verified, the only real variable will be the home itself.
2. Shop around. Tell the real estate agent that you want to speak with two or three different mortgage companies. It may also pay to find at least one on your own. Usually, you will get three very similar offers. Sometimes, you’ll get one offer that is far better or worse than the other two. The odd offer (even if it’s better) is usually the one you should eliminate first.
3. Get it in writing. Never sign something that doesn’t jive with what the LO has promised. If the LO has promised one thing, then asks you to sign something that says different, it’s the signed document that trumps the rest. Insist on both good faith estimates and rate lock agreements in writing.