Talk to a Lender First
In their excitement to purchase a new home, people often forget to look into financing before they begin looking for a new home. I always recommend contacting a lender / mortgage broker before you begin looking. The information from your lender will help you figure out how much you can spend on a house and what the monthly payments will be. That will help you figure out what we should look for before we begin. In the end, this saves a lot of time and frustration. If you have a lender, great. If not, I’m happy to recommend some.
What to Tell a Lender and What to Ask
Tell your lender what you are looking for in a house and a mortgage. Give your lender all the information s/he asks for (income, debts, assets, etc.) in order to give you an accurate picture of what you can afford. Then, ask your lender for how much money you will need to put down, what your interest rate will be, how much your monthly payment will be, and how quickly s/he believes the loan can be closed. Ask the lender if any supporting documents are needed, and if the lender requests supporting docs, make sure the lender has them before giving you a promise to make you a loan.
A pre-approval letter is a letter from your lender to a seller saying they will give you the necessary loan if your offer on a house is accepted. In the Los Angeles area, where bidding for homes is competitive, virtually all sellers will want to see a pre-approval letter before considering an offer you make.
I strongly recommend getting a pre-approval letter before you begin looking. There is nothing worse than finding a home you love and want to make an offer on, only to find out other people have made offers and you come in too late because you’re trying to get a pre-approval letter. Pre-approval letters are quick and easy to obtain once you have provided your lender with the information s/he needs. And, a pre-approval letter won’t cost you anything and does not commit you to using that lender for your loan if you find a better deal later. Finally, if your lender is willing to give you a pre-approval letter after doing a full underwriting review, that is best because it offers you the strongest belief that the lender will come through with the loan.
Choose your Mortgage Carefully
It used to be the emphasis, when it came to mortgages, was on paying them off as soon as possible. Today, the debt the average person will accumulate is due in part to other things like credit cards, student loans, etc. This means it’s often better to opt for the 30-year mortgage instead of the 15-year. This way, you have a lower monthly payment, with the option of paying additional principal when money is good. Additionally, when picking a mortgage, you usually have the option of paying additional points (a portion of the interest that you pay at closing) in exchange for a lower interest rate. If you plan to stay in the house for a long time, taking the points will make you money in the long run.