The Unknown Path to a Mortgage
The most important aspect of a Mortgage, is not searching, property, financing or paper work. It is not letting your dreams overrule the reality of your means.
We all want to fulfill our dreams of home ownership, but by following the procedure I will outline you can save yourself a great deal of time and effort.
Whether you are building or buying and existing home, the process of financing a Mortgage is the same ( except when building, you will have an architects fee).
The initial step is really simple but unfortunately, if approached realistically, it will most often dampen your enthusiasm.
Before you even start to look for, or design, the home of your dreams, you must go to your bank. There you can obtain the necessary papers, that when filled out properly, will show you the maximum amount of money you are qualified to borrow.
This of course is not your objective, it is only the beginning. Next, will be the compiling of your monthly expenditures. After this depressing job, you must compare the maximum you can borrow against your monthly expenditures.
Your monthly expenses will obviously include your present Mortgage payment. If you find your budget won’t allow you to afford any more than your present monthly mortgage payment, then that payment determines the total amount you should borrow.
If you find that you can comfortably increase your monthly mortgage payment then you can increase your loan (if the bank will lend that amount).
Let’s be clear, the monthly Mortgage payment with interest, fees, etc. added in, should never be more than what you can comfortably afford per month.
Knowing what you should borrow, simply means, that is the price of house you should look for. This will make your home shopping more efficient and realistic.
Don’t let a realtor feed unrealistic dreams, just so they can make a commission fee. Remember, that if you are true to yourself, you will allow some room for emergencies, savings (for retirement or college funds, etc.) so don’t push the borrowing envelope, that is where trouble starts.
It is better to look for a smaller, less expensive home. One that has the potential of future expansion. If you are building, have the Architect draw and efficient floor plan with less square footage to begin, but one that is designed for future additions, if needed.
After all these tasks are completed, then you are ready to apply for a loan. If you are buying a pre-built existing (new or old) home, there is only the application to fill out. But because you have done your home work, you know it will be approved.
All that remains is for you to sign the usual mountain of paperwork. If you are building, first: you will need an Interim or Construction Loan, from your lender. When construction of the home is completed, you will need the Permanent Mortgage Loan.
Sometimes the lender will do both, if not you must find another lender for the Permanent, but you should determine that in advance.
It is not the good old days of pre-2007. Banks and other Lenders are bordering on lending fears. Today you will need sterling credit, excellent job history and potential, superb credit, large down payment and sufficient gold reserves, (the last is a joke).
Remember, shop for low interest rate, low loan fees; stay away from Balloon Payments or Second Mortgage and never buy a home as an investment, (look at what just happened in the housing market). Never let a Realtor or Broker deter you from the formula that has been outlined.