Financing should be everyone's first step in the home buying process. You must first discover your abilities and options so you know how to proceed. Who knows, your next step might be to working on financing, fully documenting your income, outgo, unusual situations, cash flow, or credit. The credit bureaus are chock full of misteaks! Due to the number of issues Sellers have faced with unqualified Buyers or Buyers with issues that delayed closings by a significant period of time, the new state promulated contracts REQUIRE a Buyer to have dealt with their financing options and made some firm decisions in order to even write the contract. Your financing terms are now an integral part of a binding contract. This is a significant departure from years past! Well enough of the technicalities of checking out your financing options, lets look at the PRACTICALITIES. If you don't begin the process by determining your financing abilities you may discover a few days before closing that you can't get the financing you want or have the Lender suddenly ask for more money down &/or raising the interest rate! (national figures say that 44% of all buyers DO face this scenario) What would happen then? Would you give up? Would you start over with a lower priced home? Could you afford to take the extra time? What would you tell your kids, family and friends? What are the odds it will happen to you? Unfortunately pretty good! It is a figure worth repeating, national figures show that over 40% of all Buyers get ALMOST to closing before they discover they either cannot get the loan they want or can't get a loan at all. It doesn't have to happen to you! It is possible to get accurate figures of how much loan you can afford, interest rates and CONDITIONS PRIOR to writing a contract so that you have time to leisurely work out any details. Yes, that's right, the house you buy can affect what type of loan you get and the interest rate. The Lender not only looks at YOUR ability and willingness to repay the loan, but they also look to see if they could quickly sell the house if you were to quit making your house payments. An easy way to understand this concept is to compare a rural property to a home in the "standard" neighborhood in a big city. If you quit making your house payments, a Lender would more likely have an issue selling the rural property than the city property simply because there is more of a market and more buyers for the "standard" type of home. Lenders will be more careful of buyers buying less than optimum properties. A less obvious example might be a townhome or condo with a high percentage of Non Owner Occupied (Investor owned) units. Historically it has been shown that townhome and condo complexes with less than 50% Owner Occupied units have more problems with special assessments and deferred maintenance which make them much harder to resell. This affects the loan amount, downpayment and interest rate of any loan made in a low Owner Occupied complex. To a lessor degree, value and reasaleability for a neighborhood of single family residences is also affected adversely by the number of Rental properties. Other examples of homes with issues would be neighborhoods with declining values, homes located next to commercial property or high tension power lines. So there are actually 2 approvals necessary to buy a home. An approval of YOU and an approval of the HOUSE. top The first thing you need to realize is that not every home or buyer can qualify for every financing type, downpayment or interest rate. Issues like resaleability, condition of the property and owner occupancy rates can affect the downpayment, interest rate or even the loan type you get. How do you know if there are any property issues that might affect your ability to get the loan you want? The appraisal tells you this (and more)! Ideally you would like to buy a house that already has a mortgage appraisal (see Appraisals under the Financing section for more details) so you would know right up front if there are any financing limitations. Don't worry, all loans require an appraisal so even if the home you want doesn't have an appraisal now, one will be done. Unfortunately if there is no MORTGAGE Appraisal now it means it could be weeks before you discover if a problem exists. How do you get on with your life until you are sure? You can't control the Seller's actions so you may have to look at homes that have not been appraised but you can be as prepared on your end as you possibly can by finding out your own personal limitations and abilities BEFORE you ever start looking for a home. top To write a binding contract you must know at least the downpayment and loan amount you can be approved for type of loan (fixed, adjustable, GPM, 2 step, etc., etc.) you want or can qualify for how long it will take to be approved interest rate you can qualify for whether there is PMI and the cost You must also have picked a Title company. The contract asks for all of this information and more. If you don't have all of this you can't write a binding contract. This is why we have arranged a Lending Partner and Closing Partner for each home registered. There is no such thing as an unimportant blank in a contract. If even one blank is filled in incorrectly the whole contract can be declared void and it is possible you would lose your earnest money or more. Before all is said and done an Appraisal will be performed on every home to ensure sure the proper pricing. The contracts call for a home inspection to ensure there are no hidden structural problems, BUT there are no financing helps or safeguards built into the contract other than a self imposed limit upon how long a Buyer has to secure loan approval. You wouldn't want to find a home you love only to find you couldn't have it would you? From personal experience I can tell you that unless you wait 6 months or so to begin looking again it is very hard to get the first home out of your mind. It takes the fun out of looking and takes the luster off every home you look at from that day forward. A word of warning, a PQ (PreQualification) isn't worth the paper it's written on. You must go much further! Most of the Buyers I mentioned earlier who belatedly found out they had financing issues only had a PQ! See PreQualifications vs. Evaluations section to learn how to protect yourself.

Copyright 1984- 2005©
David Bennett

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