Applying for a mortgage

[Takket]

Hi all,

I'm finally thinking of making the plunge into buying a home or condo of my own. I have some questions and I trust DU for some advice......

1. I understand before buying a place, I need to get a pre-approval of a mortgage. Is there an amount I should ask for? Or does the bank tell you how much they are willing to loan you? Like, I have crunched my numbers and I know exactly what I can afford for a monthly payment. Do I present that to them, or just sit back and let them tell me a number?

2. Let's say, and I'm just throwing random numbers out here... I'm pre-approved for $500,000 but I only want a $200,000 place. And I buy one. Is the bank only going to give me the cost of the home or can I ask for a little more on top of that? Basically a loan to pay for closing costs, movers, having an appraisal/inspection done, etc.......... Is doing that even allowed or will the bank expect me to only pay for the house and cover everything else myself?

3. How many places should I get pre-approval from? I was thinking three. One my local bank where I have my checking account, and two of the larger national mortgage lenders.

this is kind of terrifying. any other advice you have is appreciated lol

[multigraincracker]

1. Do you have an real estate agent?

They usually know about such things.

[Takket]

8. not yet but i don't want to be blindsided by anything........

[we can do it]

2. Yes get preapproval.

Lender will let you know how much you can borrow. Yes you can often finance some closing costs, maybe all if VA or USDA. You only need one preapproval but good idea to shop rates, loan origination fees.

[Bev54]

3. I was a mortgage broker but in Canada so I will give my perspective from here

Most places will provide you with a pre-approval up to the maximum that you qualify for but that does not tie you into any specific amount. You must be careful because there is a difference between a pre-approval and a pre-qualify, which is often granted instead. They do not always look kindly to you shopping several, especially if it is a full pre-approval and not a qualify. It will show you shopping on your credit report if you are asking for a full pre-approval. You can shop different lending companies and banks for their terms and rates etc, without any credit score being obtained and then you should choose the lender and get a pre-approval.

[Takket]

7. so i should "prequalify" with multiple places, but only preapprove with one?

[Bev54]

11. Yeah perhaps a few, unless of course you have a mortgage broker doing the work for you

I don't know your system there but mortgage brokers here deal with several different mortgage companies and banks, although some of our banks have their own brokers that strictly work for them. In Canada a mortgage broker gets paid by the lender not the borrower and can give you a number of choices, if you don't want to do the leg work yourself. I am just not sure how your system works but if it is similar, find on that is good, honest and works in your best interest. If it is the same they can usually get better rates for you and should explain the entire process, providing you with all the available options, with best terms, best rates etc. That is their job. They will usually pre-qualify you but if you want a pre-approval get the letter from the lender, with terms etc. outlined. It will help you negotiate when you find the right home.

[Shermann]

4. You can get a rough idea of where rates are online anonymously

I personally wouldn't mind paying a bit more to stay with my bank, but not a lot more. Check the rates to keep them honest.

[Bev54]

12. Rates are not always the only thing to be looking for, terms and pre-payment options

along with penalties, should sell and payout your contract, are also very important. Banks in Canada seem to have the worst penalty calculations and I used to be a banker. Again, I don't know how the system works there but all these are considerations when deciding who to go with.

[questionseverything]

5. My experience is the bank will loan a person too much money for the person to be comfortable

If you have calculated to the penny how much payment you can afford, first does that include insurance and property taxes?

Whatever you feel you can afford, back up that number by 10-20% to cover what goes wrong because something always goes wrong

You only need one pre approval, I always go with a local company even if it cost half a percent

Ty once you have closed and have a mortgage, round it up , making sure you designate the extra going towards principle, you will cut years off your mortgage and save thousands in interest

Have fun !

[Baked Potato]

6. On number 2.:

We bid about $9k over the total bid and contracted with the seller to pay all closing costs. So, basically we financed our closing costs. The appraisal has to come in at least the bid amount to pull that off. Depending on how your loan is financed… FHA, VA, conventional, each type has different “policies” on rolling closing costs in. But, the overbid is how we did it.

3. Our real estate agent referred us to their in house finance person (mortgage broker) and they had lenders who they shopped the loan contract to. We got a good rate and then our loan was sold to a bigger company soon after. Like you, we had already crunched the numbers so we knew pretty much how much house we could buy.

[Delmette2.0]

9. I went to my bank and qualified formy home loan.

This was back when several large nation wide banks were in the news about how they processed checks to get more overdraft fees and other crap.

I knew my bank would sell my loan to one of them. So I asked early on who they would sell my loan to. It would have been, in my opinion, the big bank that I disliked the most. So for a quarter point more I got with a better bank. I didn't want to pay thousands of dollars in interest to those scoundrels.

Local banks rarely keep large loans in house. Ask questions and do your research.

P.S. the loan officer gave me a quick smile.

[dixiechiken1]

10. Let the bank tell you how much you qualify for...

Most likely the number they give will be higher - much higher - than you will be comfortable spending. Doesn't mean you have to spend it but it is best to have some wiggle room.

My experience has been that closing costs are typically rolled into the loan. As far as appraisal, that depends on the lender as to whether you have to pay that upfront or if it can/will be rolled into the loan. (Note that even though you will be paying for it, you won't be the one to order it. Your lender will do that.)

I can't speak to whether or not you can finance any other expenses as I've never done that on a purchase. I have done so on a refinance but that's because I had equity in the house. Accordingly, I'm thinking there are a number of factors that would play into whether or not this is even a possibility - i.e., appraised value vs purchase price, type of loan, etc. Your realtor and your lender will best be able to advise you based on the specifics of your situation.

Best advice I can give is to shop your rate. And not just the interest rate, but closing costs as well. My last mortgage, a refinance, was done completely online because the rate was about half a percent less than I could find locally. Closing costs were cheaper, too.

Take your time and remember to have fun! While buying your first home is a bit terrifying and can be stressful, it's also very exciting!

[Desert grandma]

13. Another suggestion is to check with credit unions.

Our credit union does not sell its loans and also services them in house. I like knowing we can actually make an appointment and meet with a person if we encounter a problem, rather than have to deal with a far away call center. Our credit unions also had the best rates. Loan costs were rolled into the loan, but its important to compare those loan costs because they are not the same. Good luck!

[Lulu KC]

14. Mortgage broker

We just bought a house using a mortgage broker instead of dealing with the lender ourselves. It saved us a lot of $$$. They do the shopping for the best rate, and they don't earn their $ based on the rate. It was great! I didn't even know they existed until our realtor recommended this person. We had begun conversations with two lenders before we found him and they kept calling us back with lower and lower rates. Each time they did, he did an "apples to apples" comparison and we were better off staying with him. In the end, the lender he used for us was at the lowest rate offered by the other lenders AND there was a "broker discount" that surprised us. Plus the closing costs were less.

[Islandsportivo]

15. mortgage

You can always ask for a little more and only bank will decide if they will give you the amount you are asking. As you mentioned before, talk to three different banks and see which one offers the better deal.