Splitting the atom and discovering the DNA double helix were effortless accomplishments when compared to buying a house with a mortgage. If you have not purchased a house recently (or ever) you may not be aware of the confusion and chaos waiting for you when you find that perfect “for-sale” sign. Yes, the mortgage process requires a clever lawyer, a highly experienced accountant and a dedicated banking professional. Actually, it requires several banking professionals and a Gypsy. In addition, you will need a friendly, knowledgeable insurance agent and, of course, a real estate agent. Your insurance agent may be in person or on-line. In fact, you will probably begin your house hunt on-line.
A Buyers Market.
Remember, all this began when someone of sound mind (?), said, “We need a new house.” That is a innocuous statement which does not, in the beginning, strike terrible into your heart. Finding the “right” house is no longer an easy task unless you are in one of the housing areas experiencing a housing glut. In which case, you have a buyers’ market. Under those pleasant circumstances, you are obliged to look at numerous homes until you finally don’t care which one you buy. Anything with a roof will suffice. Your most ardent wish is to never see another “for sale” sign as long as you may live. The good news is, when shopping in a buyers’ market you can purchase more house for your dollar.
A Sellers Market.
If you are in a tight housing market, such as mine in mid South Carolina, you have fewer choices and will pay higher prices. In which case, you simply want something you can afford also, with a roof.
After you have made your best deal with the seller it is time to pursue the elusive affordable mortgage. Recently, many mortgage companies have ridden off into the sunset, because buyers defaulted on their mortgages. There are various and sundry reasons for defaulting on a mortgage. One is the not-well-thought-out “ARM” which meant buyers would be hit with a large increase in their monthly payment after a specified number of years. Though it saved the borrower at inception, and certainly looked very attractive on paper, time to pay the piper arrived and many buyers were unable to pay the increased payment. The New York Times reports the following dismal foreclosure news:
The Mortgage Bankers Association reported Thursday that the number of loans past due or in foreclosure jumped to 7.9 percent, from 7.3 percent at the end of September and 6.1 percent in December 2006. Before the third quarter, the rate had never risen past 7 percent since the survey began in 1979. (March 6, 2008)
Lesson #1, be very cautious.
There are many reasons for the record high foreclosure rates. This is important to you because it affects the housing market in many areas of the country. California and Florida were particularly hard hit. Also, this unique financial climate makes it more difficult to find an enviable mortgages. A dearth of lenders means fewer lenders will be competing for your business.
Do Your Mortgage Homework
Yes, the number of mortgage companies has decreased sharply. However, the survivors are doing business, especially after the Federal Reserve lowered the prime interest rate. Never fear, you can still find, after due diligence, an attractive loan package. The financial equivalent of the Titanic sinking prompted financial institutions to indulge in best practices soul searching. Due to this rethinking of lending practices, the loan process will probably involve more red tape and your credit must be at least “good.”
If you find that your credit is not exactly faultless, perhaps you will want to increase your credit score before you apply for a mortgage. Establishing credit or re-establishing good credit [ Read: Credit, the Good the Bad and the Ugly ] requires a plan for success, determination and time. You can do it!
Comparing Mortgage Packages
Naturally, interest rates are important in determining which bank has the optimal plan for you. You may not find a great deal of deviation in interest rates. However, thoroughly scrutinize the small print. You may not receive an exact interest rate when you apply. Your mortgage interest rate will depend on the prime rate and other factors at the time your loan closes. Some lenders will give you the option to lock it in prior to closing. This is a gamble. If you opt to lock in your rate (also called rate lock or rate commitment), and the interest rates decrease you will still be bound to the higher rate. Of course, you benefit if the interest rates increase.
Learn all you can about closing costs. Closing costs are breathtakingly expensive. If you are not prepared for them you may need mouth to mouth resuscitation when faced with this substantial bill at closing. These costs will vary from lender to lender. The typical closing costs include: broker or lender charges, prepaid costs, title insurance and taxes and third party fees. A mortgage lender should be able to give you an estimate of costs. Remember, they call them estimates for a reason.
When you are ready to charge forth and purchase the awesome home you have been dreaming about, apply on-line for your mortgage and homeowners insurance. We value your security; therefore, you can apply with ease, comfort and confidence. We are easy to get along with
Buying a home is for the stalwart of heart. Don’t be intimidated, when you walk into your home it will be worth every effort. Enjoy!