Thinking about buying a home during the busy spring selling season? While we can’t wait to get out and show you some of the amazing homes for sale in Wilsonville and surrounding areas, there’s one thing you should do first—and that is get your paperwork lined up for a mortgage. Here’s everything you need to know about choosing a mortgage.
Secure a “pre-approval.”
It might seem like you’re jumping the gun, but truly—you don’t want to start the process of buying a home without one of these in hand. One of the top reasons is because it helps you set your budget based on the amount that a mortgage lender says they will offer you. After all, there’s no point in frustrating yourself by looking at homes way out of your price range—and many home buyers find they qualify for more than they had expected which can expand your options.
We always recommend you get an actual “pre-approval” rather than just a “pre-qualification.” A “pre-qual” is based on verbal information you have given your broker, and therefore doesn’t hold the same weight as a pre-approval, which means the lender has already done all the due diligence to make a confident recommendation of how much you can borrow (assuming your situation doesn’t change). Yes, it takes more paperwork, but the good news is that once you’ve done it for the pre-approval, you’ll have very little left to do when you finally find the home of your dreams.
A pre-approval will show the seller that you are serious when it’s time to make an offer, and will help them feel confident the deal will go smoothly if they choose your offer since you already have your financing lined up.
Know the different types of mortgage and determine what’s best for you.
When choosing a mortgage, it’s common for home buyers to decide on a conventional, 30-year fixed product, and there’s certainly noticing wrong with it. What that means is that your lender will tell you how much you will be paying for your mortgage every single month for the next 30 years. “Fixed” means the rate is locked in; in other words, the payment won’t change even if interest rates rise.
And that safety can feel reassuring when you’re buying a home, but in can also cost you in certain cases where an “adjustable rate mortgage,” or ARM, might make sense. Unlike a fixed rate loan, the interest rate on an ARM can rise given market conditions—and we know that can feel scary, especially with recent headlines that have predicted a rise in interest rates.
However, when you’re choosing a mortgage, sometimes an ARM might be the best loan for you, and here’s why: The initial interest rate starts out below that of a fixed rate loan, and then eventually adjusts after a period of five or so years. So if you are relatively certain you are only going to be in your home for the initial years of the mortgage, then an ARM allows you to enjoy that lower interest rate for the entire time you are paying for that particular house. Then you can choose a different product that suits your financial needs when you eventually buy a new home.
An ARM also can allow you to qualify for a more expensive house at your current income since the initial payment will be lower, and thus consume less of your paycheck. So if you are relatively certain a promotion and raise is imminent, or if you have a spouse planning to go back to work when the kids go to school, an ARM might make sense from that standpoint as well. It also can be helpful for borrowers who have a lower base salary but get a substantial year-end bonus, since again, you might qualify for more when they look specifically at your monthly income.
Of course, we all know what happens to the “best-laid plans,” and sometimes you might end up staying in the home beyond where you expected, or another financial situation could make the ARM a risky bet. However, the point is that you should at least explore your options when choosing a mortgage to see what makes the most sense for your financial picture and how you expect it to evolve. Therefore, don’t hesitate to ask your loan officers to run hypothetical scenarios with different mortgage products so you can compare your options before making a decision.
And that brings us to our last piece of advice for choosing a mortgage: Make sure to talk to a couple of different lenders about the programs they offer and the service they provide.
As with anything, more options can make you feel more confident in your choice; in fact J.D. Power’s annual Mortgage Origination Satisfaction Study found that customers who received two or more quotes when choosing a mortgage were ultimately more satisfied than those who just talked to one lender, so it might pay to shop around—both in dollars and service.
Are you ready to jump into buying a house, but need some assistance choosing a mortgage provider? Here at the Green Group we have several trusted offices that we work with, and we’d be happy to provide some suggestions to help you get started.
Once you have that pre-approval lined up, you’ll be ready to look at properties—adequately prepared to make an attractive offer the minute you find the one that you’re ready to call “home.”