Getting a Loan (What can you afford?)
When you first begin your search for a home, the first step is to find out what kind of loan you are qualified for and what kind of property this loan will allow you to afford.
This is found by going to either a bank (the lender), or a mortgage specialist (broker) whose job it is to compare several lenders. These specialists can give you competing loan options and tailor your mortgage and financing plan to your specific needs. These specialists are worth the commission they command, especially considering that this is likely to be the largest purchase you will ever make. A good mortgage broker could save you thousands over the lifetime of your mortgage.
The US currently has some of the lowest financing rates in history. Geared to rev up the real estate market after the Sub-prime loan crisis in 2008, the Federal Reserve has kept interest rates on residential mortgages low in order to make financing affordable to new homeowners. However, nothing about these low rates forces the banks to lend to those looking to purchase their first home. This reality makes building a good credit history and honoring your outstanding debts in a timely manner so important.
Lenders look for the lowest risk borrowers to lend to. If you can’t pay off your credit card bill on time, how can you expect a bank to write up a six-figure loan for a home? They need to know they are going to get their money back.
Once they have verified that you have a stable income and are creditworthy they will give you documentation stating that you are pre-approved for a loan up to a certain amount. This will help you determine the type of house you can afford. (A good mortgage specialist is great here because they can give you guidance on what you can really afford so you don’t end up over your head)
Good Job! You have completed the first step to buying your new home, now for the fun part!