Buying A Home – How To Secure Financing

Three elements are crucial to secure financing when buying a home: the down payment, closing costs, and qualifying for a mortgage.

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The first step in buying a home is to obtain loan pre-approval. This provides you with the information you need to determine how much home you can afford and what type of monthly payment you are comfortable with.

In addition, many sellers do not consider offers from buyers who are not pre approved. We work with several lenders who have proven to offer exceptional customer service and competitive interest rates. A list of recommended lenders can be found in the service provider list at the bottom of this post. You may use one of these, or you may choose one of your own.

Three elements are crucial to the purchase of a home: the down payment, closing costs, and qualifying for a mortgage. Here is a quick rundown of what you should know:

Down Payment

Conventional lenders typically require a 20% down payment, although you may be able to find loans with no down payments. With down payments less than 20%, you will likely have to pay private mortgage insurance, which guarantees the lender will be repaid in case of default.

Mortgages insured by the Federal Housing Administration (FHA) and those available to U.S. veterans often require very low down payments. Ask your lender if you can qualify for one of these loans.

If you have trouble coming up with the down payment, there are some tips to ease the burden:

  • Start early. Begin saving for a down payment as soon as possible. After a few years, it adds up.
  • Ask for a Flex 97 mortgage, underwritten by Fannie Mae. It only requires 3.5% down provided that you have good credit. You may be able to borrow that amount on credit cards.
  • Convert stocks. Consider selling stock for the down payment. The housing market is often a better investment.
  • Sell an asset. If you have “toys” such as a boat, extra car, or other asset, consider selling it for the down payment.
  • Borrow from relatives. Today lenders will allow you to use money from relatives as the down payment if it is provided as a gift. Check with your lender for restrictions.

Closing Costs

No matter what home you buy, there will be closing costs. These can include discount points, title insurance, escrow fees, attorney fees, a termite report, recording fees, appraisal fees, document preparation fees, notary fees, and loan underwriting fees. Usually, these are due in cash, but sometimes they can be folded into the mortgage.

Loan Qualification

Primarily, your income plus the interest rate secured, determines the size of the mortgage for which you qualify. The higher the interest rate, the higher the monthly payment. The higher the monthly payment, the more income you need to qualify for the mortgage.

For conventional financing, lenders generally limit the monthly payment to 28% of your gross monthly income. Exceptions can be made depending on individual circumstances. The amount of debt you currently have may also factor in the decision.

Contacting a lender before you make an offer on a house may be a good idea. This head start gives you a chance to resolve any problems that may arise without the pressure of contract deadlines. You can also get pre-approved for a loan, which puts you in a strong position if you make an offer on a house that receives offers from other buyers.

Mortgage Lending

Austin Capital Mortgage
Charlie Cooper/Jeff Wilkinson
512-899-2550
www.austincapitalmortgage.com

Leahy and Associates
Ryan Leahy and Leslie Kothe
512-380-1922
www.leahylending.com

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