Choosing a lender
When you decide to take the plunge and become a homeowner your first step should be to find someone who will loan you the money to achieve that goal. Loan requirements are not as stringent as they once were, but unless you have a wealthy relative to borrow from, you will still need to demonstrate an ability to repay the loan. This can be accomplished even if your credit score is less than stellar.
Some institutions are more strict than others, but each type of lender will want to see that you have a good income history. So where do you start? The common sources of home loans are banks, credit unions and mortgage brokers. Each has their own requirements and their own schedule of fees. Any can take a loan application and tell you what you are likely able to borrow for your new home. This is important to know before investing a lot of time and emotion shopping for a house. Imagine the heartache of finding the perfect home only to find later that no one will loan you enough to buy it. It may also be upsetting to settle for a two-bedroom one-bath home only to find that you could have had a nicer and larger home because you actually qualify for more money than you thought.
Do not worry about seeking loan estimates from several institutions. Applying for credit to buy a home will not affect your credit score. It is recommended you contact several lenders because fees for borrowing the money can vary greatly. Interest rates can vary a bit, but usually are competitive. Points, or the amount you may pay up front to reduce the interest rate, will likely be similar, but can vary as well. Processing fees can be quite a bit different. Each lender will provide you with a good faith estimate of your loan. This will detail the anticipated fees of each lender and will allow you to pick the one that you like best based on a side-by-side comparison. Undoubtedly, you will quickly see who offers the best terms. Lenders are required to offer the same terms at the close of escrow — when your purchase is complete — as they promised in the good faith estimate.
The amount of down payment you need will depend on the loan programs you qualify for. Some loans may require 20 percent down while others may require nothing. Of course the amount you pay as a down payment will impact the monthly installments, so you may want to put down more than required if you are able. Zero down loans are available through most lenders. These loans may be backed by Idaho Housing and Finance or the United States Department of Agriculture. The lender’s liability is reduced when they work with these agencies who, based on your qualifications, will assume the risk should you default on the loan. Because of that reduced risk, the requirements to qualify for those loans will be less rigid.
No matter who you borrow from, you will have to demonstrate that you are responsible enough to make your payments. The lender will want to see that your monthly debt with the added mortgage payment will still allow you to pay your ordinary living expenses. This “debt to income ratio” may vary from institution to institution and will be dictated in part by the type of loan program you may qualify for.
Just as when shopping for any major purchase, it pays to shop around. Take your time, ask lots of questions and make a commitment to the lender who you feel can get the job done with terms you can be comfortable with. Happy hunting!
Trust an expert … call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
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Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.