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Deepening your understanding of mortgage lending

Date posted:  7/20/16 09:00:00 AM

The U.S. is now a decade removed from the housing market's crash in 2006, and after 10 years, many real estate and mortgage professionals are starting to feel more confident about the recovery. With improving job growth, demand for homes continues to rise. Existing-home sales rose at the end of 2015 and moving into 2016 by 14.7 percent and 0.4 percent respectively.  

Whether you are a first-time buyer, experienced homebuyer or looking to refinance your current mortgage, now is a good time to make your move with the housing market heading toward pre-crisis levels.

First-time homebuyers 
When you decide you are ready to own a home for the first time, the process can be daunting. Budgeting to save for a down payment and determining what you actually want and need in a new house takes time, research and a deeper understanding of the homebuying process.

Before you start looking at houses, you'll need to prepare for a mortgage application. That means getting your credit score in shape and researching lenders. Not only can your credit score determine whether you are approved for a home loan, it also dictates the cost of the mortgage in the long run due to the interest rate you qualify for.

Paying bills on time and in full, checking for inaccuracies on your credit report and working on improving your credit utilization ratio are critical to raising your chances of qualifying for a low interest rate on a home mortgage.

A traditional mortgage isn't the only option for first-time homebuyers. If a 20 percent down payment isn't feasible, do a little research to find homebuying assistance programs designed for those purchasing a house for the first time. Whether through the U.S. Department of Housing and Urban Development or even your employer, you can find resources to help with home affordability. Low down payment options through government-sponsored enterprises like Fannie Mae and Freddie Mac are another option for American consumers. 

After your mortgage loan approval and finding the perfect house, you'll have additional financial responsibilities. Your down payment isn't the only money you'll need to provide when you decide to purchase a property. You are also responsible for closing costs, property taxes and potential homeowners' association fees. Make sure you are working with a professional real estate agent to navigate through all the finances associated with purchasing a home. Professional expertise will be invaluable when you have questions throughout the process. In addition, they can negotiate with sellers on your behalf to potentially reduce or eliminate your responsibility for covering closing costs. 

Before buying a home, always have a home inspection completed and outline an agreement with the seller that allows you to back out of the sale if the property does not pass the inspection or too many issues are unveiled. 

With a little support and research, you can feel confident and excited about purchasing your first home. 

Experienced homebuyers 
If you have owned a home before, you're likely already familiar with the process. However, with the changing market and your changing needs, there are different considerations you must think over before committing to a new home. 

One of the first things you should determine is why you want to make the move to a new home. Have your needs changed? Do you want to downsize to a more affordable place or upsize to fit a growing family? Did you recently take a new job and want to relocate so you're closer to the office? Whatever your reason, you should determine what kinds of homes will suit your new needs, and ensure the home fits your budget as well. 

Part of figuring out how much you can afford may depend on the selling of your old home. You'll want to put the property on the market when demand is at its peak and when more interested buyers are searching for a home. Request the help of a professional real estate agent to increase your chances of getting the best sale price for your home. 

Spring provides an especially great opportunity for sellers as many consumers are searching for a new home at that time. Before beginning your home search, you'll want to know how much money you will be able to use from the sale of your old home toward your new property. emphasized the importance of knowing what fees, taxes and commissions will cut into your profit. So before you establish how much you have to put toward a new home, find out how much you will likely walk away with after you sell your house. 

Some fees to consider include: 

  • Escrow fees 
  • Title search fees 
  • Repairs 
  • Loan payoff fee 
  • Closing cost concession 

Depending on how quickly you are able to sell your home and find a new one, you'll want to establish an interim plan in case there is a gap between each milestone. Consider renting or staying with friends or relatives during this time period. 

Refinancing an existing mortgage 
Historically low interest rates, a healthy market and improving job situation make refinancing your current mortgage especially appealing. However, if you are considering applying for refinancing, first determine whether it's the best decision for you and your family. 

Typically, you will want to refinance an existing home loan when interest rates are low. Keep an eye on average rates and whether they are trending down or up. You may want to apply for refinancing to gain access to cash which you can use to pay off other debt. This can reduce the interest costs on higher rate loans like credit card debt, but it will wind up taking even longer to pay off your mortgage. 

You may also refinance to eliminate private mortgage insurance or adjust the terms of your home loan to match your current situation. 

Reach out to a loan officer and ask whether refinancing is the right decision for you. In some instances, it can actually wind up costing you more time and money, so discussing options with a professional is critical. 

Whether you are a veteran buyer or investing in a house for the first time, research and understand the process.  This type of preparation may even increase your chances of approval or help you qualify for a lower interest rate.


This content is for informational purposes only and is not for the purpose of financial planning advice.

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