7 Steps To Choosing The Best Real Estate Loan For You

Are you thinking about financing your future home? 

Today's homes are more expensive than ever, and it is important to know the best loan option for when you want to buy that property. 

In this blog post we will give you seven steps to choose the best real estate loan for your situation. In addition, we provide insight on what terms are used in real estate loans and what lenders require. This blog post also addresses how home inspections impact a mortgage application and how long mortgages take irrespective of if construction has been done or not.

1. Determine your priorities

The first step to choosing the best real estate loan for you is to determine what is most important to you. First, think about the following questions:

Will you be buying a single family home, townhouse, condominium or loft/apartment? 

What are your needs as far as income requirements and debt needs? 

Is it a primary or second home? Will you be borrowing funds to purchase furniture and household items? 

Consider these questions and answer them truthfully. Your answers will help guide your search for the best loans for your situation. First from our lending partners listed below then from some of our blog post readers that have shared their experience.

How much money do you have saved to put down on a house? Banks require you to put down at least 5% of the purchase price, but it is always recommended that you put 10-20% down.

Did you take advantage of new tax credit in 2010? First time home buyers had some great news for them. The government has approved a tax credit for first time home buyers that did not have any children and needed to make less than $125,000 annually. This credit was a maximum $8,000 for each person/couple that qualified. There was also an additional $6,500 if the buyer used the property as their primary residence.

The credit was available for homes purchased between January 1, 2009 and July 1, 2010. We recommend that you use this credit if it applies to you. It may save you some money out of your pocket when buying your future home and can reduce your monthly payments by as much as $125 per month.

How much are you willing to spend each month? Once you get a rough estimate of what the average cost per square foot is for the area you want to purchase in, then add the average amount of money spent on furniture and household items. This will give you an estimated purchase price for your home.

Do you have any large outstanding debts outside of the property? There are many options on how to finance your home purchase. The first step is to make sure that you do not have any outstanding debts outside of a mortgage. Once you no longer have any other debts than the mortgage, then you can begin to look into other types of loans.

2. Determine what types of loan programs available

There are five categories into which loans fall: 

Conventional Home Purchase Loan - Funds borrowed from a traditional lender like a bank or credit union. This is usually used for 90% to 95% of all home purchases. FHA Home Purchase Loan - Funds borrowed from the Federal Housing Authority. There is usually a minimum down payment of 3.5% and often there are no closing costs. VA Home Purchase Loan - Funds borrowed from the Department of Veteran Affairs. There is no money down with this loan program, but there are homes that FHA will not buy mortgages on. USDA Home Purchase Loan - Funds borrowed from the United States Department of Agriculture. The home must be located in an approved area and property taxes must be paid year round in order to qualify for this loan type. Conventional Non-Purchase Loan

- This is different than the conventional home purchase loan mentioned above because it is just a personal loan to pay for expenses related to the home such as property taxes, moving expenses etc. Quick Loan - Funds borrowed from a private lender. Interest rates are based on the Federal Funds Rate and are higher than a conventional home purchase loan. This loan type is often used to get cash in a hurry and can be as high as 25% per year. Pre-Qualification - This is something that we do not loan out at this time, but this is when you can inquire about what types of loans are offered.

For more information on each of the above categories, please read our blog post - 4 Tips To Finding The Best Real Estate Loan For You .

3. Determine the property you would like to purchase

Once you have determined what loans you would like to apply for, then it is time to pick a specific property that fits your budget. 

What is the area of your home? 

How much are you willing to spend on furniture and household items? 

What is the average cost per square foot in the area of your home? Knowing these things will help guide your search for the best loan for you. First from our lending partners listed below then from some of our blog post readers that have shared their experience.

4. Determine if you would like to be pre-approved for a loan

I would always encourage you to be pre-approved for a loan before going out and looking at houses. If you find something that you are interested in and do not have a pre-approval, then the seller may not hold it for you. Once buyers know that the offer is from someone who has been approved for financing, then sellers are more likely to give their homes serious consideration. Having an offer to purchase endorsed by an escrow company also helps put power behind your bid.

5. Determine the type of loan that works best for your situation

When looking at Conventional Loans and Government Loans, you will see two types of numbers next to each program. The first is the maximum amount that the lender can offer you and the second is what Lender you will be working with on this loan. So if you wanted to get a Conventional Loan with a max amount of $375,000 and worked with Bank A who could only give you $300,000, then the second number would be $300,000 and only Bank A could close that loan for you. Lenders have guidelines and algorithms they use to determine which loan will work best for them. This can be different for each person depending on the information that you provide. The more thorough your loan application, the more likely its chances of approval will be.

6. Obtain a pre-approval letter before applying for a mortgage

A pre-approval is something that we rarely loan out because it can give you too much information and it can lead to lowers chances of approval. When you ask for a pre-approval from us, we simply just do an AMI search on our computer in order to determine if there are lenders out there that would be willing to make a loan for you based on your information.

Conclusion

Real estate home loans are no different than any other type of loan. It is important to take the time to fully understand the program that you want to apply for and know exactly what you need from that lender. Without this, it will be hard for them to understand your needs as well as build a relationship with you in order to make you a loan.

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