Years ago a client wanted to use her bank to finance the purchase of a home. She’d banked there for ages and felt they’d take the best care of her.
I encouraged her to put in a loan application with the local loan broker as well. That broker ended up negotiating her a better deal with her own bank! Her monthly payments and closing costs ended up being lower than what her bank had quoted her when she applied for a loan directly with them.
I am sure you wounder, how could the loan broker get her a better deal at her own bank? The loan broker got all the banks competing against each other for her loan, including her bank. This process gave her broker leverage to negotiate her a better deal.
Now you may have money to buy your home without a loan. We’ll talk about that in a moment but first, let’s talk about the most effective way to shop for your loan.
Getting qualified for a loan
Shop you loan you may still want to work with your favorite bank. You may have even seen some very enticing ads for an online loan broker. Take a week to apply for loans with several places. Including a local loan broker. Make sure you put in all your loan applications within a week as their credit checks will adversely effect your score. Shopping in a short time-frame minimises the impact to your credit. When shopping, set your budget and assume a particular loan program. Say your borrowing $250,000 on a conventional loan. Have each lender quote you closing costs for those same loan terms. Then you can compare apples to apples.
Turn in your financials You want the lender you chose to do income verification up front, with zero reliance on verbals. This requires they review your financial statements such as W2(s), Tax Returns, Bank Statements, 1099(s) etc. Make sure to supply these forms up front for your lender to review. Some lenders refuse to do this extra step until you have an purchase contract. Yet many sellers will not consider offers without a fully scrutinised loan application substantially limiting your search. Move on if your lender says this to you.
Get a loan Pre-qualification Letter have the lender issue you a loan pre-qualification letter. The bank may have it’s own form but if you are in Arizona, make sure it’s the AAR Pre-Qualification. This form MUST accompany any financed offers you make. This form must also indicate your financials have been reviewed (per last step). It will also quote you an interest rate and monthly payment. Keep in mind while shopping that interest rate can fluctuate. The monthly payment also includes Home Owner Association Fees, taxes, and insurance payments so as these other payments increase the amount you can borrow decreases.
Didn’t qualify today? Don’t be shy to take advantage of your lender’s expertise. A good lender will tell you why you don’t qualify and a great one will tell you how to fix that so you do. The lender I typically work with will even tell you how to play the market so you can get an even better rate and or pay your future home off sooner.
Paying with cash
Cash is certainly the easiest way to buy a home. Even if you do have cash you may still want to consider a loan. Using somebody else’s money helps reduce risk to you. It also allows you to keep your cash in investments or for spending. Typically financing terms are best when buying a home so if you ever plan on borrowing money this may be the perfect time.
You will need a proof of funds if you still plan on using your hard earned cash. This can be a simple as a bank statement. Make sure it has your name on it (same name you are writing contract with) and your bank account numbers are blocked out. You may alternatively provide a cover letter from your financial institution. This keeps your balances private while providing the seller of a home a point of contact to verify funds for the purchase amount.
Ask me a question, any question…
This whole internet thing can be a bit impersonal. I do promise you there is a person behind the curtain though. Please make sure to write me a question. I want to know specifically what concerns you have when it comes to borrowing money and funding your home purchase. Send me a message in the form below and I’ll get right back with you.