The most important first step in purchasing a house is putting together a budget and knowing how much you can spend and what your monthly payments will be. When banks pre-qualify buyers (so to speak), in order to do so they have to look at the buyer's last two years tax returns, last three months bank statements and full factual credit report at a minimal level. The bank will form a ratio of your monthly living expense (mortgage payment, real estate taxes and homeowners insurance) vs your reported income.
Several years ago mortgage rates for a 30 year fixed mortgage were about 6%. At that time if you took a 30 year fixed mortgage at 6% for say $400,000.00 your mortgage payment would have been $2,400.00 per month. Right now (6/25/2010) mortgage rates are the lowest they have been in the history of man. Now you can get a 30 year fixed mortgage with a rate of about 4.375%. This means that if you borrow the same $400,000.00 now with the lower rate you will be paying just $1996.00 per month. Wow... a savings of over $400.00 per month!!
Combine that with the fact that prices in most areas are also down by at least 10% in most parts of Brooklyn over the past two years creates a fantastic buying opportunity for consumers right now. The house you were buying for $450,000.00 in 2008 can now be purchased (in most cases) for $410,000.00. When you take that and the lower mortgage rates into consideration, you would be saving almost $500.00 per month!
This is the first time ever that mortgage rates and home prices are both low relatively speaking. Usually home prices and mortgage rates act conversely. When rates go down prices go up and when rates go up prices go down. I think it is safe to assume that as we move forward, either mortgage rates or home prices will go up. Hence if you wait to buy, you may miss a great opportunity.
So in order purchase you need to prepare a budget and get yourself pre-qualified. Your best bet would be to meet with three banks with all the paperwork I mentioned above and have them run your credit. At that point the banks will be able to explain to you your options and what type of mortgage products they can offer you. Keep in mind that as a buyer you will also incur closing costs associated with your mortgage which generally will be about 5% of the actual loan amount. When you compare banks you have to take into consideration the actual rate they offer you and the closing costs to determine who is offering you the best deal. In addition to that, often times a bank will allow you to"buy down" the rate by paying extra points (1% of the loan amount). The only time you will want to consider doing that is if you are certain that you will not be paying off the loan for a long time.
Here is a list of questions to ask the banks when your getting pre-qualified:
1) What is the rate you can offer me?
2) How much are the closing costs?
3) Do I have to pay any points to get the rate you quoted?
4) Can I buy down the rate and if so how much would that cost?
5) How quickly can you get me a commitment once I put in an actual application?
6) Do you need any other paperwork from me?
7) What other types of loan products do I qualify for (as opposed to a 30 year fixed mortgage) and how will they benefit me?
8) Can I lock-in the rate you are quoting me? If so for how long does the lock-in last? Do I have to pay to lock-in?
With regard to number (8) above... most of the time when a bank quotes you a rate it is NOT locked in. This is because nobody knows how long it will take you to find a house you want to buy. Ultimately when you do negotiate a deal and go into contract to purchase a home, you will then be submitting your actual mortgage application to the bank. Because rates always go up and down, the bank will not be able to lock-in your rate until they know you are actually buying a house. Sometimes buyer chose not to lock-in the rate. In that case you will not know what rate you will actually get until the closing is set up. At that point in time the bank would set the rate at whatever the prevailing rates are (which could be anything, who knows). Sometimes the rate can be what the bank originally quoted, other times is can be very different so you have to be cautious. The best thing to do if you want to be sure is to ask what rate you will be given again at the time you submit your actual mortgage application to the bank. At that juncture, if you happy with the rate you should lock-in!
Here are some additional questions to ask when you lock-in:
1) How much do I have to pay to lock-in?
2) Will that lock-in fee be credited back to me at the closing (usually it will be!)?
3) How long does the lock-in last?
You want to make sure the lock-in will be good long enough for you to close. Speak to your attorney about that to make sure you have enough time. I hope you find this information helpful and informative. If you have a question regarding this blog entry or Brooklyn real estate in general, submit them to my blog or contact me direct. Thanks for reading!!
© Copyright by Mitchell Feldman. All Rights Reserved. Republication or redistribution of this material is expressly prohibited without prior written consent by Mitchell Feldman. This information is deemed reliable but not 100% guaranteed. Mitchell Feldman is not at attorney and therefore not able to give legal advice. If you are involved in a real estate transaction and have a question, besides speaking to Mitchell, you should also speak to your attorney.
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