Your Buying Power

Your Buying Power determines what home you are able to buy.  It is one of the first things that you need to determine before you start seriously looking at homes (the other is to find a good Realtor).  If you start out looking at homes that are not in your price range, you will not only frustrate yourself, but you will waste your time. 

In order to find out your Buying Power, you need to contact a Mortgage Company or Financial Institution that loans money for mortgages and ask them to "Pre-approve" you for a loan to buy a home.  While they will run a credit check when they do this, the credit bureaus normally consider credit checks run by different mortgage companies within a month - 6 week time period to be one check against your credit, since they recognize that you will only be buying one home.  You should NOT need to pay for a mortgage pre-approval.  You may be asked if you want to "lock in" the current low interest rate.  If you decide to do that, you need to ensure that the lock in fee will be credited back to you at closing, as a prepayment.  You should not pay to lock-in with a company unless you are certain that you will be using them for your loan, since they do not have to refund your money if you use a different mortgage company.  Please remember, that once you select a mortgage company to use, it is VERY important to give the company permission to share your information with your Realtor.  This means that they can send your Realtor a copy of your Mortgage Pre-approval letter (which is needed when you put a contract on a home) and they can work with your Realtor to ensure that all the paperwork is in place to get your loan approved in a timely manner so that you meet your loan commitment date to ensure a successful closing!

There are many many Mortgage Companies in today's market.  While the majority of them are good reputable companies, there are some that are better than others. 

How do you judge a mortgage company?  What should you look for?

1) Most people start by checking the interest rates to see which are the best.

2) Next check the programs or plans that they have - do you want a 30 year fixed mortgage or an adjustable rate mortgage or a combination?  Do you need a mortgage that will cover the closing costs or that will allow you to purchase a home with very little money out of pocket?
 
If you aren't sure what the different types of mortgages are, you can request a free booklet from the Fannie May Foundation, titled "Choosing the Mortgage That's Right for You" or a booklet titled "Opening the Door to a Home of Your Own" by calling 1-800-688-HOME (4663).  If you have credit issues, you may want to check out the free Fannie May Foundation booklet titled "Knowing and Understanding Your Credit"  That guide is available at 1-800-605-5200.

3) Interest rates are not the only way to judge a mortgage company.  You should look for a company that you feel comfortable using.  You should compare their fees and charges (many companies will match or beat their competition's best offer, but the loans must be for the same terms).  You may want to ask if they will have a representative at closing to go over your paperwork with you and ensure that you understand everything that you are signing.  If you qualify for a special program (for example the "policeman or teacher in the neighborhood program")how familiar are they with the program?  Do they suggest options that will help you to meet your goals?

4) As a Realtor, one of the most important thing that I look for, is whether or not they will fund your loan quickly and on time.  There is nothing more frustrating than to have a client sign all the papers at the closing table, but the mortgage company doesn't fund the loan that day.  What happens then?  The new buyer doesn't get the keys to their new home until the loan is funded and the monies have actually been transferred from the buyer's mortgage company to the seller (or the seller's mortgage company to pay off his loan on the home).

I am often asked for a list of reputable mortgage companies.  I would suggest that you start by talking with any financial institution that you are already doing business with (your bank or credit union).  If you currently own a home, check with the mortgage company that you used when you purchased or refinanced that home, provided that you are happy with how they have handled your business in the past.  But, remember, they will often have a meet or beat guarantee, so contact other companies as well, and compare.