The excitement of owning a new home can often be quickly overshadowed by the realization that you either cannot afford the home you truly want or by the reality that your credit is not what you hoped it would be. Fortunately, but doing some pre-planning, being smart with your money and working with the right mortgage expert, you will be able to be prepared for the process of buying and financing the best home for you and your family.
Before you even begin looking for a new home (or consider building one) you should first clean up your credit history. Angie Schreiner with Liberty First Credit Union says, “The higher your credit score is, the better the rate you will qualify for on your loan. So a few months before applying for a mortgage, review your credit report and check for any discrepancies. You can access your credit report for free from all three credit reporting agencies once a year by visiting www.annualcreditreport.com.” She also has some tips to keep in mind when you begin looking at mortgage options. “The first is, don’t become house poor,” she says. “Be realistic about what payment you can afford and that works with your budget. A general rule of thumb is borrowing roughly two to two and a half times your annual gross salary if your other debt load is in line. You should also know the 28/40 ratios rule. The majority of lenders use the same automated underwriting system to approve their loans and prefer that around 28 percent of your gross monthly income goes to your house payment (including principal, interest, taxes and insurance). Lenders also need the borrower’s overall debt ratio to fall below 40 percent of their gross monthly income but can vary a little.”
“More is better when it comes to down payments,” continues Angie Schreiner, “because it qualifies you for additional types of loans with better rates. The day of you’re the zero down payment on a home loan has gone away and depending on the program, you may need three to five percent as a minimum amount down just to qualify for a loan program. Finally, you should get pre-approved for a mortgage before you begin searching for homes with a mortgage loan officer you trust. That way, you’ll be better able to focus on the best potential home in your price range and give yourself one additional competitive advantage should you decide to make an offer.”
When it comes to loan options, there are a few different ones to consider depending on your situation. Wayne Kreikemeier, Vice President of Mortgage Lending for NBC Bank, says, “We offer conventional loans, FHL, VA and USDA Rural Development loans. In this rate environment, most borrowers will want to lock in a rate for 15-30 years. However, Adjustable Rate Mortgages are also an option and appropriate in some cases.”
Luke Mitchell, Mortgage Officer with Cornhusker Bank, says, “We offer a number of loan programs, which means that we have a program to cover each buyer’s unique needs, from first time homebuyers with $1,000 down to Jumbo loans. The best option varies for each person depending on their credit history, down payment and future goals.”
“This is a great time to buy a new home,” Luke Mitchell adds. “Interest rates are still low and there are great financing options available. We’ve become spoiled by these low interest rates over the last couple of years, but it’s important to keep in mind that the market could change very quickly and some economists are even predicting significantly higher rates by the end of this summer.”
Though most banks offer relatively the same loan programs (with some variation), it’s still important to choose the right lender for your needs. “The right lender is one who listens first and asks questions about the customer’s homeownership goals,” says Wayne Kreikemeier. “A lender who listens will give a customer the right options for their mortgage financing needs. Our goal is to match the right product and terms to the customer’s financial situation so that they will have a successful home ownership experience.”
Choosing a Title Company
A related topic to choosing the right loan program and right lender is choosing the best title company for your needs. This is often a topic that many buyers are unaware of because it’s just taken care of by the lender. However, it’s important to note that you can choose your own title company and your decision may have an affect on your overall satisfaction with the transaction.
Some people are not even clear on what a title company does. Danielle Swerczek with Nebraska Title Company explains, “Once a contract is executed, if the buyer agrees to pay any portion of the title premium, by law it is the buyer’s choice to choose the title company; the title companies name should be designated on the purchase agreement. The title company should receive the purchase agreement, addendums and earnest deposit. At that point, the title company will research the public records on the property and produce a title commitment. The title commitment will show who is currently in title to the property, the proposed insured, agreed upon purchase price, and loan amount. Any requirements to clear title to the property will show on this commitment. Title insurance premiums are a single premium expense paid at the time of purchase of the real estate.”
“The fact that title insurance rates are consistent between companies in the State of Nebraska, experience and service are the key differences between title companies,” continues Danielle Swerczek. “Nebraska Title Company has over 64 years experience in Nebraska and we employ personnel that have worked for our company the entire 60 (+) years. Nebraska Title Company employs two attorneys on staff, along with five Registered Abstracters and 20 licensed title agents. Our company also currently underwrites with five solid underwriters, which gives us a unique advantage in our flexibility with requirements and clearing title to property and it also provides an advantage if you are refinancing a property as some underwriters offer a reduced premium rate.”
Danielle Swerczek also offers some advice to those who are choosing a title company. “Consider the longevity of the company; the experience of the personnel, word of mouth reputation; and their area of expertise. There is a broad range of experience within real estate and title companies. For example, if you are buying a foreclosed property, consider using a company that is familiar with the process and can successfully help you accomplish your goal of closing on the property without any undue stress.”
The process of buying and financing a home can be a stressful one, especially if you have not done your homework ahead of time and cleaned up your credit and found out how much of a mortgage you can qualify for. Do your research, work with the right professionals and be smart with your spending and you’ll be able to achieve the dream of owning your own home!