Unless you plan to pay cash to buy a house, it’s a great idea to get pre-approved for a mortgage before you begin looking for properties to purchase. In order to make an offer on a property, you will need a pre-approval letter from a lender, so you’ll have to go through the mortgage pre-approval process one way or another. Our real estate agents in Austin suggest starting the pre-approval process sooner rather than later; it not only gives you buying power, it also helps you narrow down your search.
1. How much will you need to put
down on a property & how do different down payment amounts affect your mortgage rate & any
PMI (Mortgage Insurance.)
2. What do prospective monthly
payments look like for different-priced homes?
3. How do different down payment
amounts affect your monthly payment for a specific price point?
Answering these questions helps you determine your price range and gets us off to a great start on your search.
If you would like a referral to a great lender, just let us know.
When looking for a lender, we recommend the following:Go Local!
Local mortgage bankers rely on referrals to get most of their business, so they have to protect their local reputation. A local loan originator (LO) will be much more motivated to close your loan on time & with little hassle than someone in Hoboken, NJ.Use an LO & bank that specializes in mortgages.
These types of LO’s are typically 100% commission jobs. So, they’re highly motivated to get you approved & to make sure your loan closes on time.Use someone w/ an online social media presence, specifically with reviews.
If your lender is rated well on Yelp, Google+, or AngiesList, that the lender will want to protect his/her rating (and hopefully get a new, positive review from you.)Stay away from national retail banks
Like Wells Fargo, Bank of America, Chase, etc… You might already bank w/ a national bank, and it might seem natural to go to them for a mortgage. In our experience, their mortgage departments are typically staffed with lower-paid employees who aren’t heavily incentivized, which means they have little motivation to do a good job for you.
If you’re hesitant to speak with a lender now, you can get started on your own by taking the following steps:
- Check your credit score at CreditKarma.com. Typically, you’ll need at least a 660 to qualify (with some exceptions for FHA & VA financing.) The higher your credit score, the better rate the bank will offer you. You’ll get the most attractive rate with a 740+ credit score.
- Use an online mortgage calculator or download an app to your phone. Make sure that it calculates Principal, Interest, Taxes, & Insurance (PITI) which is your total monthly payment. Bear in mind that Texas has higher property taxes than most calculators will assume. For Android, we recommend using Karl’s Mortgage Calculator and we recommend the Quicken Loans app (though we strongly recommend against using Quicken Loans.)
- Calculate your Debt to Income Ratio (DTI.) This is your total monthly debt load (student loans, car payments, minimum credit cards, etc) divided by your monthly pre-tax income. Your lender will approve you for roughly 50% DTI, so you can add in prospective mortgage payments (PITI) to get an idea of what you’ll qualify for.
Sources: [1] Credit Karma [2] Bankrate – Mortgage Calculator With Taxes And Insurance [3] Dr. Calculator – Karl’s Mortgage Calculator [4] Quicken Loans Mortgage Calculator App
