Arrange Your Financing
The first thing you need to know before shopping is what you can afford. You need to determine the upper limit of your budget, then work within that limit. Your maximum mortgage + your equity - any additional closing costs = your maximum budget.
Most buyers fall into one of three categories with respect to financing:
- Don't need financing - have the cash or are confident you can get it.
- Have a place to sell - have equity in your current home to apply to your purchase.
- Need a mortgage - to purchase your home.
Don't need financing
Some buyers are in the pleasant position of having the funds available to buy, so they don't need to worry about a mortgage loan and may make a subject-free offer. From a seller's standpoint, the fewer conditions there are on an offer, the better. Ideally, an offer has no subjects, and the seller knows that if the offer is accepted, the house is sold.
Other buyers may need a mortgage, but know they can get it at agreeable terms and perhaps they are prequalified to a certain amount by their bank or mortgage broker. In this case, they may make an offer without a financing subject in order to make the offer more attractive.
Desirable properties often attract many buyers, and sometimes many offers. If you are in competition, the best way to make your offer more attractive than the others is by having fewer conditions, all else being equal.
Have a place to sell
If you own a home currently and want to buy and move to another home, there is good news and bad news. First, the good news: you have equity in your home, and you may own it outright with no mortgage. You may have your finances all sorted out so you are ready to buy the next place with no worries about selling your current home. The bad news: if you need the money from the sale of your current home in order to buy your next home, there can be a problem with timing. Do you sell first or buy first? If you sell first, you know how much cash you have for your purchase, but what if you can't find what you want and you are out on the street? If you buy first, what if you can't sell your home, or the prices drop? This is a very common situation which I run into frequently. Rest assured, there are solutions to this, but this is a very important matter which I prefer to discuss personally - please contact me.
Need a mortgage
If you need a mortgage, you may decide to talk to your banker. You may have dealt with your bank for years, and you should expect to be treated well when you apply for your mortgage. If not, you might consider using a mortgage broker.
A mortgage broker does all the leg work for you, to suit your schedule, and treats you with respect. The broker has access to all the institutional lenders such as banks, credit unions, and trust companies, as well as other lenders for unusual loans. The broker will determine who has the best rates, the best terms, and the best overall loan proposal for your particular circumstances. The broker has expertise in the loan application process, taking your financial details and processing the application through the lender and the loan insurer to a successful conclusion. You will receive a loan commitment, confirming the amount you are qualified to borrow, as well as the interest rate, payment amount, and all other terms of the loan. This is your pre-approval.
Once you are pre-approved, your interest rate is secured, typically for two to three months. If rates go up, you get the quoted rate. If rates go down, you get the lower rate. The mortgage broker is typically paid by the lender, so there is no cost to you. You save time and aggravation, and get the best possible rate and terms. Many buyers today use a broker and are glad they did!
