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If so, now you have to make your plan. While your first impulse may be to call your favorite Realtor® and start looking at properties, you should do some homework before starting to look at homes. After all, you don’t want to fall in love with a house, only to discover that you won’t be able to qualify for the loan!
It is always a good idea to have a trusted mortgage lender as a resource to guide you early in the process, but you can do some of the initial work on your own. You already know how much cash you have available for your down payment and closing costs, but you should get at least a rough idea of your payment by going to the Sammamish Online Calculator to determine the mortgage payment for the loan amount and interest rate you enter.
If you plan to make a down payment of less than 20%, you’ll pay mortgage insurance. For a simple calculation of what mortgage insurance will cost, use ½% of your loan amount divided by 12.
Write that number down under the mortgage payment.
Next, calculate your monthly property tax. At this stage, use 1% of the purchase price, divided by 12.
Finally, add the cost of homeowner’s insurance. Although premiums vary, we are working with very rough numbers at this stage. $900 per year for insurance is a reasonable number, so divide it by 12 to get the monthly amount of $75.
Add all those numbers up to get your total house payment. If it’s higher than your budget will allow, play with the Sammamish calculator until you get a number you’re comfortable with. If you’re technically adept, you can create a simple spreadsheet to do some of the number crunching for you.
Now you should find out whether you can qualify for that house payment. To do this, you need to know what your current monthly debt payments are. This would include credit card bills, car payments, student loans and alimony or child support—any debt payment that will last 10 months or more. Add those monthly payments to the house payment you calculated earlier. This is your “total debt.”
Finally, calculate your “debt-to-income ratio” (DTI). Divide the total debt figure by your gross monthly income (before taxes). If this number is 45% or lower, you should be in the ballpark to qualify.
Please keep in mind that the simple process we’ve just outlined is no substitute for an in-depth conversation with a loan originator. Still, it’s a good start to give you an idea of where you stand. If this all seems like a lot of work, it is—but your Sammamish loan officer does this every day. Your loan officer would be happy to go through the whole process with you.
You might be thinking that NOW would be a good time to call your favorite Realtor® and start looking at houses. Not quite; now is the time to start the preapproval process with your loan officer.
During your conversation with the loan officer, your loan application will be created. Your loan officer will get your credit report and merge that information into your application. All this information will indicate how much home you are actually qualified to buy. If you’ve provide all the necessary documents, your loan officer should be able to give you a preapproval letter.
Many Realtors® have “preferred lenders” they like to deal with. That status means only that they have done business with those lenders in the past. It does NOT mean you’ll get a “better deal” from them. You should always deal with the people you feel most comfortable with. You should expect your loan officer to answer your questions in a way you understand, and the loan officer should communicate with you effectively and return calls and emails promptly.
Keep in mind that Realtors® don’t get paid until you have a successful transaction with them. By showing your agent that you have done your homework ahead of time—especially by getting preapproved by your lender—you’ll show them that you are serious. They’ll know that they have the perfect chance of getting paid for the time they spend with you. Being preapproved at the very beginning is the ideal way to get a real estate agent to work tirelessly for you.
You should write down your answers to these questions so you’ll be able to have a meaningful and productive conversation with your Realtor®.
Another thing that’s worth mentioning: it is far more productive to focus on those aspects of your new home that you DO want, rather than giving your Realtor® a long list of what you DON’T want.
Finally, as you look at homes, consider keeping notes. What did you like? What did you hate about each house? Each home you look at should get you closer to THE home you’re looking for, as you narrow down your choices.
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state since 1992, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest. Contact us today with any questions you have about mortgages.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.