The first step in the buying process is determining how much you want to spend on a home and putting a financial plan in place to pay for it. If you will be obtaining a mortgage, you will need to be pre-approved before we begin looking at homes. The pre-approval process is simple and will require that you speak directly with a loan officer and provide some basic information regarding income, assets, debt and credit scores.
In order to get you the home of your dreams, I am extremely particular about the lenders my buyer clients work with. I have been asked "Why does it matter who I am approved with or what type of loan I have?" It matters a lot and I am happy to discuss this topic further.
The first thing a seller will look at is your financial position. The professional reputation of your lender can make the difference between a seller accepting or declining your offer. There are several mortgage providers that I can recommend with confidence.
The following “Frequently Asked Questions”, assembled with the help of trustworthy mortgage providers, may be helpful to consider.
- How do I know how much house I can afford?Generally it is the monthly mortgage payment that determines the amount you can afford. The monthly obligation will vary based upon the type of program you select. Usually no more than 1/3 of your gross monthly income can go toward a house payment. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. Different mortgage programs will carry different interest rates and payments, therefore your qualifications change with each individual mortgage program.
- How do I know which type of mortgage is best for me?There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture, your intended use of the property and how long you intend to keep your house. Your loan specialist can help you objectively evaluate your choices and help you make the most appropriate decision. Your lender will take a comprehensive look at your available assets, income, and credit history to give you straightforward answers about which choices look right for you.
- What about investment property financing?Rental properties ranging from a single family house, up to a four unit multiplex are eligible for conventional financing. An investment loan carries a higher interest rate to compensate the bank for increased risk. Standard guidelines call for larger down-payments, but exceptions are available. The rental income from the property itself contributes toward the necessary income to qualify. The most significant factor is the monthly cash-flow; the net difference between the income generated and the monthly mortgage payment. In most cases rental experience is examined during the underwriting process.
- What is a Jumbo loan?The term Jumbo loan refers to the dollar amount of the mortgage. Jumbo loans are conventional loans that exceed the limits set by FNMA & FHLMC (Fannie-May & Freddy Mac, respectively). Currently the conforming loan limit for FNMA & FHLMC is $417,000. Any loan amount above that is considered a Jumbo loan. Jumbo loans carry a higher interest rate. In 2008 Congress enacted an economic stimulus package allowing for increased loan amounts offered through FNMA & FHLMC. The higher loan amounts, called Conforming Jumbo, permit loan amounts up to $567,500 in the greater Seattle area. Loans in this special category carry rates higher than conforming, but lower than ordinary Jumbo loans.
- What is a "conforming" loan?Any conventional residential mortgage loan program that meets FNMA or FHLMC (Fannie May or Freddy Mac) underwriting guidelines is called a conforming loan. Those guidelines change periodically to meet market demands or to promote housing policies. Fannie or Freddy study risks involved with lending and determine the credit qualifications they find acceptable in a mortgage application. Lenders make loans according to those guidelines.
The maximum loan amounts acceptable to FNMA & FHLMC are as follows:
- Single family residence: $417,000
- Duplex (2 unit): $533,850
- Tri-plex (3 unit): $645,300
- Four-plex (4-unit): $801,950
- Economic stimulus: $567,500 (single family only)
If you would like to talk further about buying a home in Seattle, contact me for a free consultation. I look forward to hearing from you!