Buying a Home in Today's Economy

Today’s economy presents expanded opportunities for anyone thinking about purchasing a home, whether you are a first-time buyer or an experienced homeowner. However, it is important to enter the process carefully and be sure to fully research and understand all of the details associated with any mortgage you are undertaking.

There truly has never been a better time to buy. Mortgage rates are at record lows. Housing costs have declined. And, there are a variety of incentives to entice you even more – including an $8,000 tax credit for first-time single family homebuyers who have an income of less than $75,000 (or less than $150,000 for families with joint income).

To begin, you should put together a qualified team working on your behalf consisting of a trusted mortgage lender, realtor, attorney, home inspector and insurance agent. All of these individuals will provide a valuable service to help ensure you end up with the best mortgage and associated costs.

As you are looking for a mortgage, you need to plan for more than just your monthly payment and closing costs. It’s important to keep up-front costs in mind. Prior to closing, you will be expected to pay an appraisal and application fee among other possible fees. Additionally, a home inspection will be required, which you pay directly to the inspector.

It is generally a good idea to receive pre-qualification from a trusted lender before signing a purchase and sale agreement. This helps you better understand what you can afford before you buy. Most realtors actually require a pre-qualification prior to submitting an offer on a property.

It is also imperative for you to have a clear understanding of your credit position before applying for a mortgage. Your credit score affects your ability to be approved as well as the interest rate you will receive, which can significantly affect your monthly payment.

Consumer credit is scored by three different agencies – Trans Union, Experian and Equifax, and scores range from 350 to 850. A variety of factors affect your credit score including:

• Whether or not you have paid bills on time
• How much outstanding credit you have
• Your credit history – length of time credit was established
• Type of credit – mix of loans and credit card debt is best
• Number of inquiries made on your credit – credit cards and other non-mortgage inquiries negatively affect your score

If you do not have established credit, alternative credit options may be available including proof of payment to at least three creditors.

You may obtain a free credit report once a year from www.annualcreditreport.com. It is important to request your report to check for suspicious activity or inaccurate information.

If you are looking into an investment property, keep in mind that rates are typically higher than for owner occupied properties. You may also be required to pay points for an investment property (one point equals one percent of the loan).

If you do not have a large down payment or do not have perfect credit, there are several mortgage options for which you may qualify:

• FHA – A Federal Housing Administration Loan provides up to 96.5% financing and allows the remainder 3.5% to be gifted from a family member. Additionally, the private mortgage insurance that is required may be rolled into the mortgage or paid by the seller. While there are no income limits, a minimum credit score of 620 is required.
• MassHousing – This is a state program that is for first-time homebuyers only in most areas (North Adams being an exception). It provides up to 97% financing, and for single family purchases, the remainder 3% may be gifted. There are income restrictions for MassHousing loans, and a minimum credit score of 680 as well as mortgage insurance with employment protection are required.
• My Community – This provides up to 100% financing and is not restricted to first-time homebuyers. There are income restrictions as well as a minimum credit score requirement of 720, but discounted private mortgage insurance with employment protection is also available.

If you are looking for financing, then it is wise to work with a lender that offers these programs, such as Legacy Banks.

For the most part, all mortgage seekers will be required to prove that they have been employed by the same employer or in the same field for at least two years. Exceptions are recent graduates, individuals who change careers following a layoff, those attending school for professional training or individuals who may have had extended illnesses or disabilities.

When you apply for a mortgage a variety of documents will be required, including proof of income, verification of assets, tax returns, bank statements, identification and a copy of the purchase and sale. Generally, when you submit the application, the rate is locked for up to 60 days. The lender will then order an appraisal of the property (to prove it is worth what you are paying). You will then receive a Receipt of Good Faith Estimate and Truth in Lending documents - estimates of your closing costs and prepaid expenses at closing. If approved, you will receive a commitment letter with any outstanding items.

As you begin your endeavor of buying a home and finding a mortgage, it is more important than ever to find a lender you can trust. With all of the questionable mortgage activity taking place today, it is advisable to work with a local community bank, such as Legacy Banks, which has knowledgeable mortgage experts who can walk you through the process.

After all, this will likely be the largest investment you will ever make. If you have any questions about the process of finding the right mortgage, feel free to contact Legacy at 800-292-6634 and ask for a mortgage professional.