For most people, a home is their largest purchase. At REILLY, REALTORS®, we encourage our home buying clients to spend time evaluating how much to spend on a home, to choose a lender wisely, and always go into the contract negotiation phase with a pre-qualification letter in hand.
Determine How Much You Can (or Want To) Spend
It's important to remember that when you take out a mortgage loan, you are pledging your home as collateral to the mortgage provider, which is most commonly a mortgage banker, a commercial bank or a credit union. Should you default on their monthly payments, the lender has a claim on the house.
When you enter a mortgage agreement, you’re agreeing to make a down payment on a house, followed by a period of payments - including interest - over a period of time. Buyers typically put 20% of the home's sales price down, and usually choose to pay off their debt over a period of 15 or 30 years at various interest rates.
Although lenders will advise you on the size of your mortgage, only you know what you’ll be able to comfortably afford to pay each month. Keep in mind that your monthly payment will also include home insurance and taxes. Use our Mortgage Calculator below to determine what you’ll pay in principal and interest. You can calculate what-if scenarios by varying what percent down you pay, interest rates and the length of your mortgage.
This mortgage calculator can be used to figure out monthly payments of a home mortgage loan, based on the home's sale price, the term of the loan desired, buyer's down payment percentage, and the loan's interest rate. This calculator factors in PMI (Private Mortgage Insurance) for loans where less than 20% is put as a down payment. Also taken into consideration are the town property taxes, and their effect on the total monthly mortgage payment.
Apply for Your Loan
All mortgages start with an application process. The lender you choose will review your credit report as well as the state of your personal finances (income, assets, debt) to determine how much you are able to borrow. This process ultimately helps you narrow your Austin home search and will provide the information needed for a pre-approval letter.
When you are choosing a lender, consider more than advertised mortgage rates and your current relationship with a vendor. We've seen frustrated buyers who choose internet lenders or big banks and end up feeling lost in the shuffle, without an advocate. This is not to say all internet lenders or big banks are bad - we've just had much better luck with local, independent mortgage brokers that have strong relationships and experience with lenders.
REILLY, REALTORS® encourages you to work with your lender early in the process to understand your financing options, such as mortgage rate and duration, long before you are under contract to purchase a home and the clock is ticking. Additionally, between the time you first meet with your lender and the time you close on your home, don't do anything that will change your financial situation (e.g. open a new credit card, purchase a new car, etc.) or you may no longer qualify for a specific loan.
Pre-qualification vs. Pre-approval
Once you are decided upon a home, you can request a pre-qualification letter from your lender, stating that you are pre-qualified to purchase a home at a specific address, or for a specific dollar amount. When you submit a pre-qualification letter with your offer, sellers will take you more seriously because a third party has considered your ability to purchase the home.
Though many use the terms interchangeably, there is a difference between being pre-qualified and being pre-approved. A pre-approval letter is stronger than a pre-qualification letter because it shows the seller that your lender has done all the necessary work, even as far as submitting your loan request through an underwriting review, to ensure you are qualified to purchase the home. In a tight market, a pre-approval letter will make your offer stand out, and if a quick close is important, you and the seller will benefit since the financing leg work has already been done. It's rare to see pre-approval letters (99% of the time we see pre-qualification letters), but it may be worth investigating.
You're Under Contract, Now What?
If you have done the necessary steps upfront with your lender, you'll spend your time during your financing contingency* securing a loan. You'll be asked for documentation supporting your income, assets, and debt, and your loan will go through the underwriting process. We advise our clients to have patience and be ready to answer questions and provide supporting paperwork during this time. With so many government regulations in the mortgage industry, your lender has a lot of bases to cover. Once everything is in place, you'll be approved to close on your home. If you want to know more about what happens between signing the contract and closing on your new home, check out our Buyer's From Contract to Close page. Taking the first steps towards quite possibly the largest investment of your life is important. Let us know if we can help.
*Financing Contingency: A contractually agreed upon time to settle your financing needs, which is usually two to three weeks from contract commencement. If you find you are unable to obtain financing during this time, you can back out of the contract without penalty.