Ready for my first home

Question

1.Apply for a mortgage I have heard that I should shop for many lenders. Here is a few questions related to this:

1.1 My friends tells me that I should look for a good lending company and I should read reviews. The reason why -- escapes my understanding. Does it really matter if the company is good or bad since I am the one who cuts them a check every month? I don't care if they have bad rating, if they have poor financial standing or awful customer care, if they are even to file bankruptcy. They cannot legally ask me to pay up and that’s all that matters. Where am I wrong ?

1.2 Are mortgage rates fixed among all lenders ? It seems so: BOA and CHASE but then I hear that if my credit score is too low then I will get a higher rate. So assume if it is a great score than I will get a lower rate ? Correct ? If so, what are those number that everyone posts ?

1.3 What if I get approved with three lenders? Do I take all three letters to a real estate broker or I must reject two of the offers ? Should I take the highest amount or the lowest interest ? But again, the interest should be the same ?

Everyone is mentioning FHA. My goals are to avoid paying PMI and get over with paying my mortgage fast because I do not like to lose money on interest. I am comfortable with 20% down. Given these three of my preferences, is my dismissal of FHA options justified or perhaps I am missing something ?

2. Search for property.

2.1 So I got a letter of approval for $200K and take it to a real estate broker. We found a perfect home for $205K. My offer for $200K is rejected. Can I put extra $5K down or can I negotiate this with the bank or this house is out of my reach ? What if I take a cash advance on my credit card (let’s not discuss whether it is smart or dumb, in addition, the question is what mechanisms are there for bank to prevent me from maxing out all credit cards moments before I sign the contract. Again. Let’s avoid moral side of the issue and focus on regulations)

2.2 My mortgage approval letter is valid for 60 days. Does it mean I need to apply for mortgage at 60 days before my lease expires, since I need to apply for mortgage first and then look for a house? If I start looking for a house first, then how much do I know what I can afford ? I visited sites of multiple lenders and entered similar numbers. I get a spectrum from $89K to $240K. This is alarming. How do I break this vicious circle ? What should be the best timeline for a person with 6 month of his lease term remaining?

---

So basically, I am a first time home buyer and I have all these question that I do not seem to be able to find straight answers for. Thanks in advance.

Answer 1

Applying for a mortgage is a bit of paperwork, but not too bad of an experience. Rates are pretty tight, if one lender were more that 1/4% lower than another, they'd be inundated with applications. Above a certain credit score, you get the 'best' rate, a search will show you the rates offered in your area.

If you are a first time buyer, there are mortgages that might benefit you. If you are a vet (for non-native English readers, a veteran who served in the US armed forces, not a veterinarian, who is an animal doctor) there are mortgages that offer low-to-no down payment with attractive rates.

Yes, avoid PMI, it's a crazy penalty on your overall expense of home purchase. If banks qualify you for different amounts, it shouldn't be a huge difference, a few percent variation. But, the standard ratios are pretty liberal even today, and getting the most you'd qualify for is probably too much.

Using the standard 28/36% ratios, a bank will qualify you for 4X your income as a loan. e.g you make $50K, they'll lend you $200K. This is a bit too much in my opinion.

If you come up short, you are really looking to borrow too much, and should probably wait. If you owe a bit on loans, it should squeeze in between those two ratios, 28/36. But I wouldn't borrow on a credit line to add to the purchase, that's asking for trouble.