The following buyer guide is base in the Home Loan Toolkit published by the Consumer Financial Protection Bureau. You can download the complete booklet here. Make sure you read and understand it. A couple of hours of your time that can save you thousands of dollars and the chances of being taken advantage of.
Para bajar la guia del comprador en espanol haga click aqui Buyers-Guide-CFPB-espanol
1. Figure how much you can afford:
What you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate.
Your lender can consider only if you are able to repay your mortgage. But only you can decide how much you are comfortable paying each month. What you feel is affordable is more important.
- What’s more important a bigger home with a larger mortgage or more financial flexibility?
- What will a mortgage payment mean for other financial goals?
- How much your family want to budget for all the monthly housing costs (including repairs, furniture and new appliances?)
2. Know your rights:
Educate yourself about your rights as a buyer and borrower. You should protect yourself against discrimination and predatory lending.
Buying a home may be the largest and more important loan you get during your lifetime, so you should be aware of certain rights before you enter into any loan agreement:
- You have the RIGHT to shop for the best loan for you and compare the charges of different mortgage brokers and lenders.
- You have the RIGHT to be informed about the total cost of your loan including the interest rate, points and other fees.
- You have the RIGHT to ask for a Good Faith Estimate of all loan and settlement charges before you agree to the loan and pay any fees.
- You have the RIGHT to know what fees are not refundable if you decide to cancel the loan agreement.
- You have the RIGHT to ask your mortgage broker to explain exactly what the mortgage broker will do for you.
- You have the RIGHT to know how much the mortgage broker is getting paid by you and the lender for your loan.
- You have the RIGHT to ask questions about charges and loan terms that you do not understand.
- You have the RIGHT to a credit decision that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.
- You have the RIGHT to know the reason if your loan was turned down.
- You have a RIGHT to ask for the HUD settlement cost booklet “Shopping for Your Home Loan”.
3. Shop for a loan:
Don’t settle for just one bank or broker. You need to seriously shop for a loan. The work here could save you thousands of dollars over the life of your mortgage.
Consider Several Loan Providers:
Make a list of several lenders that you want to consider ( credit union, community banks, mortgage brokers, online lenders and large banks)
Gather facts and compare cost:
Find out from your lenders what loan options they recommend for you and cost and benefits of each. You may find that your bank will give you a discount because you are a customer there…
Get at least 3 offers – IN WRITING:
Make sure that you get the offer or “Loan Estimate” in writing so you can compare them. If a broker, bank or loan provider doesn’t want to provide a written offer move on. There are hundreds of loan providers. Don’t trust anyone that does give you a written Loan Estimate to compare.
The Loan Estimate is a standard offer and should be sent within 3 days of you asking for it. Some lenders may charge you a small fee to run your credit but most of them will do it for free.
Compare Total Loan Cost:
Review the loan estimate and compare the total loan costs with you can see in the Section D at the bottom left of the second page of the loan estimate (All loan estimate should use a standard form).
In the third page you will find the Annual Percentage Rate (APR) and the Total Interest Percentage ( TIP), which is the total amount of interest that you pay over the loan term. You can use APR and TIP to compare loan offers.
4.Choose your mortgage:
Time to make a decision. Make sure you can answer YES the following questions:
a. Can I repay this loan
b. I am comfortable with my monthly payment
c. I shopped enough to know this is a good deal for me
d. There are not risky feature like balloon payment or prepayment penalty I can’t handle down the road
e. I know whether my principal and interest payment will increase in the future.
5. Intent to Proceed:
Remember that you have not committed to any lender until you have signed the closing documents. The Loan Estimate doesn’t mean that the lender has approved or denied the loan. The loan estimate is what they will offer you if you decide to move forward with the loan…
When you have choose your mortgage provider you tell the office that “you intent to proceed”. Lenders need to wait for your intent to proceed BEFORE they require you to pay for an application fee, appraisal fee or any other fee
6. Rate Lock:
Mortgage officers talk about “rate lock” that means it will stay or “floating” that means that it can go up or down BEFORE a set date: 30,60,90 days. The policy of locking the rate varies by lender and if you lock and the rate drops you are lock in the high one. But if the rate goes up and your rate is locked, you will keep the lower rate. Also if you haven’t close in the lock period can get expensive to extend the lock rate… ask lots of questions about rate lock to your officer so you can understand what you are getting.
Once you have decided to move forward with the loan you need to choose a Closing agent, revise the Loan Estimate ( sometimes the lender will give you a new one because something change, like you decide to go for a bigger loan, etc). It is Illegal for a lender to quote you low fees and cost in a Loan Estimate and then surprise you with much higher costs in a revised loan.
8. Educate Yourself:
Be a more educated buyer and make sure you read the complete Loan Toolkit that you can download here. This will save you head aches and thousands of dollars in the purchase of your property.
Other Documents that you should read are: