Q: I am a single professional who has been renting for the past 10 years. I love my apartment, and it’s very convenient to my office. Nonetheless, I have been persuaded by friends to look into buying a home because I have a good income and a substantial savings account.
I made an appointment with a local real estate company, which made me fill out a financial form. The next thing I knew, the agent was sending me a bunch of listings of homes for sale.
The price of those homes doesn’t mean a whole lot to me. I’d like to speak with a financial person who can tell me how much down payment I need, what kind of rate I can get and what my payment would be. I don’t know whom to talk to regarding this. Any advice?
A: Yes, my first piece of advice is to change your real estate company. You are exactly right. The first step in the home-purchase process is to consult with a qualified mortgage loan officer, and the real estate agent should have told you that. The real estate agents with whom I work tell their clients to call me or another qualified mortgage professional before they do anything else.
It’s up to the loan officer not only to help the buyer qualify for a particular loan amount, but also to help establish the buyer’s objectives and devise a detailed plan of action. A future homebuyer shouldn’t start his home search until he has determined an appropriate purchase price range and until he knows all of the parameters associated with that range.
Let me outline the typical steps taken during an initial consultation with a potential homebuyer.
First, I ask him how much rent he is paying and if he has thought about a particular budget or payment that fits his comfort zone. From there, we determine a desired payment range without worrying about qualifying.
Next, I ask him about his complete assets and what kind of down payment he might be prepared to make. From this information, I can determine roughly what he prefers to do and what he is capable of doing.
I then ask him what price range or type of property he’s interested in purchasing. Folks usually have some kind of idea, whether it be price range or a type of property, such as a town house or single-family home.
I now have enough information to see if his desired monthly payment and down payment are close to making him able to purchase his desired property. If they’re not and he was expecting to buy a property that would require a larger down payment and bigger mortgage payment, I tell him he must set his sights lower. Sometimes folks can buy more than they think, and I can give them the good news.
Finally, I ask about income and debts. I make sure the newly determined purchase price and down-payment range fall within the lender’s qualifying guidelines. More often than not, borrowers with good credit are conservative and choose not to borrow as much as a lender is willing to lend.
If a borrower can qualify for more than his comfortable range, and he finds out his comfortable range will buy him a property that is below his expectations, I explain that he can qualify for more. However, I always caution that a borrower should never let a lender determine how much he should borrow. Only the borrower knows his ability to comfortably repay a loan.
Henry Savage is president of PMC Mortgage in Alexandria, Va. Send e-mail to henrysavage@pmcmortgage.com.
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