Banks or mortgage brokers
The two usual sources for mortgage are either a bank or a mortgage broker. For our buyers we’ve been able to recommend mortgage brokers for “traditional” mortgages which “conform” to Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation) and FHA (Federal Housing Administration) guidelines. Your own bank or credit union will have mortgage products that they offer as well. The advantage of mortgage brokers over banks is that they may have more “programs” to better suit you.
Portfolio Lenders
For properties that may not meet those guidelines we point the buyers to a “portfolio” lender. The portfolio lenders we’ve used hold their own mortgages in house rather than resell them. This allows them to look at each property and buyer individually and make a decision on which situations they are comfortable with. For properties like a condominium in a building with low owner occupancy, or a very small living area (typically under 400 square feet) these lenders are a great resource.
Pre-approval
Once you’ve decided which option works best for you (or is required based on the property) call the lender so you can see how much of a loan you can comfortably afford. This will enable you to get “pre-approved” for an amount so you’ll know your budget and you can then start shopping for a home knowing that you’ll be able to secure the mortgage. When you’re submitting an offer sellers will want to see that any buyer is pre-approved and will be able to follow through with the sale without financing issues. These conversations don’t cost you and it’s a good idea to talk with several lenders to explore their different offerings. This will help you understand what factors you’re comparing to make your decision. You want to be sure you’re comparing “apples to apples” to be sure what appears to be the “best” rate really is.
Determining your pre-approval amount and your mortgage rate depends upon your credit worthiness. If you’re a first time buyer there is a great quick primer on how this is determined on the Feddie Mac website. A higher / better credit score will help lower the interest rate that you ultimately pay for your mortgage.
How to determine what you can afford
Before you reach out to a lender you can get a basic idea of your financial picture by looking at your savings and monthly expenses. If you’ve been renting and making your monthly payments without issue the expectation is that you could continue meeting that amount as a mortgage payment (factoring in taxes and home owners insurance and condo / HOA fees). A mortgage calculator will give you a good idea of how much your monthly payment will be. Keep in mind that if you are putting down less than 20% you’ll have some sort of PMI (Private Mortgage Insurance) as an additional cost. That could add an extra $100 or more to your monthly payment depending on the amount of the loan and other variables. Once you attained 20% equity in the home you can work with the lender to eliminate that additional PMI cost.
Need a reference?
If you’d like the names of some lenders to talk to just reach out and we’ll be happy to give you the contact info for people that have helped our past buyers with good results. They’re very happy jut to answer questions if you’re not quite ready to buy yet, but wondering about how you can best prepare yourself.
Helpful Links
- Fannie Mae (FNMA, Federal National Mortgage Corporation)
- Freddie Mac (FHLMC, Federal Home Loan Mortgage Corporation)
- FHA (Federal Housing Administration, a Division of HUD, the Department of Housing and Urban Development)
- VA (U.S. Department of Veteran’s Affairs).
- Massachusetts Regional Center for VA Loans
- City of Cambridge Affordable Homeownership Website.
- Bankrate.com
