Step Eight: Secure a loan
Now call your mortgage broker or lender and move quickly to agree on terms, if you have not already done so.
This is when you decide whether to go with the fixed rate or adjustable rate mortgage and whether to pay points.
Expect to pay $50 to $75 for a credit check at this point, and another $150, on average to $300 for an appraisal of the home. Most other fees will be due at the closing.
If you don't already have one, look into taking out a homeowner's insurance policy, too. Most lenders require that you have homeowner's insurance in place before they'll approve your loan.
As the U.S. economy continues to rebuild slowly from the recession eight years ago, lots of people are looking to buy homes after years of renting or staying put in a previous house. As a result, the real estate market is competitive in many parts of the country, requiring buyers to put in aggressive offers and, in some places, compete with deep-pocketed investors paying cash.
What this means is that—now more than ever—you need to be qualified for a mortgage before you shop for real estate.
Understanding today’s mortgage market
Before the housing crisis of 2008–09, it seemed that anybody with a pulse could get a mortgage (or two or three). Lenders pushed “sub-prime” loans on people with poor credit knowing the entire time that the applicants couldn’t afford the payments and would eventually default.
These lending habits were obviously unsustainable, and we know the rest of the story. The banks got bailouts while millions of homeowners either lost their homes or got stuck underwater, owing much more on their mortgage than their home was worth.
Even as the real estate market begins to recover, the mortgage crisis has left its mark. Mortgage underwriting—the criteria banks use to determine whether to make a loan—is more stringent. That’s not to say that young couples or other first-time home buyers will have a difficult time getting a mortgage. But it means that proving to the bank that you’re financially prepared to take on a mortgage payment is more important than ever.
