« previous: A green tale of urban renewal | next: Making lemonade at 9 West 19th Street »
Monday, June 25, 2007
Buying: When is it time to call a lender?
The short answer is as early in your search as possible. Most definitely before making an offer to purchase. You need to have realistic expectations about what sort of buying power you have in order to negotiate effectively. You'll find a list of mortgage calculators near the end of this entry, which can help start answering your financial questions. They are useful tools that can help make ballpark estimates of your ability to finance, or make comparisons between renting vs. owning. But when ready to get serious about buying a home, you'll need to take the next step and have a candid conversation with a mortgage professional about how much borrowing power you have, based on more finely tuned details. It is not unusual to find out that you have more purchasing power than expected; or you might realize that your cash reserves are thinner than an underwriter will accept. Either way, it makes sense to know where you stand and have the information needed to adjust your search.
Solicit friends and your real estate broker for recommendations. Essentially, you'll either be talking with a lender directly, most often a bank, or you can choose to work with a mortgage broker, who in turn works with many financial institutions. My experience is that rates are quite competitive. A mortgage broker usually offers a greater variety of financial products. Mortgage programs at different lenders have varying terms and underwriting requirements. Having a wider menu of options could save you money. It is a common misconception to think that it will be easier, or you'll get a better rate, by dealing with a bank which you have some investments in already.
purchase cost analysis
Some of the variables which can affect how much you'll be able to spend include: interest rates, the amount being financed, and the amount of money left after closing costs. Consult with your accountant or financial adviser about the impact of mortgage interest on your income taxes. Your after tax cost of ownership should be a part of your evaluation, and might be a pleasant surprise. Most listings on comitini.com and corcoran.com have links which invoke a purchase cost or mortgage calculator with the details of the subject property filled in. Here's a scenario for a $750,000 apartment which has a tax benefit of $1,200 monthly to the owner. You can tumble the numbers yourself using the calculators below.| condo purchase scenario | |
| Purchase price: | $750,000 |
| Putting 20% down | |
| Mortgage amount: | $600,000 at 6.5% interest |
| Taxes: | $500 monthly |
| Common charges: | $500 monthly |
| Monthly mortgage payment: | $3,792 |
| Monthly out of pocket: | $4,792 |
| Tax bracket 32% | |
| Monthly tax savings: | $1,200 |
| Net monthly cost after taxes: | $3,592 |
prequalification
You should ask your banker or mortgage broker for a prequalification letter. It's a simple, one-pager, on the company stationary, which documents the fact that you've looked into financing, and gives an opinion as to your qualifications for a specific loan amount. It says to the seller that you've done your homework and that the offer you are making is a well considered one. It bolsters your credibility when your broker can present it to the seller when making a written offer. This is a great tool, that costs nothing, and gives everyone involved a level of comfort. More crucially, it can make sometimes make the difference in securing the deal.mortgage calculators
Here are some tools to help you get started:The Manhattan Mortgage Company's calculators
Calculators on Bloomberg
Calculators on SmartMoney.com
Home affordability calculator on CNN
reader comments:
Great article, Peter! It's amazing how many buyers don't know to prequalify (and embarassing how many Realtors don't suggest it). This simple step to begin the process (as you noted) saves a lot of time, money, embarassment, and disappointment of the buyer.
Your listed resources will be extremely helpful to your clients!