As you look for your first home, you will likely check out a dozen or more properties before settling on the ideal one to buy.
Almost as important as the house you choose is the mortgage company you select to finance your purchase. Yet according to a 2013 by the U.S. Consumer Financial Protection Bureau, about half of borrowers did not shop around before settling on a mortgage.
Given your busy schedule, it may be tempting to go with the first lender you find or default to your current financial institution. But consider how much you’re spending on a home: hundreds of thousands of dollars for the home itself plus tens of thousands for closing costs. Finding the best deal can save you a bundle.
Here are a few steps to take as you seek out mortgage financing.
Know your credit score
Before you begin the process of obtaining a mortgage, you should know your credit score. The higher your score, the better the terms you can obtain from a mortgage lender. Knowing this information will make it easier to compare the rates and terms of several lenders.
Investigate your options
Even if you don’t have the best credit, are just starting your practice, and have a mountain of student debt, you may have several options for getting a mortgage. To better ensure you get the most optimal financing, look for lenders who can offer a variety of mortgage options, such as:
A physician mortgage loan. This type of loan is specifically designed for the unique challenges facing doctors and dentists who are starting out their careers later in life than other professionals, and doing so with a massive amount of student loan debt. Lenders who offer this type of mortgage will waive or reduce many of the requirements of traditional mortgages, such as downpayment.
FHA loan. Insured by the Federal Housing Administration, this type of mortgage enables borrowers with lower credit scores to quality and they only require a 3.5 percent downpayment.
VA loan. These types of mortgages are available to U.S. veterans, current military members and surviving spouses of veterans killed in the line of duty. Eligible buyers can obtain a VA mortgage with no money down.
Conventional 97 program. This program requires a 3 percent down payment and, unlike with most conventional mortgages, borrowers can use gifts to satisfy the down payment requirement. This program is only available to first-time homebuyers and those who have not owned a house the previous three years. It is also limited to 30-year fixed conventional mortgages.
Research and compare companies and rates
An Internet search of mortgage companies can help you compare lender rates, find which lenders have the most favorable loan provisions and even read reviews of other borrowers.
Beside the interest rate charged, there are other factors that will impact whether you can obtain financing and how much you will pay. Questions you should ask before choosing a lender include:
What are the fees and closing costs? The expense of closing on a property can vary widely. You can compare by asking for a “good faith” estimate from two or three lenders, who should provide an itemized list of the estimated closing costs.
How much of a downpayment will you require?
Are there certain types of properties you won’t finance? Many underwriters will avoid certain types of properties, such as rehab projects,
Is there a penalty if I pay the entire loan balance before the end of the term or minimum period? Some lenders require a minimum timeframe before you sell or refinance to recoup their costs; otherwise they may charge a pre-payment penalty at closing. Ask before signing if there is a pre-payment penalty and how much it would cost.
Seek referrals from other doctors
If you’re like most doctors, your practice will rely heavily on referrals. When people are making an important decision such as choosing a doctor, they ask people they trust if they like their provider.
The same goes for mortgage lenders. A good place to start is by asking your medical colleagues who have recently purchased a home. Your real estate agent should also know who the top mortgage lenders are in your area. Family and friends whose advice you trust can also be a good source.
Decide whether to use a mortgage broker
Rather than you taking the time to find the best deal, you can work with a mortgage broker. A mortgage broker works with several lenders and tries to negotiate the best deal for their home-buying clients.
Selecting a mortgage broker should involve many of the steps mentioned above for choosing a lender. Ask for referrals from people you trust, your co-workers or real estate agent. Also ask prospective brokers questions, such as how they get paid, and how many lenders they work with.
See also, the Ultimate Guide to Doctor Loans.