A Pre-Approval is really only valid on the day it is provided because it is based on an assumed interest rate, which can certainly change the very next day based on the ebb and flow of Mortgage Backed Securities trading on Wall St. At best, it is a ballpark figure, not a guarantee. The only way to get a guarantee is to lock a loan program and rate.
In my opinion it not worth going down the trail of making your purchase decision based on any of the city programs. Most have an â€œequity shareâ€ component that leaves you owing them when you sell.
FHA is the best deal in town right now. The 3% minimum down payment provides you many options not available with other programs out there. FHA also allows you an extra $8K in loan (that does not affect you debt-to-income ratio), provided itâ€™s used for energy efficient upgrades on the house you buy. Also, FHA also allows that minimum required 3% down payment to be paid by the seller as gift, allowing you to use your 3% for whatever might make your new home more attractive and livable.
The very first step is to obtain a financing pre-approval now, which I can perform for you. If you have not been pre-approved to determine exactly what you can afford you may be basing your search on less-than-perfect information about your buying power and the loan products available to you. This can mean the difference between a "so-so" or strong neighborhood, which ultimately affects your choice concerning schools, appreciation, resale value, etc. Another reason to do your pre-approval now is to start monitoring the market, of course the supply thatâ€™s out there, but also the Mortgage Backed Securities trading on Wall St. The trend direction of rates is important to know.
I understand your lease expires in November, but what if waiting to buy cost you more in the long-run? Say you decided to buy tomorrow. You would be on the hook for $7,500 of lease payments provided the landlord couldnâ€™t rent the property for all of those 5 months. Seems like a lot of money, and it is. However, waiting might net you an even more costly purchase deriving from accumulated interest expense due to mortgage interest rate increases over the next 5 months. For example, say we have a 500K loan on a 10Y interest-only product. A 1% difference in rate would add an additional interest expense cost of $50,000 over the 10 years. Looking for the right house now reduces that interest rate risk.
Something else to consider: There's plenty of supply out there right now, and you should start looking because your decision to buy is based on quantitative considerations (like price and square footage) as well as qualitative considerations (such as the feeling you get when you walk through the door). I've seen qualitative take a backseat to qualitative many times. Right now, the diamonds in the rough are getting picked up, I know first hand because I have gone to preview some that went Pending the next day!
Thereâ€™s a lot to cover. I suggest we meet over a coffee. Bring your questions; Iâ€™ll bring the answers!
Steven A. Ornellas, GRI, ABR, e-PRO, CMPS, RE Masters, MBA
REALTORÂ® / Mortgage Banker-Broker / Certified Mortgage Planning Specialist
Steven Anthony Real Estate & Financial Services
Expect Excellence. Get What You Expect.â„¢
Here's a link to - Your First Home by Gary Keller
One final thought - most homes take 3-4 weeks to close, and in my experience, we are negoitating for most of a week to get price and terms arranged. So that is one month. Then, you need to find the neighborhoods you want, the property, which can take another 2-4 weeks. So, if you started looking now, you could move in September 1 and only miss out on 2 months at your current place! The better thing to do is to get started now, so you aren't under pressure to buy later, and take the hit if you find the perfect property quickly, knowing that you are probably getting a lower interest rate now anyway.