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Most homebuyers start their search for a home by looking online, or going straight to a Realtor asking to be shown houses in this town or that town. The truth is that the first step in the prospective homebuyers search should be to meet with a mortgage advisor. Why? Because the right mortgage advisor can answer two very important questions: how much can you qualify for, and how much can you afford.

The first meeting between a mortgage advisor and prospective homebuyers will typically start with the mortgage advisor asking the proper questions, looking at all the numbers (income and debt), and running a credit check. From there, the mortgage advisor will figure out how much mortgage the homebuyers can qualify for. Often, that number won’t match up with what the homebuyers think they can afford, so the next phase of the meeting involves some more in-depth questioning. A good mortgage advisor will ask questions such as: What are your spending habits? Are you a shopper? Are you a car person? Do you like to travel? Are you frugal? Do you plan on living in this house forever? All of the answers to these questions will help determine what the homebuyers can afford, giving them a good, solid number to go and talk to a realtor with. The homebuyers can then confidently say, “I can afford a $250,000 purchase price, and I can put 10% down, so let’s start looking in the $200-250,000 range.”

Interestingly, in today’s world of tightening mortgage guidelines, many people think they will qualify for a lot less than what they can afford. I have actually found that it’s the exact opposite; I see a lot of people who can qualify for a lot more than they can afford. A large part of that is because many of the buyers I’m seeing right now are people who are taking good care of their credit, who do not have a lot of debt, and have really prepared over the last couple of years to buy in today’s market by educating themselves well enough to understand what kind of position they have to be in to make a home purchase.

I talk about this all the time, but it’s something a lot of people don’t consider: what you can afford and what you can qualify for also depends on the property taxes. Property taxes vary from town to town. If you’re having a tough time finding a home in the town you really want because the taxes are high, maybe you can afford a little more house in a different town that has cheaper property taxes. In New Jersey, for example, Essex County in general has very high property taxes, so you may need to go to the west to find the house you want.

At any rate (pun intended), if you’re a prospective homebuyer, your first step should be to meet with a mortgage broker. The sooner you do this, the sooner you can find out how much you qualify for and how much you can afford. Maybe you’ll find out that you’d be in a better position if you waited a year because you could save more money for a down payment, allowing you to afford a house in the town you want; or maybe you’ll need to address some debt issues that will put you in a position to qualify for more house in a year. On top of that, perhaps the mortgage advisor will identify some general credit issues that can be fixed, which can increase your credit score enough to help you qualify for a better rate.

There are a lot of reasons to meet with a broker as early as possible, if not a year before when you’re really thinking to buy. And of course, it costs you nothing! If you’re considering purchasing a home, give me a call or send me an email – we’ll find the right mortgage for your lifestyle.

Closing costs are pretty expensive these days and seem to go up every year. I guess with more government intervention, closing costs go up. I look at closing costs as being comprised of two sets of costs. One set of closing costs is what I tell people are junk costs and really, that’s what they are. They are all the costs you have to pay to get the loan done, or to close on your home, and you will never see that money again. These include the attorney fees, title fees, survey, insurance, flood certification, appraisal, and home inspection. These junk costs are a big part of the overall closing costs.

The other set of closing costs are what we call prepaids and reserves. Prepaids and reserves are for your property taxes and homeowner’s insurance. The lender takes escrows in order to pay these for you. At closing, they take a couple months worth of property taxes and a couple months worth of homeowner’s insurance. Every month as part of your mortgage payment, you pay one month worth of property taxes and one month worth of insurance, and then they use the amount from escrow to pay these bills when they are due. Those are prepaids and reserves. You also prepay on your mortgage when you close, so there’s interest due at closing, too. Together, these comprise the second set of closing costs.

Altogether, they can be very costly. Prospective buyers should talk to a mortgage adviser before they start looking for a home so they’ll know exactly what to expect for closing costs. Although the amount will not be exact, you can get a rough estimate so you can save for your down payment and closing costs. If you’re a little short, we can work around that by building a seller credit for closing costs in to the purchase price. There are multiple ways, but that’s just one example. A lot goes into the closing costs, and as the mortgage advisor, it’s my job to tell you all of your costs with a very accurate, if not on the high side, estimate of how much money you’ll need to bring to the closing table.

You can get approximations early on in the process, but I can give the most accurate estimate once you have a house under contract. Once I know the price of your home, I will sit down and go through every single possible fee that you could face for a closing cost. Some of them are what we call prepaids, as discussed above, that are paid outside of closing costs. You might also pay for the appraisal or home inspection prior to closing, but the rest of the costs get paid at closing. By the end of our meeting, you will feel comfortable knowing what you need to have at closing, and can make sure your finances are in order.

People really get surprised when I tell them how much closing costs are. I think they are a little shocked. Like I said, everybody gets a piece of the action with the new government guidelines. There are new appraisal guidelines that happened over the last couple of years, so we order appraisals from a third party management company rather than hiring the appraiser directly. So, now we’re going through a management company, and management companies cost money. The buyers are paying for that through an increase in appraisal prices. Title insurance has gone up in price. Attorneys are doing more with each file, so there fees have gone up, and rightly so. It gets more expensive each year to buy a house. The least I can do is get you an accurate picture of what your closing costs are going to look like. Call or email me today to discuss your situation!