I’m in the process of purchasing a home, and figure that I should document the process that I’m going through, the problems that I’ve encountered, and what to do to get the best deal possible. If anything, I’m sure that it will be helpful for me in the future if I decide to purchase another home.
First off, this series will detail the process of purchasing a residential home through a mortgage lender. If you are purchasing a property for commercial purposes (such as rentals), the process will be different.
When do I need a loan?
There is an obvious answer for most of us, but there are also plenty of people who are in the position to purchase a property outright. That means a cash deal without having to go through a bank. The advantages of avoid loans altogether include not having to deal with a lender. You can agree on a set price with the seller and close the deal once you agree on a price and finish up any inspections. In contrast, going through a mortgage lender may delay your closing date by several months!
There is also validity in obtaining a mortgage even if you are able to purchase a property with cash. With interest rates as low as they are now, you might even consider investing the difference. The Internet is littered with debates on this subject, so scroll around the web for discussion. I may revisit this debate in the future, but this has less to do with obtaining a mortgage.
Where can I get a loan?
In general banks and credit unions are the most obvious sources for loans, but these are actually not the most common institutions offering loans. Mortgage lenders and loan originators are individuals who work for certain institutions that are able to secure loans for potential buyers as well. Consider these guys the middlemen in loan dealings. Your real estate agent will likely have a list of agents (and probably their favorite one) who have helped clients secure loans.
You can obtain a mortgage through Costco!
If you are like the average upper middle class American, you probably have a Costco membership. If you don’t, you can even consider getting one. A Costco Executive membership costs $110 annually. You might save more than that on lender fees.
Costco assists with mortgage lending by pairing you up with potential lenders involved with their program. You can fill in your lending terms and potential lenders will bid for your business. These lenders are not likely to be in your local area, but are all licensed to lend to you.
The motivation behind going through lenders outside of your local area is that they might be able to offer you a better rate and terms than your local lender. Moreover, speaking to multiple lenders will allow you to familiarize yourself with more of the terminology, what terms are negotiable, and how different lenders approach the lending process.
Stay tuned for upcoming installments on mortgages! We will talk about the steps I went through and my experiences with the Costco lenders.
Photo courtesy of Flickr.