How to Secure Financing

Buying a house is the biggest purchase most people will ever make, and securing a mortgage is a huge financial commitment. In a time when foreclosures run rampant, understanding your financing options and making a responsible choice can make all the difference when it comes to keeping your home. 

Avoid the temptation to buy a property you can’t afford by getting pre-approved or pre-qualified for a mortgage before you start house hunting. To get pre-approved, fill out an application at a lending institution, and they’ll process it to determine how large of a mortgage you can obtain. Pre-qualification is less formal, can be done by a real estate broker or on the internet, and gives you a general estimate of how much you can afford.

Once an offer you’ve submitted for a home is accepted, you can visit a local or national bank, a credit union, or a mortgage broker to apply for a loan – or apply online. If you’re eligible, you may also qualify for financing through the Veterans Administration or the Federal Housing Authority. No matter where you apply, you will have to provide pay stubs for the last two months, bank statements for the last six months, tax returns for the last two years, and photo ID.

There are four primary types of mortgages: a Fixed Mortgage has a set interest rate and fixed monthly payments for a set time period (usually 30 years); an Adjustable Rate Mortgage has a lower interest rate linked to market index that fluctuates regularly; a Balloon Mortgage requires lump sum payments at fixed intervals along with regular payments; and a graduated Payment Mortgage increases monthly payments over time. Each type of mortgage has pros and cons, so discuss your options with your financial advisor to figure out which is right for you.

If you can’t get a loan through a traditional lender, there may be unconventional options available. Eager sellers may be willing to help with financing, so ask about making direct payments or renting the property with an option to purchase it within a pre-determined period of time. You can also try to find a co-signer or a guarantor to apply for a mortgage with you, or consider borrowing from your 401K or pension.

By investigating your options, you can make smart financial decisions that will work for you.