One of the first steps in getting the keys to your dream home is to develop a financial plan. To do so, chances have it that you’ll want to find a financial institution to help you sort everything out.
Whether it be a major national bank or a local credit union, not every institution will be the right one for your financial needs. So, if you were thinking you were just going to go with the first bank down the street, you might want to think again.
Instead, get ready to ask some questions.
“Interview potential lenders and pick one that has the capabilities to meet a range of your needs,” says Andrew Leff, national builder and renovation business development executive for Bank of America. “A responsible lender should be easily accessible and able to explain home loan options that you can understand and feel confident about.”
Any old bank, credit union, mortgage broker or online lender may seem trustworthy, but you’ll never know for sure until you see first-hand how they answer your questions — even when your builder offers the name of their preferred lender. Ultimately, it’s your decision to make.
So, now that you know to shop around, you’ll need to know what questions to ask. And don’t worry if your head is already flooded with questions, that just means you’ve already got a head start.
“Ask a million questions,” says Chris Copley, regional sales manager for TD Bank in the Philadelphia, Pa., market. “If your lender or loan officer or whoever you’re talking to has a problem with that, that just means they’re not the right person.”
To help you develop a game plan before you set out on the hunt for the perfect financial institution, here are three key interview topics:
1. What Can I Afford?
First and foremost, you need to decide how much home you can afford. And with that comes a lot of fine details: debt-to-income ratios, mortgage rates, your monthly payment and how much down payment will be required of you, and many more. Again, be prepared to ask questions.
“I would say to start with debt to income,” says Copley, noting significant changes over the last several years in regards to limitations. “Then, consider what your monthly outlay is, what’s included in that new property — HOAs, insurance, what your taxes will be like.”
Next, you’ll want to ask about your down payment requirements, which have a heavy impact on what kind of program you will be able to get into.
“Many new homebuyers don’t ask enough questions about down payments,” says Leff. “Others make assumptions that they won’t qualify and dismiss themselves from opportunities that are available to them.”
At Bank of America, Leff says, it is their goal to help first-time homebuyers realize there are numerous options out there for them.
“Through Bank of America’s Down Payment Resource Center, they can find out immediately which federal, state or local down payment and closing cost programs they might be eligible for,” he says. “The online tool gives prospective home buyers access to a searchable database of more than 1,300 down payment and closing cost assistance programs in their local market.”
With the right tools, resources and support, it’s easier to make the right decision, so don’t hesitate to ask what your institution has to offer.
Bank of America also recommends its Home Loan Checklist tool to help prepare buyers for loan applications, and to get pre-qualified for a mortgage before visiting any institution.
“Knowing what they can comfortably afford will let them keep their search focused on the homes that are right for them,” Leff says.
2. Which Product Fits Me?
Next, it’s time to find out what kind of programs and products they offer for your new-home financing.
For instance, if you’re looking for a loan, ask to compare a 15-year versus a 30-year loan and see how the costs differ over time and what the cost differences will be monthly.
“Generally, when someone is buying their first home, they do end up taking that 30-year fixed conventional kind of loan,” says Copley. “But there are a lot of different options out there and different programs that might be a better fit.”
That better fit might be a program designed specifically for first-time homebuyers, like TD Bank’s Right Step Program, which offers 97 percent loan-to-value without mortgage insurance. Or maybe it’s a rate lock.
“Bank of America offers the ability to lock in an interest rate for up to 12 months while a home is being built,” adds Leff. “The option to lower the rate (‘float down’) may also be available for up to 60 days before closing if market rates have declined. Providing long-term rate lock options helps alleviate some qualifying concerns and provides comfort to the buyer during the building process.”
Finally, when in doubt, just do some research.
Loans can differ based on type — such as fixed-rate or adjustable-rate — loan term, interest rate and annual percentage rate (APR).
Can We Build a Relationship
Lastly, you’ll want to make sure your institution is interested in building a relationship with you.
Even if your builder provides a preferred lender, which may be a great choice since this lender should know the ins and outs of your builder’s construction process and has likely worked with many similar buyers in the past, you will want to shop around and continue to ask questions.
“A lot of times banks now are asking to create a relationship,” says Copley, noting that they might even offer special promotions for new buyers such as adding a checking account. “The hope is that a first-time homebuyer stays in the house for seven years, and we want to build that relationship so that seven years down the road they’re coming back to us for their next mortgage.”
As you interact with the institution, treat them like you’re going on a first date with them.
Is it someone that you want to build a relationship with? Is that person listening and paying attention? If you spend a whole hour asking questions, did they sit through it with patience and then ask if you had any more?
“What you don’t want to do is get into the process with someone that you don’t feel like is going to have your best interest in mind for the next 90 days or 6 months,” says Copley. “You want to feel comfortable and like that person is going to be out for your best interest and answer the phone.”
Once you’ve found the answers to all of these questions, congratulations, you’ve found your perfect match: the right financial institution!
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