The best way to get a mortgage

Q: We loved your tips last week about the purchase contract. Do you have any advice about getting a mortgage? — Tony

A: When you start looking for a home you will receive plenty of advice that you should buy the most home you can afford. This is probably because you will quickly fill any home you find, regardless of its size, and having extra space often comes in handy.

However, I would advise that you do not buy so much house that you become “house poor,” using most of your budget just to maintain your home. This leaves you without the ability to eat out, take a vacation, or absorb a financial contingency. Eventually, your new dream home will need a new water heater, A/C or roof. And even the most secure career can suffer a hiccup.

So buy as much house as you can afford on your current salary, leaving room for unexpected expenses, and an enjoyable life outside of your new home.

Start the mortgage process before you find a home. An approved buyer is much more attractive to sellers. Make sure to shop around, as rates and closing costs can vary greatly. Remember that almost everything related to your home is negotiable, at least to a point. Most lenders will trade a slightly higher rate for reduced fees.

If you are planning on staying put for a while, ask about buying down your interest rate by paying a lump sum at closing, which can save you a lot of money in the long run. While it is a good idea to start at your bank if you have good credit, a talented mortgage broker may get you a better deal. Credit unions have also been known to have some great deals, especially for people with specific jobs, such as teachers or police.

Whoever you choose, your new lender will have an incredible amount of questions and will want more paperwork than you expect. Be ready with several years of tax returns, and months worth of pay stubs and bank statements. Loan applications are time sensitive so respond quickly to requests.

Hang in there. Getting a loan can be somewhat intense, with a lot of paperwork to review. Make sure to read everything your lender sends you and ask questions about what you do not understand. Like everything else in life, there are good loan officers and others that are best avoided. Make sure you interview yours to make sure you are picking one that can get the job done.