You already know that interest rates are low. Clearly, this is the time to buy! However, lenders are not making it easy to borrow that cheap money – whether you are a first time home buyer or buying a million dollar condo in Bethesda. So – before you put an offer down on that dream house, make sure that you are qualified for the mortgage.

How do you start? Even before you start looking for a new home in Kenwood Forest or a DC condo, you should fill out a pre-qualification form and have a mortgage professional run the information through his or her system to catch any red flags that may impact your ability to qualify for a mortgage. Pre-qualification also lets you know the exact amount of the mortgage for which you are approved. With this knowledge, your realtor will be able to show you properties that are in the approved range. In other words, you won’t be shown $500,000 homes when you have been approved for $350,000.

Which mortgage is the best fit

Commercial banks make both VA and FHA loans as well as conventional mortgage loans. Savings associations make VA and FHA loans too; however, they prefer to make conventional loans. Federal Housing Administration (FHA) loans are insured by the government in order to decrease lender risk and entice lenders to write a mortgage. Department of Veteran’s Affairs (VA) loans are backed by the government specifically to give incentive for lenders to give mortgages to veterans, their spouses, and active military personnel. The VA loan is a bit more liberal as far as criterion are concerned. If you are unable to obtain a conventional mortgage and you are eligible for a VA loan, you should explore that possibility.

Conventional vs. non-conventional loans

Conventional mortgages may or may not be insured by the government through either Fannie Mae or Freddie Mac. Even if they are not backed by the government (conforming loans), these types of mortgages carry lower interest rates because they are underwritten following the same strict rules as if they are insured by Fannie Mae or Freddie Mac.

Non-conforming (also known as sub-prime) loans carry a higher interest rate and are underwritten in a casual manner. These mortgages are designed for those with poor or no credit; however, real estate professionals need to be up to date on these loans for that client with poor credit who really wants to buy that house.

Using points to reduce your mortgage payments:

Real estate professionals and many buyers know that lenders charge points. A borrower is able to lower his or her interest rate by paying a certain amount up front on a mortgage. Each point is equal to 1% of the amount being borrowed, and each point paid takes a quarter of a percent off the interest rate. You can ask the seller to pay closing costs in order to increase your cash on hand – which you can then put toward points to reduce your monthly payment. Good luck finding your new home!

If you are looking for a home in the DC Metro Area, be sure to call the Lise Howe Group. Licensed in all three jurisdictions, the Lise Howe Group can find you a great home anywhere around the Beltway – inside or outside too! gIVE US A CALL AT 240-401-5577 AND START YOUR SEARCH.