Financing your home on Cape Cod or the South Shore - Information - Mortgages, Pre-approvals, Financing, Loans, Mortgage Bankers

Please note: Wherever you see, "pre-qualification", it should be interchanged with "pre-approval". Pre-approval, not pre-qualification, is what you should attempt to receive from a lender, prior to starting a home search. To try a simple financial calculator, visit this page.

a. Pre-qualification and shopping for a lender

Although housing affordability is becoming increasingly difficult for many, it is important for buyers to carefully study their total net worth vs. their fixed expenses before determining the size and type of home they can afford. You may be surprised to discover you have more disposable income than you at first thought.

Buyers should complete the mortgage pre-qualification process as soon as possible to learn how expensive a home they may purchase.

Typically, the amount you will be able to afford for housing costs (principal, interest, taxes, and insurance) per moth is equal to about 28% of your gross monthly income. In addition, when estimating your actual purchasing power, most mortgage lenders will require that approximately 36 percent of your gross monthly income be greater than the total of your monthly debt payment. These ratios are the guidelines used by many banks and mortgage companies, but not all. Your REALTOR® can help you find a lender that may have higher qualifying ratios.

Many sellers prefer to know that a buyer has been pre-qualified, since failure to obtain the necessary financing is a great disappointment to both parties. In a hot real estate market with limited inventory, you may want to go even further and receive pre-approval for a mortgage from a lender. In a competitive market where multiple offers may occur on a single property, a pre-approved letter from a lender may make you a more attractive buyer to the current property owner.

Buyers also are encouraged to comparison shop for lenders, and will discover the process enables them to recognize the best set of options for their needs. Besides, interest rates and loan availability can vary widely from market to market, and from year to year.

If you are a first-time buyer, be aware that many lenders and government agencies, like the Massachusetts Housing Finance Agency (MHFA) offer below-market interest rates for qualified buyers who are purchasing their first home.

Real estate professionals are familiar with most local lenders, as well as special government sponsored programs for qualified buyers, and they may be able to provide about lenders to provide necessary financing. Their intimate knowledge of a wide variety of loan types and programs can be invaluable to buyers, particularly those who are relocating, or who are shopping for their first home.

b. Mortgages and loans

There is a wide range of mortgages and loans available in today's world of sophisticated financing. Buyers may ask their local REALTOR® to provide information about the various insured mortgage programs available such as Fannie Mae, Freddie Mac, private and commercial loans. In addition, Fannie Mae and Freddie Mac have information available directly from their respective web sites at www. And www.

There also is a wide range of loan types. For example, adjustable rates, fixed rates, graduated payment adjustable rates, growing equity mortgages, balloon loans, assumable mortgages, bridge loans, buy-down loans, FHA/VA loans etc.

c. Consumer Protection Laws in Financing

Consumer protection laws in the Commonwealth require that lenders not discriminate in providing loans and other financing, and that real estate agents disclose referral relationships. These are called Truth in Lending Laws.

For example, it is required that an agent make full disclosure of Controlled Business Arrangements (CBA), in which a person has an affiliate relationship or ownership interest of over one percent in another business which provides settlement services, and directly or indirectly refers business to that provider.

The Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 to provide consumers with disclosure about closing costs and to prohibit unearned fees (kickbacks/referral fees). This law prevents real estate agents from unlawfully earning income for such referrals.

Additional information about Truth in Lending laws, can be obtained through your local REALTOR®. (For specific details about closing costs, see section III of this report: The Transaction Explained.)

d. Tax breaks for buyers

There are significant tax advantages to home ownership, most prominently that interest payments on mortgages and property taxes are, in most cases, tax deductible. In addition, some home equity loans also are tax deductible, and many people use their home equity loans to consolidate their debt, thereby making all the debt interest tax deductible. To get more information on the tax benefits of being a homeowner, ask you accountant or tax preparer or view the IRS.