Know Your Borrowing Basics

Buying

Picture this:  You’ve found your dream home.  The price is right, the location is perfect, and it doesn’t need any work.  You relish in the satisfaction of having conquered your home search, and now you’re mentally picturing yourself all settled into your new digs.  (Que the crackling fireplace and glass of wine…)

Before moving in, though, you have to get to closing.  And for most buyers, getting to the closing table means getting your financing in order.  Learning some of the lending basics beforehand can be extremely helpful, and who better to share some of those basics of borrowing in Chicago than a local expert?

Ben DeBoer is Vice President of Lending at Molitor Financial Group in Andersonville and one of my partners in the Chicago real estate landscape.  His approach to helping his clients always includes taking the time to explain and educate, counseling them through the process and over the finish line.  I sat down with Ben to pick his brain on borrowing and buying in Chicago:

 

What's the best way for buyers to prepare financially to purchase a new home? 

I think there are a few things that a buyer can do to help prepare themselves for a new home purchase.  The first of these is figure out what a comfortable “all in” monthly payment is for them.  A buyer should not only think in terms of purchase price but instead, total monthly payment.  A buyer first and foremost needs to think about what amount per month will keep them in a comfortable position and not sacrifice their financial goals for lifestyle. 

Another thing that a buyer can do to is sit down with a lender before starting to look at properties.  Sitting down with a lender will give you all of the information that you need to know about how much you can afford and if there could be any potential issues with qualifying.  Doing this early and well before you fall in love with a property can avoid a lot of potential headaches.

 

When buyers think about a mortgage, they're usually mostly concerned with the APR.  Is lowest always best?  

I think this is a common mistake when borrowers are looking to compare lender to lender.  APR is really a tool to compare closing costs from lender to lender.   The problem with this tool, though, is that a lot of the closing costs that lenders quote upfront are estimates.  Most of the charges that a borrower will incur for closing costs won’t be completely known until the process is well underway.  In my opinion, the best way to compare lender to lender is by looking directly at the interest rate they are offering and asking what their specific lender fees are. 

When it comes to interest rate, lowest always sounds like the best option.  This isn’t necessarily true depending on the buyers timeline for owning the property.  In some situations, when a buyer is only going to stay in a property for say 3 years, taking a slightly higher interest rate that doesn’t require paying points to obtain could be the better choice.  A good lender will always go over the different interest rate lock options with the buyer directly and walk through their unique timeline in order to advise as best as possible.

 

How is the lending process different in condos vs. single family homes?  

This is a great question!  Being that we are in the City of Chicago, the percentage of condo purchases v. single family homes is very high.  Condo purchases are exactly the same as single family home purchases except for one very important point.  When purchasing a condo, there is an extra layer of review called a condo review.  This review is done by the lender and is, in a sense, an investigation of how the homeowner’s association is running the building.  There are certain guidelines that Fannie Mae and Freddie Mac have that MUST be followed by the HOA in order for any buyer to obtain a conventional loan for purchase of a unit in this building.  During this review, if the buyer is putting down 10% or more, the lender will have a questionnaire filled out by the association and also get their master insurance policy.  If the buyer is putting down less than 10%, along with the items just mentioned, the lender will also need to get a copy of the buildings approved budget, declarations and bylaws, and rules and regulations.  When meeting with your lender, be sure to mention that you are looking at purchasing a condo so they can go through the details of these reviews and what to watch for while you are looking at different properties. 

 

You've no doubt met many real estate agents throughout your career as a lending officer.  What qualities do you see in good brokers? 

I think the most important quality to look for in a broker is, what value are they adding to you as a buyer.  What I mean by this is, what does this broker bring to your search that you would otherwise not have.  Some of these qualities can be experience in the area you are looking to purchase in, knowledge of construction/home maintenance, experience in renovation/materials, and negotiating skills.  A good broker will always be honest about the properties being considered and will not shy away from telling a buyer that a specific property may not be for them. 

 

Are you ready for your next chapter in that perfect place?  Contact Ben at 773.275.3100 or bend@molitorfinancial.com to get pre-approved, then call Liza to find your new home (crackling fireplace and all)!