Pre-approved loan makes buying a home simpler

Friday, May 28, 2004

By LAURIE DORAN

Eric Ruth's dream of owning his own home became a reality.

In his initial search for a home, Ruth noted houses for sale in his hometown of Freeport. "Houses are a lot more expensive than I thought," said Ruth, a single man. "I saved money for two years toward a home."

In addition to the money Ruth saved, he realized that he would need a loan to purchase a home. "Les Pelc, a broker at CHR Realty/ GMAC Real Estate in Brunswick, guided me through the process of buying a home," said Ruth. "As a first-time home buyer, when I started looking at houses, I knew nothing about this process."

According to Leighton Cooney, a loan officer at Maine Home Mortgage, there is a difference between being pre-qualified and pre-approved for a loan. Pre-qualify means a person could get a loan, based on his or her general financial situation. A pre-approved loan is the amount of money a person can actually borrow based on the specific calculations of income vs. debt.

"The housing loan programs are designed to meet the needs of home buyers. The programs have different requirements based on income and the initial amount of down payment toward the purchase of a home," said Tina Howe, vice president of Gardiner Savings Institution. "There are four basic programs: Federal Housing Administration, conventional finance, Maine State Housing Program and Veterans Administration. Before you find a home, you can talk to a loan officer at a bank to find out what loan programs are available and will be given guidance toward what you can financially afford."

"Because I served for six years in the military and I am rated as 20 percent disabled, I qualified for the VA loan," said Ruth. "To qualify for the VA loan, I needed to provide pay stubs to verify my income, my last year's W2 form, the length of time I've been employed at the Freeport Post Office, and proof that I receive so much money from the VA a month."

Ruth ended up buying a house in Lisbon Falls that cost less than the amount of the loan for which he qualified.

"One house I considered would have put me at the maximum end of what I could borrow for a loan." he said. "In my case, I had no down payment and I had 100 percent financing. After the house I planned to purchase was appraised by the VA to be sure that the house was sold at a fair market price, my loan was pre-approved. The VA acts like a cosigner for a loan. My broker wisely told me to consider all my living costs and reminded me that vehicles need to be replaced or repaired."

Ruth was impressed with the assistance he got from Pelc, his broker.

"With the aid of the computer, he provided a listing of homes within my price range. I chose the homes I wanted to look at based on the photographs I saw on the computer screen," Ruth said. "I discovered that it is important to drive through the neighborhood to see the location. You can't tell much from just a picture of a house. I looked at eight houses. I am content with my choice and will be able to live comfortably within my means."

Doug Mathieu, a broker at CHR Reality/ GMAC Real Estate in Brunswick, advises people to set realistic expectations. Pick the right home you can afford to have an enjoyable life. You don't want to be stressed financially with every penny you earn going toward your home.

"Typically the criteria of getting a loan consists of proof of a consistent income for the past two or three years, and the total amount of monthly debt, which includes costs of utilities, debts of credit cards, housing expenses, taxes and insurance. Depending upon the individual's financial situation, other debt payments may be figured into the calculation of a loan," said Gail McBride, director of the home ownership division of Maine State Housing Authority. "It is important to establish good credit. Good credit is built upon consistent timely payment performance. Paying your bills on time is important. The ratio of housing costs should not exceed 28 percent to 30 percent of gross monthly income."

McBride said first-time home buyers usually are better off getting a Maine State Housing Authority loan.

"Maine State Housing Authority loans are insured," she said. "To qualify for a Maine State Housing loan there are specific guidelines unique to this program. The price of a home is not to exceed a certain amount, and the program is aimed to help first- time home buyers," defined as someone who has not owned a home in the past three years

Mathieu advises getting locked into a fixed-rate on a loan. "Also, beware of all the costs and fees in addition to the loan, interest rates, taxes and insurances," he said. "You'll be better prepared."

And there are other costs involved in the home sale.

"In closing the purchase of a home, there are costs of the down payment, closing costs and pre-pay fees," said Cooney, of Maine Home Mortgage. "Closing costs includes legal fees, title searches for deeds, and processing documents. Pre-paid fees include money set aside for property taxes, pre-paid interest for the days before the first mortgage payment, and home homeowner's insurance."

"I was fortunate that I didn't have any debt and I have no payments on my truck," said Ruth. "I was fortunate to lock into a reasonable interest rate. In the long term, having a fixed interest rate will work to my advantage, because the rates constantly change. The money I saved enabled me to pay all the closing costs and prepay fees. At the closing of the sale, the fees included prepaying the first year house insurance, $1,000 earnest payment for making an offer on the house, an application fee to the bank to get a loan, money prepaid to lock in the interest rate on the loan, an appraisal fee from the VA, prepay taxes, and recording fees."

"Now that I own a home, I have plans to make my home comfortable for me to suit my lifestyle," said Ruth.

Laurie Doran is a free-lance writer who lives in Brunswick.

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