For some, purchasing real estate is often the largest purchase in their lifetime. At Railey Realty, we encourage our clients to choose a mortgage lender wisely, and recommend entering negotiations with a pre-qualification letter in hand. Working with a lender familiar with vacation home financing and the Deep Creek Lake market can make the financing process easy and without delays or problems. Be cautious of internet lenders and banks that aren't familiar with our market. We've seen our customers get very frustrated with them. We aren't saying all of them are bad, but in our experience our clients may have a much easier time and a better experience with local lenders who specialize in the Deep Creek and Garrett County market.
Make a Loan Application
When you first speak, or meet with a lender, they will review your credit report, along with your income and current debt. This information will allow them to determine how much you can borrow. Keep in mind, only you will know how much you can comfortably afford each month! It's important to note that your monthly principal and interest payments will include annual property taxes and homeowner's insurance.
In Garrett County, Maryland, the conforming loan limit is currently $417,000. Borrowing $417,000 or less is called a conventional loan. Conventional loans require 20% down of the home's purchase price and have the lowest interest rates. Some lenders have conventional home loan programs that allow less than the typical 20% down, such as 15% or just 10% down, but those will require PMI (Private Mortgage Insurance), and is an additional amount added to the mortgage payment. Borrowing an amount greater than $417,000 will be a jumbo loan. Jumbo loans also require 20% down and typically have a higher interest rate.
We strongly encourage you work with a lender very early in your vacation home buying process. This allows you to understand rates, different loan program options, and durations long before you are under contract.
Get a Pre-Qualification Letter
Once you have decided to make an offer on a house your chosen lender can then provide you a pre-qualification letter. This letter is then submitted with the offer. A seller will almost always give your offer stronger consideration with a pre-qualification letter because it demonstrates to them you will be able to purchase their home if your loan is completely approved and the house appraises for the agreed upon contract price.
Offer with a Financing Contingency
If obtaining a loan to purchase, the Conventional Financing Contingency addendum that will be submitted with your offer must include the loan amount, term, amortization, rate, and the loan program. This addendum also includes an appraisal contingency that, in simple terms, states the property must appraise for the agreed upon purchase price. If the property does not appraise for the contract price, the purchasers can either move forward (but must put more money down at closing), or ask the sellers to reduce the purchase price to the appraised amount. If the sellers don't agree to reduce the price, the purchasers may void the contract and get their deposit back. The Contract of Sale also allows the purchasers to void the contract should the bank's underwriting decline the loan for credit or any other reason.
Loan Underwriting and the Appraisal
After you have a fully executed the contract to purchase, your lender will start the underwriting process and begin finalizing the loan. First, they will ask you to provide supporting documentation to prove your income, assets, debt, and source of down payment. With so many new government regulations in the banking industry, be prepared to answer a lot of questions and provide a lot of supporting paperwork. We urge having patience at this point!
The lender will also order the appraisal after you make written loan application. This is a requirement for the lender to be certain that the property is worth the agreed upon sales price. Sometimes a survey is also part of the lender’s requirements. If the property is part of a condominium association or homeowner's association, the underwriters will review the recorded documentation. Lenders will also require proof of insurance before they fully approve.
From start to finish, this typically takes 45 to 60 days. During this time, don't do anything that will affect your financial situation or affect your credit score, such as borrowing to purchase a new car or opening credit card accounts. Doing these things may jeopardize your ability to qualify for a certain loan.
If everything goes okay with the appraisal and underwriting, about 7 days before closing the lender will provide you the closing disclosure. You must sign off that you have received and reviewed this document. This disclosure shows you the exact monthly payment, annual percentage rate, all closing costs, and exactly how much money you will need to bring to closing. Local title companies will not take personal checks for the cash needed to close. You must get a cashier's check for that amount payable to the title company!