Mortgage Process step by step
Strongest Housing Market In A Decade
So, as a first time home buyer, you want to enter this market with as much knowledge as possible.
One of the best ways to understand the process of buying a home is to go through it step by step. The process will vary from one buyer to the next. It will also vary slightly based on the state in which you live.
What follows is a guide to help you make a better choice.
Saving For A Down Payment
The majority of first time home buyers, however, should expect to put down anywhere from 3% to twenty percent of the purchase price. Note, though, that buyers have options to put no money down, and can put more than twenty percent down at any time.
After saving for a downpayment, buyers will have closing costs to pay on the loan, too. Closing costs vary by state and can add up to several thousand dollars. However, it's common for sellers to pay closing costs on behalf of a buyer.
Be sure to ask your real estate agent to work that into a contract.
Lastly, be mindful that some lenders may require additional cash reserves so don't plan on spending everything you have on your home. Aside from putting your ability to get approved in jeopardy, it's poor financial judgment to leave yourself without money in reserve.
Determine Home Affordability
When buying a home, mortgage lenders will look at your income, your assets, the down payment you have, as well as your other debts, liabilities, and obligations.
It is recommended that homebuyers look for homes that cost no more than three to five times their annual household income, assuming a 20% down payment and only moderate debt in addition to new housing payment.
Lenders use this guideline because it has been shown to be a level at which most borrowers can comfortably repay their mortgage, while still having money left over for "life".
The "36% figure" is just a recommendation, however. Some households are able to manage ratios in excess of 36 percent and, for some households, 36 percent is too high.
The best approach is to work with a mortgage professional to determine exactly what you can afford, both from a loan approval standpoint, as well as a comfort level for making the monthly payments.
Check Your Credit
Before applying for a mortgage - or any other loan type - it's helpful to know your credit standing. By law, you can receive one free copy of your credit report per year.
Mortgage lenders will evaluate your credit using the FICO scoring model. The FICO model scoring ranges from 300-850. Generally, the higher your credit score, the better loan for which you’ll qualify.
When you receive your credit report, be sure to review it for errors and omissions. If you find something wrong, dispute it. This will start the process of removing the error from your record and may also improve your credit score.
Before shopping for a home, it is important to know how much you’ll be able to actually spend. The best way to do this is to get pre-qualified for a mortgage.
The process of getting pre-qualified involves providing some personal and financial information to your mortgage lender, such as income and asset info, as well as information for pulling credit.
Your mortgage lender will review this information and let you know how much you’ll be able to spend on a home.
Getting pre-approved is the next step.
Getting pre-approved for a mortgage is more in-depth than getting pre-qualified. During the pre-approval process, you will be asked for documentation which support the information you’ve verbally provided as part of your pre-qualification.
Documentation typically includes W-2s, pay stubs, and bank statements; and may include federal tax returns.
A distinct advantage of completing the pre-qualification and pre-approval steps before looking for a home is that you’ll know in advance exactly how much you can afford.
In addition, getting pre-approved also allows you to move much faster when you find that perfect home. In today’s competitive market, a pre-approval lets the seller know your offer is serious. Not having one can weaken your bid and cause you to lose out to another buyer whose financing is already in order.
Hire A Real Estate Agent
Although it’s possible to search for homes using internet sites devoted to real estate, you can give yourself an immediate advantage by enlisting the services of a professional. Real estate agents have more in-depth and up-to-date knowledge of the communities and real estate markets that you are considering.
Why hire a real estate professional? Because, if you're like most Americans, buying a home is the most expensive purchase you'll make in their lifetime. In addition, the process of buying a home can be complex.
Unlike buying a car, laws that affect home buying change every year and vary from state to state. Real estate agents are required to stay current on the various laws and regulations. Additionally, real estate agents can help point out features or faults with a property that may otherwise go unnoticed.
A real estate agent can usually negotiate better sales contract terms, and offer greater knowledge of search areas.
There are a number of ways to find a good real estate professional. As with most service providers, nothing beats a good recommendation from someone you know and trust.
Find A Home, Make An Offer
With the help of your real estate agent, you can begin touring homes in your price range. It will be helpful to take notes on the homes that you visit as it may be possible that you will view a lot of houses. After a while they may run together.
Some even take pictures or videos to help them remember.
Not only will you want to take notes about the home, you’ll also want to evaluate the neighborhood. In what condition are the other homes ? Is there a lot of traffic on the street? Is there adequate parking? How about proximity to shopping?
Depending on the buyer, these examples may or not be as important. It’s good to know what’s most important to you and your family before shopping for a home. Take the necessary time to find the right home. But. don’t take too much time.