Consider your budget, credit and financial situation
How much house payment can you afford? The first and most important thing to consider when thinking of buying a home, is how much you can afford for a monthly house payment. Only you know how much money you have left at the end of the month and if you have ‘Month’ left at the end of the ‘Money’ then you may want to consider paying off some other commitments before purchasing a home. You may also qualify for a loan that is more than you want to spend and more than your monthly budget will allow. Buying a home is exciting, but it is a huge commitment and making yourself house-poor can be miserable. Remember, you don’t have to spend all you may qualify for!
Don’t forget to budget for utilities. If you are not used to paying utility bills like water, gas & electric, you will need to budget for these also. Use the square footage of the size house you would like to buy and multiply that by 14 cents. We are all different in our use of utility resources, but that figure will give you a good estimate to work from.
How is your credit? When you apply for a loan, we will need to know what your credit is like. Most loan programs have credit score limits and restrictions on allowable collections, judgments, bankruptcies, foreclosures and late payments. We will not pull your credit without your permission, but when we do, it will be a tri-merged credit report that shows information from all three credit repositories and the scores will generally be lower than the free credit reports you can look at for yourselves.
If you know you have credit issues or are not sure how your credit looks we look at a report for you and work with you to get your credit where it needs to be so that we can get you the best mortgage for your needs. Don’t be embarrassed if you think your credit is not great – we’ve seen it all before and we’re here to help, not criticize. Life happens, not always as we plan it.
How much money will you need in the bank?
There are many loan programs: some requiring a down payment, some requiring that you have a reserve of a certain amount of monthly payments in the bank, but by far the most popular loans asked for are 100% or ‘No Money Down’ loans.
Even if you don’t need any money up front to buy a home, there are nearly always expenses involved in buying a new home: earnest money, closing costs, moving expenses, new furniture, deposits on utility services etc. Will you have the finances to cover these types of expenses?
Lenders will also want to see that you have some reserves in the bank - something to fall back on if necessary
In order to get you pre-approved we would need the following information from you:
We will also want to know how much you want your monthly payment to be and how long you anticipate living in the new home. This will help us determine the kind of loan that will be best for you now and in the future.
We will not need to get paperwork from you when you initially call to get pre-approved as our pre-approval letter will condition for this. Please be aware though that you will need to prove what you tell us if you go ahead with the loan.
Once we have you pre-approved, we will give you a letter that you can give to your realtor, so that they know how much house you can afford. Your approval is good for as long as you don’t significantly change the circumstances on which you were qualified and as long as the qualifying interest rate is applicable.
Any negative change in your employment, credit, or financial situation may put your loan qualification into question. So, from the time that you apply for your loan, until the time that your loan has funded, we would strongly advise that you do not change your employment situation, reduce your assets, open any new lines of credit, make any late payments or allow anyone else to pull your credit. Credit pulls after your application date will need to be explained and documented and can sometimes cause some very lengthy delays
3) Select your Realtor
We work with a number of different realtors and would be pleased to refer you to someone who will be able to help you. We only refer to realtors whom we are sure will take good care of you as we feel that referrals also reflect upon our judgment.
Your realtor will help find the kind of home you are looking for and can help you negotiate with the seller to ensure you get a good and fair deal and maybe some help with closing costs. Your realtor, like us, will be there for you throughout the home buying process. They can advise you and help with any questions about the home.
4) Find your new home
Tell your realtor about the kind of home you are looking for, price range, which areas of town, if you know – or they can advise you if you are new to the area. Your realtor will research the properties on the market, make appointments and accompany you to view homes that meet your criteria. They are experts in the housing market and can help you identify the benefits or pitfalls of one house over another.
When you find the home you would like to buy, your realtor will help write up your offer. At this stage you will need to be prepared to put forward some Earnest Money to secure your offer. You may either leave your Earnest Money into the transaction or, if your loan program allows, you may get most or all of it back at closing.
There may be several communications back and forth as you and the seller agree on the price and conditions of the purchase. This is where you will really come to appreciate your realtor as they will assist you with how to proceed and respond to counter offers.
Once you and the seller agree upon terms of the Purchase Agreement, your realtor will get a copy of the signed Agreement to us so that we can work on getting the loan closed for the date that you have agreed to purchase your new home.
5) Provide required paperwork for your loan
We always try to keep the paperwork to a minimum, but we have to prove everything that we put on your loan application when we pre-approved you.
The following list is typical of the kind of documents we will need:
If you are paid on a W2:
If self employed you will also need:
If Active Duty Military:
We will advise you of any further supporting documentation that we will need from you as the loan process progresses and we would ask that you get these to us as soon as you are able.
6) Arrange a Home Inspection
A home inspection is very different from an appraisal. We will order an appraisal to determine the value of the property you have agreed to buy. A home inspection is concerned with the condition of the house, not its value.
Your home inspection should be done within a few days of your Purchase Agreement being signed, so that any major matters arising from the inspection can be brought up with the seller. Your realtor will discuss having a Home Inspection, with you when writing the contract.
7) Select your Homeowners’ Insurance Company
Your new home will have to be covered with a Homeowners’ Insurance Policy (also known as a Hazard Insurance Policy). This is required to cover the value of the home to protect you and the lender in case of accidental damage or destruction of your home.
If your new home is in a flood zone you will need to carry extra flood hazard insurance: this insurance can be expensive.
We will be happy to get a quote for you, but it is always your choice who you select. Whomever you have your auto insurance with is a good place to start.
8) Relax & let us take care of the loan process
After we receive the final signed copy of your Purchase Agreement, you will begin to receive loan disclosures from us, and the lender that we have chosen to underwrite your loan. These are sent via a secure network, for you to sign electronically, however, if you prefer, you may come in to the office and sign in person. We understand that sometimes technology is not the preferred way. Just let us know.
We will ask you for any documentation that we did not get at the pre-approval stage, or any updates required, and begin the processing of your loan, such as ordering verifications of employment with your employer (if applicable), verifications of rent, (if applicable), the title work to the property, and an appraisal to establish the true market value of the home you are buying.
Unless the loan is a VA loan, appraisals are now paid for at the time of order, so we would need to get payment details from you at that time. The cost of the appraisal can be reimbursed at closing, unless you have elected to pay your own closing costs.
When we have all the necessary documentation, we will submit the loan for underwriting. The underwriter may call for additional documentation: we call these ‘conditions’. Conditions are generally for more supporting documentation or letters of explanation to support the file.
Once we have all (if any) conditions, we send the file back to the underwriter and request your Closing Disclosure "CD". This is the document that you will sign at closing. The initial CD is a rough draft and when you acknowledge receipt of it, it will start a wait period of three business days (including Saturday) until you are allowed to sign. We send these out early to get the clock started, but your loan will still need to be signed off by the underwriter, go through a quality control check and then go in line for the final loan documentation to be sent to the title company for you to sign. During this time, the final Closing Disclosure is updated and double-checked to ensure that it is correct and that you are only paying the fees that have been disclosed to you.
9) Contact Utility Companies
About the time you receive your Closing Disclosure, it's advisable to contact the utility companies to get services switched to your name, rather than wait until the seller has had them switched off, otherwise you may have to pay a reconnection fee. Your realtor will advise you on this.
10) Signing and Closing
Once the lender has send the closing documents to the title company, your realtor will arrange your closing appointment with the Escrow Officer at the title company. They will walk you through the closing paperwork that you have to sign. This process usually takes about an hour and we will be there with you in case you have any questions.
After you and the seller have signed, the lender reviews the documents to ensure that nothing was missed and when satisfied, they release the funds to the title company, who makes sure everyone gets paid per the purchase and sale contract. More often than not, this takes place the day after you sign.
The funds are generally sent around lunch time then the title company has to disburse funds and record the transaction before the home is officially yours. When all this has been done, the title company usually calls your realtor to advise that you can collect the keys.
At this time, the lender turns their credit monitoring off and you are free to do what you wish with your credit. So remember, once you have those keys in your hand, you are good to go!