The housing market seems to be heating up nationally and even in our small town. With that being the case, I would like to share a few tips and try to offer a better understanding of the home buying and mortgage process for both seasoned and 1st time home-buyers alike from someone’s perspective who has sat on both sides of the desk as a loan officer and consumer. Hopefully, these tips will help make your home buying process go as smooth as possible.
1. Know YOUR budget. Yes, the bank can tell you what you qualify for based on credit and debt ratios. But only you know your spending habits. Are you ready to commit to a house payment, insurance, taxes, improvements, and repairs? Or do you want more freedom for season tickets to your favorite team? Or extra cash to rush off on spontaneous getaways? Begin to think about how much money you can do without each month, how much you’re paying now in rent, or how much you’re saving towards a down payment. Your home is an investment, but like all investments it costs something as well.
2. Get your finances in order. One of the major factors in qualifying to purchase a home is your credit history. If you monitor yours, great. If you don’t, contact a lender about doing a pre-qualification and checking your credit history for you. This allows you to see if there is anything you need to work on and begin to get an idea of what price range you may be able to qualify for.
Also, begin to gather your financial information. Start a file with your pay stubs, W2s, tax returns, bank statements, etc. Your income sources and employment status will determine exactly what you’ll need so discuss this with your loan officer for additional guidance as well.
3. Save BEFORE you buy. This is more my personal advice than purely loan advice. Yes, I know that there are 100% loans out there. But if you (or your lender) takes the time to do the math on what they cost over a 30 year span you will likely think twice. Having at least 5% down opens up many more loan options which can save you tens of thousands of dollars over the life of a loan. Avoiding even a monthly mortgage insurance (MI) payment of $50 may not sound like much until you multiply it out over 30 years where it totals $18,000. Having 20% or more down is even more beneficial in the long run saving you interest, MI, and allowing you more loan products to choose from.
4. Know your loan options. Find an educated and experienced mortgage loan officer to help you sort through your loan options. There are many different types of loans, fixed, adjustable (ARM), conventional, USDA, FHA, and more. It can be confusing and overwhelming so find someone you can trust and discuss all of your options. A good loan officer will not mind explaining all of your choices and making sure you understand the numbers and feel comfortable with your payments before locking you into a loan. Also, while you do have a to choose a loan in order to proceed, you are never locked in to any deal until you sign on the dotted line at closing so don’t allow unscrupulous lenders or realtors pressure you if your gut is telling you to back away from a situation.
I encourage you to exercise patience during this phase. A good loan officer can provide you with many different loan options and explain the pros and cons of each. But this amount of detailed analysis takes time — please don’t rush them and be patient with yourself as well in making very large and long lasting financial decision. Personally, I believe that’s what to be seems to find a way, so relax. That deal you think you’ll miss if you don’t decide in the next 15 minutes will still be there tomorrow or at the end of the week if it’s the right home for you. And if you miss it, perhaps there is a better home or better price headed your way.
5. Get started. Once you’ve been pre-qualified, found a home, negotiated a price, and decided which loan product will be best for you and your family, apply for the loan to help meet those needs. This is when you will submit your financial information to your lender and get a more detailed breakdown of costs and payments called a “Loan Estimate.”
6. Trust the process. Buying a home is just that, a process. For previous generations, it’s not what it used to be with all of the new government regulations that have been imposed over the last few years. (Some were needed some were not but that’s a debate for a different time). A mortgage loan involves many different people; lenders, underwriters, closers, attorneys, appraisers, realtors, and sometimes more. People are not machines. They make mistakes, get sick, and yes even take a vacation from time to time. Stay in communication with them regularly but not hourly. The average mortgage takes 30-45 days to close. During this time, your bank will review your credit history, calculate debt ratios, verify income, verify assets, order and review an appraisal, order title work from an attorney, and obtain other required certifications and approvals based on regulations. There are a lot of moving parts and it just takes time, so it’s okay to be persistent, but exercise patience as well.
One of the best ways I can explain the process is this: My dad had a mechanic one time that was famous for “working on” cars. He “worked on” cars a lot. But he wasn’t the best in the world at “fixing” cars. The loan officer’s job is to “close” loans, not “work on” them. Trust me when I say that it is my goal to get your loan closed and not keep looking at it in my in process folder either.
7. Close on your new home. Once the bank has all of its approvals and you are clear to close, they will contact you and/or your realtor to schedule a closing date and time. Note on this — you do not truly have a closing date until you are clear to close. When you sign a contract, you have a target date, but it cannot close until the entire process has been completed. Again, this involves the schedules of a lot of real life people: you, the seller, the realtor, the attorney, and the lender so be polite, patient, and flexible in the scheduling process.
Don’t let the fear of years of payments or the stress of jumping through underwriter’s hoops keep you from your dreams of home ownership. I still remember after buying my first house the amazing feeling of walking on that ground being able to say that it was mine, that I actually owned part of this land. And I can’t begin to express the joy of our home that we have now built next to my parents on family land. Buying a home is scary, exciting, and fun. It can potentially be frustrating and even a little bit stressful. But it is also one of the most rewarding feelings in the world when someone hands you the keys and says, “It’s yours.”