A Mortgage Guide That Every Home Buyer Should Read
Buying a new home can be an exciting process. However, its not all green pastures and flower fields. There are certain tasks that need to be done, and it may not be fun. What this article is talking about is doing your homework or due diligence. The process may be tedious, but it’s critical for avoiding further complications down the road.
Below are a few aspects that should be present in every homebuyer’s due diligence list:
Determine Your Budget
This should be the first tasks that you should do whenever you are thinking of getting a new home. It’s very important that you determine how much you can afford. This task should be done even before you talk to a real estate agent. This will make things easier for you and your agent. For example, it will prevent any heartache you may suffer from falling in love with a home that is simply out of your budget. Also, it will help the agent in narrowing the lists of possible homes for you.
Thankfully, determining your budget is not that difficult. You can start by using an affordability calculator. This should help you determine on how much you can appropriately afford in relation to the down payment and income. Then, use a payment calculator. This tool should determine how much you are going to pay each month.
Start The Mortgage Process
It’s best that you start connecting with a lender as soon as you have a clear picture of your financial capabilities. The lender will need to review several qualifying documents. Therefore, you will need to prepare and submit such kind of documentation.
At the very least, you will have to prepare the documents below:
* Personal Information – this will include your marital status and date of birth. The number of children (if you have), and their respective ages.
* History Of Residence – you will need to prepare tax figures, insurance and all mortgages for the last two years.
* Income And Employment – you will need to prepare employment history and wages for the past two years. If you receive income in the form of bonuses and commissions, you will have to prepare those figures for the last two years. Lenders will average your income, commissions and bonuses for the last two years. Also, Lenders will require you to submit full tax returns within the same time period.
* Asset Balances – You will have to prepare all retirement, investment, savings and checking accounts. Even if you are planning to pay the down payment from one specific account, all accounts must be reported for paper trail purposes. In case you are using “gift funds” for the down payment, specific rules will come into play.
* Debt balances and payment – this will include all debts and payments you may have, such as child support, alimony, car loans student loans, mortgages and credit cards.
* Social Security Number – this will be used to confirm your credit scores and debts.
Select Loan Type And Down Payment
Once the lender has a full picture of your financial profile, he or she can then recommend a loan structure that will be a better fit for your profile.
For example, you may have strong income, but you’re still early in your career. This mostly means that you haven’t saved enough money. A lender may recommend you for a 10% down payment with a slightly higher monthly payment.
There are instances that your opinion may differ from the lender. You may be thinking of getting a 5-year adjustable rate to get a 1-bedroom condo. From your perspective, this will be a better option considering that you are going to sell and upgrade within the next 5 years. The lender may have a different opinion. Looking at your income and your plans to start a family within 5 years, the lender may conclude you are better off closing a 3-bedroom single family home with a 30-year fixed loan.
It is critical that you match your choice of home and your long-term goals. It’s worth mentioning that since lenders have a full profile of your financial status, they are in a better position to recommend you the best option for you in relation to your current and future situation and goals.
Look For An Agent And Start Shopping
After the mortgage process has begun, you are ready to find a real estate agent. After that, you can start the exciting part of shopping for a new home.
Introduce your agent to your lender. Ask the lender to brief the real estate agent about your mortgage process. By doing so, the agent gets a confirmation about your down payment budget and target home price. This will also subtly tell the real estate agent that you are willing to close as soon as you find your desired home.
Write, Lock And Finalize
Once you find that perfect home you love, you will then write an offer. The real estate agent will present the offer to the seller. If the seller accepts your offer, your loan process will then move to the final stage.
The next step is locking your mortgage rate. The rate locks both the seller and the lender. Therefore, you cannot lock until the seller accepts your offer.
After that, the lender may request you for more and/or updated documentation. The lender will then order an appraisal of the property and review the seller’s property title report.
Once everything checks out, the lender will then draw the final document that includes the terms and rate. After you sign the documentation, the lender will provide the funds needed and you will be a proud owner of a new home.
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