Mortgage companies and banks understand that buying a home is a big investment, regardless of whether you are buying your second home or you are a first-time purchaser.
Simply put, a mortgage is a lump sum of money that you use to pay for real property. You are, however, required to pay the loan over a specified period of time.
Most home buyers are overwhelmed by the numerous financing options available to them.
Fortunately, by setting aside enough time to research the important aspects of home financing, first-time homeowners can save a considerable amount of money and time. Having deep knowledge concerning the market, where the property is situated, and whether there are some incentives that lenders may give means that buyers will enjoy added financial perks.
It is imperative for homebuyers to understand what is required of them beforehand. In this light, there are particular issues that you ought to know before you apply for a mortgage loan. Read on to find out the step-by-step outline of what you should expect when you begin the home purchasing process.
1. Get a Pre-approval
The principle behind applying for pre-approval is simple: make sure you are confident of the amount of money that your lender is willing to loan you before scouting for houses.
Once you are pre-approved, your credit limit is pulled. This furnishes the lender with two important data: your credit report and your credit score. You must have a credit score above 580 to be able to qualify for a loan through the FHA (Federal Housing Administration) and a score of 620 for a loan through the conventional Freddie Mac or Fannie Mae. A mortgage loan financed by the Department of Veterans Affairs does not need a specific score, but the lenders set recommendations themselves.
Apart from your credit score, lenders will be in a position to see the total amount of debt you have, and whether you have bankruptcies in your record. The lender requires such information to give advice accordingly.
2. House Hunting
At this stage, homebuyers go out and look for suitable homes. Depending on your total budget, it may be difficult or easy for you to purchase a house with every feature you hoped to have. Make a list of the features you wish to have in your future home.
Once your list is ready, hire a real estate agent. This is because agents understand the market better than you do. Additionally, they can work with you to ensure that you find a good home within your budget.
3. Make an Offer
Work closely with your real estate agent or lawyer to write a professional purchase agreement. In the agreement, include your offer for the buying price as well as a list of other important matters that you wish to be included in the sale. Even though the initial purchase offer is negotiable, sellers often prefer offers with few strings attached. This means that you might want to avoid including things like furniture being included in the deal.
Additionally, it is at this stage that you will wire the money deposit. The deposit is a small percentage of the agreed buying price given to the seller as a sign of your willingness to purchase the property.
Once the seller accepts your offer, the purchase agreement must be sent back to the bank. The lender will have a look at your options to ensure that you are on the right loan program. Once these matters are ascertained, your loan is sent for underwriting.
Your assets, income, and employment status are corroborated and compared to the data on your pre-approval report during the underwriting process. Moreover, your lender may require additional documentation for approval purposes.
5. Appraisal and Inspection
An appraisal protects both the home buyer and the lender. At this stage, the property’s value is compared to other homes in the area. Having an estimated value ensures that homebuyers do not overpay. Additionally, the lenders will not loan more than the property’s worth; knowing the value ensures that both the lender and homebuyer do not make poor investments.
Once the appraisal and inspection process is complete, bring your down payment, sign the mortgage agreement, and take full possession of the deed.