So, you’ve done all the market research, put the basic plans in place and now you are ready to have those home keys in your hand. Congratulations! But how do you make the actual purchase?
We’re glad you asked.
Consider having a mortgage broker
Nowadays lenders prefer to deal with borrowers through mortgage brokers. It gives them the opportunity to offload some legwork and focus on the actual processing of loans. On your part, having a mortgage broker will make it easy for you to qualify for the loan. At MainStreet Lender’s we know exactly what lenders are looking for and can help you get the best loan possible for your dream home. We also can help handle technical mortgage-related legwork, leaving you to focus on all the other million things you must be envisioning for your big move.
Choose a lender and get pre-approved
A mortgage pre-approval is a confirmation from your lender that you will get the financing required to purchase a home. It gives real estate agents, and sellers, confidence that you are in fact ready and capable of completing the purchase.
The good thing is that nowadays getting pre-approved is not that difficult. The lender will look at your credit history and credit score to get a feel of your financial history. They will also look at your current debts and determine whether adding the mortgage will sink you financially, or if you are able to handle the payments. After that, you will get a pre-approval letter that you can present to the seller or realtor.
The letter is a strong bargaining tool. It shows you are serious about buying and are motivated to do so. Note that a pre-approval is not the same as a pre-qualification. The latter is a lightweight measure of your ability to qualify for a mortgage loan. A pre-approval shows that you do qualify and will get the financing.
Get the best real estate agent
While this is not a must, a real estate agent can prove extremely helpful when you’re searching for a home. It is their job to keep up to date on current market conditions, show you houses in your price range, can point you to the best neighborhoods to live in and might have knowledge about houses not yet listed on the market.
In addition to that, they can take care of most of the paperwork, negotiation, and work to get you the best deal on fees, costs and asking price.
Shop for a property of your liking
Now start house hunting. During your search, your biggest decisions will revolve around deciding which features are must-haves and which ones are not necessary.
For example, what is the minimum number of bedrooms and bathrooms? How far should the house be from your workplace? How much outdoor space do you need? The whole process is likely to be an emotional one, so the presence of a realtor can help bring some objectivity. But ultimately make sure you get a house that suits you and your preferences.
Get the house inspected and appraised
Once you have narrowed down your options to one house, get it inspected. Typically, your offer should depend on the inspection report.
Your realtor usually will help you with inspection and appraisal. They will help you hire an inspector and an appraiser and walk you through the findings. If there are any material damages or defects the seller didn’t disclose, it is better to know before you buy. This way you can ask the seller to do repairs or renegotiate the price to a lower value.
If everything looks fine to you, it’s time to get the appraisal report and use it to apply for the loan.
Choose a loan and apply
Now that you have your house, a realtor, and possibly a mortgage broker, it’s time to talk about loans. This is the point where you will have to decide which mortgage makes sense to you. Remember that you have several options to pick from:
- Government-backed loans: these are great for first-time homebuyers. Qualification is relaxed, and depending on the type, you may be eligible for a loan without having to put any down payment. Here you can choose between a USDA, FHA and VA mortgage loan.
- Conventional loan: the biggest advantage of a conventional loan is that the terms are decided by the lender. That means they can tailor their packages as much as they want. Getting one that matches your budget and needs should be doable.
- Fixed-rate mortgage: FRMs are good because of their predictability. Your interest rate will not change over the term of the loan. This way you’ll be able to plan and stick to your budget.
- Adjustable-rate mortgage: for their part, ARMs are flexible. Interest rates change depending on market conditions. So when the market is really good your payments will likely decrease. That will help you save some money each month.
- Jumbo loans: these are mortgages for high-cost purchases. If your property cannot be financed by a conforming loan you may want to consider applying for a jumbo loan instead.
- Conforming loan: these are common types of loans, that fall under a certain limit. Qualifying for one is much easier than a jumbo loan.
Upping your odds for approval
After choosing a loan, you will then apply for it and wait for approval.
It is worth knowing that there are things you can do (prior to applying) to increase your chances of getting approved for a mortgage. For starters, get your credit reports and check to ensure that they are accurate. Consider trying to improve your credit rating by paying off some debts (especially credit card).
If you have the funds to make a down payment, that is even better. Ideally at least 20% down is perfect, but even as little as 10 or 5% will go a long way in improving your risk profile. Remember you can also use the cash to pay off mortgage-related costs like closing costs. That way you will reduce the total amount payable (because otherwise the costs will be rolled into the loan). Finally, don’t change jobs just prior to applying for the loan. Lenders want to see some surety that you have a consistent source of income.
Once you have submitted your application, your lender will start processing it. You may be asked to present some documents like your income report, credit history, title report and appraisal report. During processing, the main decision maker on whether you get the loan or not is the underwriter. Their role is basically to evaluate your documents and then determine whether you are eligible for the property and the loan that it comes with.
Put an offer
If your loan is approved it means now you have the money. You can go ahead and make a formal offer for the house. The seller should accept it in accordance with the pre-negotiated terms, and then the next step is signing the paperwork.
Sign papers and close
Legally, you will be required to sign at least four documents, namely, the loan estimate, the closing disclosure, the promissory note, and the security instrument. Again, your realtor will help you go through all the documents so that you understand the benefits and obligations that come with a mortgage loan.
Closing is simply a review of the documents to ensure that all the details are correct. This is a quick process, especially if you have enlisted the help of your mortgage broker and closing attorney to fill out and process the paperwork.
Then there is just one thing left for you to do; and that is for you to enjoy your new house!