Is there a way to ease the anxiety of purchasing a home? Absolutely! Start these steps now to set yourself up for success!
Buying a new home is exciting but also can be stressful due to the price tag and process. As the saying goes - knowledge is power. Whether you are a first-time homebuyer or have purchased multiple homes, updates to laws and regulations, economic changes, and many other external factors can change the purchase process and financing options. Understanding the common terms, steps of the mortgage process and what is expected from the borrower can help the process to move much more smoothly and limit surprises or delays.
If You Wait, It May Be Too Late
Purchasing a home may seem to be as simple as finding a house, making an offer, and closing. However, it is truly more of a marathon than a sprint. There are several matters you can address months, even years, beforehand to set yourself up for success. Intentional preparation and planning will not only contribute to a smoother purchase process but may also give you more flexibility when it comes to loan options or even purchase price.
But It's Not Just About Purchase Price
In order to qualify for a loan, a lender will do a thorough review of your income, savings, debts, credit, property tax, and homeowners’ insurance costs to determine if you qualify. Much of the emphasis on purchasing a home is placed on how much savings you will need or how much will your monthly payment be. While those are significant factors, there are many other less known factors that can be just as, if not, more important. Here are some areas where you can start now:
Time To Get Organized
Gather paystubs, W-2’s, tax returns, financial statements to include bank, credit card, and retirement accounts, benefit award letters such as social security or pension, divorce decrees, and any short sale or bankruptcy documents. Lenders require two years of documented employment history with W-2’s, current paystubs, tax returns. However, Zelle, Venmo, and other electronic payment methods can be difficult to document and may require additional paperwork. Large deposits over 50% of monthly income must have a paper trail. Keep copies of tax refunds, inheritance funds, and document proceeds for any auto, watercraft, or RV sales with the bill of sale and copy of title.
Keep The Money Coming
Your income/employment provides the funds to make your mortgage payments. Whether you are hourly, salaried, or self-employed, it is beneficial to maintain the same line of work for at least two years and limit gaps of employment to less than 30 days. If you do change jobs or industries, the new income should be a similar type and an increase over previous employment.
Minimize Your Debt
It is optimal to keep credit cards below a maximum of 25% utilization, which is the amount of the approved credit versus outstanding balance. Having at least one installment loan is beneficial to your credit score, but new accounts and high utilization can cause it to decrease. Collections may or may not need to be paid. It is extremely important to seek a mortgage expert’s guidance before simply paying off a collection as doing so can actually negatively impact your credit score. There is a significant difference between paying a collection versus having it removed from your credit report.
Pay Your Bills On Time
Lenders will review your credit and payment history. Delinquent payments not only impact credit score but may result in loan denial. A lender will access tax records to ensure you are not delinquent or owe back taxes. If you are on a tax repayment plan, it will be factored into your debt-to-income ratio. Keep records of payment plans.
Save, Save, Then Save Some More
In the months leading up to your home purchase, increase your savings so you can cover down payment, closing costs, and have reserve funds. Some loan types require a certain amount of reserves to qualify. While there are loan options that don’t require a down payment, such as VA, there may be funding fees or other expenses involved.
Get A Mortgage Pre-Approval
It’s never too early! Many think a credit pull reduces their score dramatically. It does not. And you may just receive proper guidance to be able to greatly improve it. Simplicity Mortgage even provides a soft-pull option that will not impact your score one bit.
Any experienced mortgage professional will seek to provide an iron clad pre-approval to determine if all expected underwriting conditions can be satisfied. This is also a key point of caution. Not all mortgage companies conduct comprehensive pre-approvals. Some are less experienced; others simply do not spend enough time to be as thorough as needed. On the other hand, borrowers may hold back bits of financial information accidentally or intentionally, which will likely be found during underwriting and may impact the ability to close. When new information is uncovered during the loan process such as debts that were not included, termination of employment, back taxes owed, and more, the loan may be at serious risk or even result in forfeiture of your earnest money deposit.
The mortgage pre-approval process will provide the opportunity to get expert insight for steps to prepare as well as help you understand the costs that occur before closing, at closing, and what your future expenses will be.
Financing First - It Pays to Shop Around
Once you find a home you love, the purchase process can begin to rapidly accelerate. To make a strong offer, the realtor will often include a preapproval from a lender or broker with your offer. In a hot market, you may not have enough time at that point to research mortgage options or a mortgage broker you trust. Analyzing your financing options and having a few conversations with a lender or broker before you make an offer, can increase the chances of closing successfully. There will be some time after your offer is accepted to compare loan programs or shop companies and rates, but why wait? At that point, you’ll be working on a home inspection, an appraisal, a homeowners’ insurance quote (to ensure the property is eligible for your loan) and much more. Having a knowledgeable, honest mortgage broker in your corner can make all the difference in your home purchase experience.
Informed consumers are able to feel confident and in control throughout their home purchase. Preparing for your purchase now will likely lead to larger variety of financing options or rates, potentially saving you money on your mortgage. When you have a greater understanding of the loan types, process, timeline and requirements you can make educated key decisions about your purchase. Ultimately an informed consumer will result in a happy homeowner!
Looking for more in depth info? Check out our site and find out more!
At Simplicity we look at mortgages a bit differently, they are our passion. We are here to be your mortgage expert and support you through your next home purchase. Our goal is to provide a superior level of customer service and satisfaction. We pride ourselves on being able to listen and understand your concerns, and are able to ask the relevant questions so we can fully assess your specific mortgage needs. Once you contact us, you will quickly see that you are working with TRUE mortgage experts who have a passion for solving even the most challenging of situations.
We believe in honesty, transparency, integrity, and communication. We are confident that you will walk away with an exceptional mortgage experience.
We look forward partnering with you throughout your next home purchase!