Buying a new home is an important decision. Making the right decisions involves a good amount of time and clear understanding of the process. Typically, the home buying process has several stages and takes time. Having a good Realtor that will educated you throughout the process is important.
A Realtor Helps in Every Step of the Buying Process
- Educating you about the market
- Analyzing your wants and needs
- Showing you homes that fit your criteria
- Negotiating on your behalf
- Coordinating the work of other professionals needed
- Makes sure all deadlines and terms are being met
- Make buying a home fun – because it is
When hiring a Realtor, do your due diligence and make sure you are 100 percent satisfied with the person you choose. Prepare interview questions and interview all prospective Realtors. Below are few questions to ask a Realtor during the interview process.
- How long have you been in the business?
- Do you have clients I could ask for referral?
- Are you a full time Realtor?
- Do you have a team?
- Tell me more about your team and how they help you?
Video: Hiring the right Realtor to help you buying a home
Checklist Required for Loan Application
With so many mortgage loan options available, finding the right loan to fit your needs is very important. In order to determine which loan programs fit your needs, you must get prequalified or preapproved. It is the first step in the home buying process. To get qualified you will have to provide certain financial details and documentation to your lender. These financial documents will help your lender qualify you for a home loan. How much you can qualify for depends on three things:
- Credit score
Getting prequalified requires a basic overview of your financial history. The lender will pull your credit, look at credit score, pay stubs, and ask some questions about your finanancial history. The lender will then issues a prequalification letter based on that information.
Getting preapproved is a complete evaluation of your financial history. The lender will have you fill out an application and provide much more documentation. This documentation will include two years of tax returns, 2 years w-2 statements, assests, debts, etc. A preapproval is better because there is no question that you are approved for a loan. They have reviewed your financial history.
Below is a checklist of items that your lender will ask you for when you are applying for a loan:
- Picture ID with Social Security Number
- Employment history
- Copies of your most recent pay stubs and W-2 form (past 2 years)
- Verification of other income (social security, child support, retirement)
- Copies of all bank statements from checking/savings accounts
- Copies of all stock/bond certificates/retirement accounts.
- Credit cards (account numbers, current balances, and monthly payments).
- Installment loans (car, student, etc.) Same details as for credit cards.
- Current mortgage loans
- Bankruptcy – bring discharge and schedule of creditors.
- Adverse credit – bring letters of explanation.
- Divorce – bring your Divorce Decrees, property settlements, quitclaim deeds, modifications, etc.
One thing to remember, a lender will always approve you for higher that what you might want. This happens because the lender uses you gross income (before any deductions like income tax) instead of your net. Look at your budget and decide how much you want your monthly mortgage payment to be and that will determine your loan amount.
DO’S WHEN Qualifying for a Mortgage
- Do keep all existing credit accounts open.
- Do maintain your employment at your current job – if you do not like your job – keep it until you buy a home. The mortgage company will verify employment usually three days before closing. If you lost your job – you cannot hide it they will find out.
- Do pay all collections, judgements, or tax liens reported within one year – this will stop you immediately if you have any. When you pay them off – you must provide written documentation.
- Do stay current on existing accounts – Do not be late on your payments because that will stop your qualification for a home loan. General guidelines is that a lender wants to see a year without any late payments
- Do call me if you have any questions
Don’ts When Qualifying for a Mortgage Home
- Don’t apply for new credit of any kind – Credit card, target card, etc.
- Don’t MAX OUT or overcharge existing credit cards.
- Don’t consolidate your debt to one or two credit cards.
- Don’t make any large purchases – like a car, furniture, etc. I have had several occasions where people went out and charged furniture to a credit card and could not qualify for a home loan.
- Don’t make any large deposits into any of your accounts – new guidelines for mortgages state any deposit over $300 has to be explained in a brief letter. Paychecks, alimony etc. do not need to be explained. It is the $500 you received for selling your bike on Craigslist
Look for the Best Neighborhood
Choosing the right neighborhood is very important when buying a home. Do you choose a neighborhood that has older homes or newer? Do you want a Homeowner’s Association? Is the location good? Is it close to the thing you need most, like doctors, grocery stores, etc.? Having a list of your priorities and requirements is a must. Let the top priorities be the must-haves, followed by the ‘like to haves’. Here are some ideas to help you get started:
- Crime Rate –Visit websites that can track crime rates and sex offenders in your area.
- Amenities –Determine a set of amenities that appeal to you and make a checklist for the neighborhood.
- Schools– If you have children, you will want to check out the curriculum and rating of the school to find out what you can expect.
- Convenience– This is important when factoring in your commute back and forth to work or school.
- Annoyances – You need to visit your prospective property at different times of the day so you can observe the neighborhood at various hours. Listen for trains, nearby freeways or airports that may create a noise nuisance.
- Future Plans & Expenses– Get a clear understanding of the history of the home’s taxes and any future increases you may encounter.
- Homeowner Association – You will need to factor in this expense in your budget and determine if the neighborhood is worth the extra cost. Check and find out if there are any Special assessments (major projects on the horizon) for the community.
Upfront Costs When Buying a Home
When you are buying a home there are some costs that you will incur. Being financially prepared is very important. Below are some costs that you will incur.
Earnest Money Deposit: Earnest Money Deposit is a good faith deposit toward the purchase of the home. It represents the commitment of the buyer. This money becomes a part of your down payment once you accept the offer. The earnest money deposit is applied to either the down payment or any closing costs which have not been paid for. Earnest money is negotiable and there is not set price.
Most earnest money deposits are typically $1000 up to 1% of the purchase price
Inspection Fee: Inspections are essential to any home purchase. You do not want to be suprised by problems down the road. There is a typical range in pricing but homes that are much larger or farther away could cost more.
Home Inspection Fees Range from $300 to $500
Appraisal: The appraisal is an unbiased statistical opinion of the value of the home. For any buyer that is getting a home loan a bank will always complete and appraisal. This is done to protect the lender from lending money for a home that is overpriced.
Price of an Appraisal can range from $350-$450
Down Payment: A down payment is the amount of money you spend upfront to buy a home. The down payment is based on the overall purchase price of the home. Typical down payments can range from 3.5% – 20%. The type of loan that you can qualify for is determined by your overall financial history.
Down Payment can range anywhere between 3.5% to 20% of the home price
Home Insurance: When you are buying a home you will have to have homeowner’s insurance. The cost of homeowners insurance is based on the value of the home. Homeowner’s insurance is designed in order to protect your property from any kind of damages. There are several standardized options for home insurance based on the protection plans and coverage. Choose one that suits your budget with all the essentials covered. Lenders will ask for a year of homeowner’s insurance upfront. The year upfront is to help start the escrow account. We will talk more about escrows account later
Annual Home Insurance Costs typically range from $800 to $1200 and could be higher depending on value of the home
Closing Costs: There are two type of closing costs. They are closing costs and prepaids.
Closing costs – Costs that are charged from the lender and the closing attorney to originate and finalized the mortage.
Prepaids – Costs that are charged to set up the escrow account. These costs include homeowners insurance and property taxes.
Typical Closing costs and Prepaids range from 3%-4.5% of the loan amount
An escrow account is an account set up, by the lender, to collect and pay property taxes, homeowner’s insurance, and mortgage insurance (if applicable). The lenders use an escrow calendar to determine how many months you will initially need, in your escrow account, to have enough money to pay the taxes and insurance for the next year. Your mortgage payment will include the additional money needed for your escrow account each month
There are lots of thing to think about when buying a home. For more information read my blogs articles for buyers.