If you’re new to the home buying process, it can be hard to know where to start and what to believe. How do you separate fact from fiction when it comes to realistically securing a mortgage? We’re here to help dispel some mortgage myths and set you up for success with this first-timer’s guide to getting a mortgage. When you have the right facts and tools at your disposal, your journey to home ownership can become an empowering one. Read on for everything you need to know to get started.
Contrary to what you might believe, your mortgage interest rate may not be the most important factor. There are plenty of numbers that go into your monthly mortgage amount, and an interest rate is only one tiny piece of the puzzle. It actually won’t make that much of an impact on your payment. Unless you’re talking about a seriously extravagant home well above a more mid-range cost of $350k, for instance, you’re likely only looking at a difference of $12 to $25 per month for every .125% of a point of variance.
Instead, try to focus on loan size and how quickly you want to pay off your mortgage – two of the most important considerations. Other factors that can impact your monthly mortgage payment include private mortgage insurance, depending on how much you put down, property taxes, homeowner’s insurance and possible association fees.
Don’t think you have to figure this all out on your own, either. Your loan officer can be your guide throughout the entire process, giving you options for real estate agents, builders, home inspectors, homeowner’s insurance agents, and possibly even credit repair companies.
Be sure to take full advantage of their expertise. Let them use their knowledge to help you and lay out all your options. They can let you know which loans to consider and how to structure them. Above all else, don’t rule out a house before consulting with your loan officer. Most of the time they can help you figure out a solution.
When choosing a real estate agent, it pays to do a little research. Too often, people default to the agent whose name they see on the sign in the front yard, but that could be risky. If the real estate agent represents both the sellers’ and buyers’ sides, they will be able to make a commission from the sale of the home and from the purchase of the home. The agent might offer a discount to the sellers when representing both parties – but you as the buyer might not actually benefit from this discount unless the purchase price is lowered or the agent decides to contribute some of their commission towards your closing costs.
Shop around to find someone you feel comfortable with. Find an agent who can work with your schedule and has a confident understanding of the neighborhoods you’re looking at. Make note of how responsive they are when you leave them a message.
The right agent likely lives or works near the areas you’re looking into, so they have all the inside information on how other homes have been selling and which homes have had a difficult time selling. Because of this, they’ll be able to tell you whether or not you’re getting a good price.
It’s true that the down payment can be one of the biggest hurdles aspiring homeowners face, which is why you want to start saving as soon as possible. Open a savings account as soon as you can – one that will yield even a small return on your investment.
Start depositing $100-$500 each month. Or deposit the difference between your current housing expense and your ideal future monthly mortgage payment. That way you can start building the cushion you need while getting used to the monthly expense at the same time.
You can also look to your loan officer for help understanding how much of a down payment you’ll need. If you start with just an online quote, your information might be fairly generic. You may get a sense of your loan amount, but little context regarding the down payment. With an experienced loan officer, you should get a firmer sense of the down payment you’ll need.
Now that you have the facts, it’s time to put your plan into action.
From the spark of an idea to the moment you turn the key to your new home, here’s how the homeownership process typically goes:
1. Pre-qualification. This is the starting point. It’s your initial consultation with the loan officer and it’s all about hypotheticals. You’ll quote your income, but you’re not gathering documents at this point. In fact, you could prequalify yourself online just to get a rough idea of how much you can afford based on your income.
2. Pre-approval. Pre-approval is the full application process. This step reflects pre-qualification but takes a deeper look into your financial history. Depending on your lender, you may be required to provide documentation and verification of your income, assets and debts, as well as receive a credit check. (Note: Pre-approval is neither an obligation to buy nor to lend.) You’ll want to take action on the application within 90 days because that’s how long your credit score will be accurate. After that point, you’ll need to restart the process.
3. House hunting. Resist the urge to shop for homes until you know how much of a loan you qualify for. In other words, don’t skip the first two steps. Once you do have your loan amount, shop for your home. Then you can make an offer, sign a purchase agreement and write an earnest money check to the realty company in order for them to take the house off the market and reserve it for you. The earnest money check could be nonrefundable, and will also be used towards your purchase costs at closing.
4. Document gathering. During this part of the process, you’ll pay any up-front fees to cover things like your appraisal. You will also need to provide all of the documents to your loan officer that are required to support all of the information you entered into the loan application.
5. Processing and underwriting. This is when everything in your loan file is reviewed by the underwriter. Appraisal, title, employment, income, credit, assets, and sourcing where your down payment will be coming from. If you receive conditional approval, the underwriter might request a few more documents.
6. Final approval. Once the underwriter has reviewed all remaining documents and all of the loan conditions have been satisfied with the help of your loan officer, then the final approval is issued and you’ll be ready to close. This is when you schedule your closing and review closing costs. Closing costs will have been shared with you in the very beginning of the process, so there shouldn’t be any surprises.
7. Close and sign. Roll out the welcome mat!
When you know what to expect from the mortgage process – and you work with an experienced loan officer – the path to home ownership can be an exciting journey.
Ready to follow your dream of home ownership? Learn more about your home-buying options.