If you’re new to the home buying process and just starting your research, it can be hard to know where to start, especially during uncertain times. 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. Here you’ll find information to help you get started on your journey to home buying.
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 piece of the puzzle. Unless you’re talking about a home above a more mid-range cost of $350k (depending on location), for instance, you could be looking at a payment difference of $12 to $25 per month for every .125% of a point of variance between interest rates. But note that these amounts do add up over the life of the loan.
Other factors to focus on are loan size (e.g. down payment) and how quickly you want to pay off your mortgage – two highly valuable variables to consider. The higher your loan amount compared to the value of your property (e.g. 80%+ Loan to Value), and the longer the loan term will cost you more than a smaller loan amount/lower LTV and shorter loan term. 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 mortgage loan officer can be your guide throughout the entire process, giving you options for real estate agents, builders, home inspectors and homeowner’s insurance agents.
Be sure to take full advantage of their experience. 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 you might want to buy before consulting with your mortgage loan officer.
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 or someone family and friends recommend. 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 saving what you can each month. For example, if you deposit $250 each month for twelve months into a savings account you will have saved up to $3,000 for a future down payment. 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 mortgage loan officer for help understanding how much of a down payment you’ll need. If you start with just an online quote (prequalification), 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 mortgage loan officer, you should get a firmer sense of the down payment you’ll need.
Now that you know the basics, 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 a good starting point, but not required. It’s an initial consultation with the mortgage loan officer. 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 application process when you have not selected your dream home yet. This step reflects pre-qualification but takes a deeper look into your financial history. Depending on your lender, you may be asked 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 make sure you’re ready to move forward before starting pre-approval because your lender is only able to retain your credit history information for the time specified in the application. After that point, you’ll need to restart the process and recheck your credit.
3. House hunting. Resist the urge to shop for homes until you know how much of a loan you qualify for. Once you do have your loan amount, shop for your home.
4. Document gathering. During this part of the process, you might pay any up-front fees to cover things like your appraisal. You will also be requested to provide all of the documents to your mortgage loan officer in order 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 mortgage loan officer, then the final approval is issued and you’ll be ready to close. This is when your closing is scheduled and you’re able to review the closing costs.” Closing costs will have been shared with you in the very beginning of the process, but keep in mind that there’s a chance they could change throughout the process. Estimated closing costs will be in your initial Loan Estimate provided to you within three days of your application. Then, at least three days before your closing date, you will receive your Closing Disclosure which should have your final numbers.”
7. Close and sign. When it comes to the homebuying process, closing day is the big finale – the day the house officially becomes yours. At this point, you’ve already completed the home inspection and appraisal. You’ve also submitted your financials to your loan underwriter and received the “clear to close” designation.
If you’re ready to learn more about mortgages and have questions about the current market amid COVID-19, we're here to help. Reach out to a mortgage loan officer to discuss your situation over the phone, via email or within a branch.
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