Financing: So your ready to purchase a home.
- Laicey Harris
- Mar 18, 2023
- 6 min read
Updated: Mar 18, 2023
Tips to help you prepare your financial profile, explore mortgage options, and closing on your home.
Your ready to purchase a home. You already know what neighborhood you want to purchase in, your needs and must haves, and how much you want to spend. "But wait", you think, "how am I going to finance this deal"? An important factor when purchasing a new home is how much you may actually qualify for when financing your new home. There are multiple mortgage loan options available to consumers, each meeting different needs of the buyer. It is important to know what the requirements are for each loan option, as well as what each loan offers. Shopping around and asking the necessary questions, will help you make the best decision based on your borrowing needs.
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Tip #1 - Don't rush- prepare yourself
Putting yourself in the best financial situation can set you up for the best mortgage loan options. Know and review your credit score. Mortgage loan options have variable credit score requirements, so its best to make sure your credit score is at an optimal range; increasing your borrowing power. Note: Having a higher credit score can save home buyers on average thousands of dollars in interest over the life of the loan.
Keep track of your spending. Creating a budget of your monthly income versus your monthly spending can help keep you in line with what you can manage when you get a mortgage loan. Home buyers also need to budget for new expenses that come with owning a home. This includes insurance, taxes, and association fees, if required, not to forget utilities expense and repairs. Note: Don't leave anything out. A mortgage is a huge responsibility, mismanaging finances can result in defaults later down the line.
Build your network of advisors. Make a list of people your trust to talk about money and finances. This can include family, friends, real estate agents, loan officers, even co-workers. Conversing with these individuals can provide insight on what you should expect, look for, and stay away from when choosing a lender or loan option. Make note of suggestions and compare. You should always, if able, get a second, third, or fourth opinion during and before this process. Ultimately, make the best decision for yourself. Note: choose advisors who have bought a home or refinanced recently.
Tip #2 - Explore- know your options
Get in contact with multiple lenders. You can go based on recommendations, or you may have a lender in mind already. Keep your options open. The important thing is to talk with multiple. This will allow you to compare options, and also, get a feel for who is most comfortable to work with. Note: Take note if lenders are able to answer your questions, comes off too assertive, and your comfort level. Remember, you are in control.
Come prepared. Creating a loan application packet will keep you organized when meeting with loan officers. Such documents include pay-stubs, W-2's, social security number, photo identification, bank statements, and more. Having the necessary paperwork will speed up the process, as lenders will need the information to determine what they will allow you to borrow. Always ask if there are any specific documents you will need to better prepare. Note: Be sure all of your documents are up-to-date, accurate, and complete to avoid any hiccups along the way.
Understand the options that make up your loan. When you meet with a loan officer, you will discuss different loan types, rates, and terms. Requesting a loan estimate can help you compare the pros and cons of a certain loan option across different lenders, however, it is important to note that these numbers are not guaranteed. Once you've found a home, request a "formal" loan estimate. Note: Some factors affect your loan options, such as your down payment and credit score.
The right time to get a pre-approval from a lender is important. You've searching and have chosen then right home for you; now you can get a pre-approval letter from your lender. A lot of sellers require a pre-approval letter as proof that you are able to secure financing before they accept your offer. At this point, it is advised that you do not need to apply for your mortgage loan, but make your sales contract contingent upon obtaining financing. You also want to make sure to have your documents updated in your loan application packet prior to. Keep in mind that lenders typically check you credit before issuing a pre-approval and it may have an expiration date, so be sure you are ready to pursue homeownership. Once your ready to move forward, choose your lender and loan option to secure financing. Note: Ask questions to determine how the lender came up with your pre-approval amount and what factors about your situation could result in a change in your loan costs and rates when officially applying.
Tip #3 - Review- ready to close
After applying for financing, you will go through a few more steps to be sure that loan requirements are satisfied before closing. It is imperative that you respond to all communication attempts with your lender. Revisiting your financial profile to make sure its still optimal will occur, as well as a thorough lender advising you of the do's and don'ts at this stage. It is important to note that you may receive a revised loan estimate, based on different factors, such as a lower home appraisal, not able to document irregular income, or more. Note: Ask for instructions, submit copies not originals, and confirm documents are received are crucial.
Scheduling a home inspection needs to be done to protect yourself. A thorough inspection done by a qualified inspector can help determine what repairs need to be done, allowing more time for them to be completed. The results can help you negotiate certain terms with the seller, or if you should walk away from the deal. Note: Make sure there are contingencies in the sales contract to allow you to walk away if inspection results come back unsatisfactory.
Homeowners insurance may be a requirement of your loan. Lenders want to be sure the property is covered in the event of a catastrophic event. Shop around and request multiple quotes, so that you can compare costs and coverage. Review your quotes with your lender to be sure it satisfies their requirement for insurance coverage. Note: Determining if you need flood insurance is important as homeowner insurance policies typically do not cover flood damage.
Title insurance may be a requirement with your mortgage loan. Title insurance protects the lenders financial interest, the amount they lend. The insurance covers the loan if their are defects on the title, such as claims, outstanding liens, violations, and more. A critical component during the closing process, make sure you know the fees associated. Note: Look into getting owners title insurance to protect your interest in the home.
Review your closing documents. Required by law, you, the home buyer, should receive your closing disclosure three business days prior to closing. Reach out to your service providers to find out who and how it will be delivered. Once received, compare the disclosure to your most recent loan estimate. Be prepared to request and review other key documents such as the promissory note, mortgage, and deed. Note: Hiring a real estate attorney to review your documents can be beneficial to be sure details are copacetic.
Signing the required documents at closing, be well aware that you are guaranteed time to review, understand, and verify information you are signing. Prior to, do a final walkthrough of the property if you can. This will allow you to verify that details stated in contingencies agreed upon are completed. Note: If details of the closing disclosure seem unfamiliar from what you've previously reviewed, don't hesitate to stop the closing, or walk away if things seem too off.
Save your documents. Keeping a detailed record of all the documents will help you in the future. You can review items such as loan terms, to see if you should refinance. During tax season, your closing disclosure will help you accurately notate tax deductible costs. The budget you started out with can be a helpful guide to help you continue to manage and save your money. Note: Store you documents electronically as well as the paper copies. Be sure to account for all four, closing disclosure, deed, promissory note, and mortgage.
Key takeaway
It is important to know your options when choosing a mortgage loan. Signing loan documents has legal responsibility to you, the home owner, so don't take it lightly. Get suggestions, personal experience from family and friends, get counsel from an industry professional. Shop around to find the lender that can provide you with the best loan for for borrowing needs. Most importantly, start your loan process with the greatest advantage, a strong financial profile.
For common questions to ask lenders, click the link below.
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