Are you buying a home for the first time? Unsure of the overall process? It is important to understand many aspects of the process. The terms alone can be a foreign language. There are basically five areas that need to be looked at. To avoid making bad judgments and losing money, get to know the process.
There was a time when 100 or more different programs existed and everyone could fit into a home loan. Not anymore. The FHA is the most popular since you only need 3.5% down and it can be gifted by a family member. Generally 10-20% down is best, if possible. A 20% down payment saves you from paying monthly mortgage insurance.
The Pre-Qualification process is simple. It involves three parts. Your credit, income and assets will be reviewed for determining your ability to pay back the loan. It will also determine how much house you can afford to include the taxes, insurance and possible mortgage insurance. Your payment should be no more than 25% of your combined before tax income. Spending 26-50% of income is possible to qualify, however be careful to not exceed your budget with other expenses. Your credit score should be upwards of 620, 700 or more for the most favorable rates. Be sure to have enough in the bank for required down, closing costs, and perhaps two months of payments.
A detail of the cost of doing the home loan is the good faith estimate. The GFE outlines the loan amount, interest rate, monthly payment, loan product, lender fees, title/escrow fees, and prepaid tax and insurance amounts. When you sit down with a lender, ask for the GFE before you leave. This disclosure is crucial to monitor your home loan costs and overall scenario until your loan closes.
The Process is facilitated by your realtor and home loan consultant. Starting with the prequalification for your target price range, you then are ready to make an offer after working with your local realtor for appropriate homes in your range and features you desire. It is normal to ask for the Seller to pay 3-6% of the closing costs. Next, your offer gets accepted by the seller! Now the work begins with home inspection, appraisal, formal loan approval and finalizing conditions from the underwriter.
Once conditions are met in underwriting, it is time to order your loan documents. Loan documents consist of the note, the deed of trust, and all disclosures required by law. After signing your documents in title or with a mobile notary, it typically takes 24-48 hrs to fund the loan. After funding and recording with the county, the home loan process is complete and the house is yours to move into!
To sum it up, good communication and experienced professionals will help make the overall transaction smoother. Choose carefully in the beginning who you want to work with. Cathy Acosta of Mission Hills Mortgage Bankers says, I love first time home buyers as I am a teacher at heart and can empathize with their inexperience. It is important to not assume buyers know or understand the loan process fully. Seek people you trust and are recommended. Learn as much as you can and most importantly take the initiative.
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