Buying a home can seem like a long and complicated process but knowing what to plan for in advance will make it a lot easier.  It’s essential for buyers in a highly competitive real estate market, like the current one we are in now, know what to expect and to be well-prepared.

Here are five things you should plan for when buying a home:

1. Know your credit score and protect your credit

When you’re ready to buy a home, you should review your credit report.  Your credit report shows a lender how financially responsible you are, and they’ll use it to determine whether or not they’ll lend you money.

Credit reports can affect your mortgage rate, so you’ll want to check yours for errors or even signs of possible identity theft when you’re thinking of buying a home.

Only one official website, annualcreditreport.com, is the authorized source for obtaining a free credit report under federal law.  You can get a free credit report every twelve months from each of the three major credit reporting companies.

A lender wants to know that you can pay back a loan, and your loan costs and rate can be affected by even a small change when you’re buying a home.  As lenders see it, the higher your credit score, the less likely you are to default on a loan.

A better credit score and less debt means you’ll have more loan options at a lower rate.

According to FICO Scores, a credit score of 740-799 is considered very good, and a score of 800-850 is rated exceptional.  Scores in these ranges will get better-than-average rates from lenders.

Some ways to protect your credit score:

  • Pay down any credit card debt
  • Avoid late payments and get up to date on any past due accounts
  • Try to stay below 25% of your credit limit
  • Avoid making any large purchases
  • Limit applications for new credit cards or lines of credit
  • Stay at your current job, as stability demonstrates creditworthiness to a lender
  • Report any incorrect information in your credit report to the agency reporting the error and ask that it be corrected.

2. Get pre-approved for your mortgage loan

Once you’re pre-approved, you’ll know how much house you can afford and how much you’ll need for a down payment.

A lender will look at your debt-to-income ratio, or DTI, to determine what amount you can afford for a home purchase.  Your DTI is the amount you owe each month compared to how much you earn.  You’ll usually need a DTI of 45% or less to obtain a mortgage.

A pre-approval for your loan shows a seller that you’re a serious buyer and that your loan is more likely to close.  Bank 34 has a simple 5-step Pre-Approval Process that you can apply for online.  Once you complete the application, your Mortgage Consultant will get in touch.

Here’s a sampling of the documents you’ll need to get your pre-approval:

  • A photocopy of your driver’s license or other government-issued ID
  • Your current paycheck stubs for the past thirty days, plus year-to-date information
  • Your most recent bank statements from bank accounts where your funds will come from for closing.
  • W-2s or 1099s for the past two years.

You may need to supply additional documents depending on your income sources and loan type.  A Bank 34 Mortgage Loan Consultant will contact you if more documentation is required.

3. Once you’re under contract

Once you’re under contract on a home, your lender will disclose your loan, lock in your interest rate, and order the appraisal.

A team of underwriters will review all the documents you’ve submitted.  They may need additional documents at this time to ensure they meet standards as defined by industry guidelines.

Your Mortgage Consultant will make sure you understand precisely what they need to get the Clear to Close on the loan.

Be prepared to produce any additional documents as promptly as possible so the loan process can proceed smoothly.

4. Plan for the additional fees you’ll pay at closing

In addition to your down payment, there are some other fees that you’ll be required to pay at closing.

Closing costs

These are the expenses tied to making the loan and closing the purchase, and they range from 2-5% of the purchase price of a home.  Sometimes the seller pays all or part of these costs, but closing costs are the buyer’s responsibility, so be prepared to pay them.

Home inspection

Lenders often require a home inspection as a condition of your mortgage, and buyers shouldn’t waive obtaining one under any circumstances.

Insurance

Homeowners insurance is needed when securing a mortgage and is held in an escrow account for most homebuyers (escrow is used in cases where your loan is more than 80% of your home’s value). An initial premium for insurance will be paid along with your closing costs, followed by a monthly payment from escrow. This is rolled into your mortgage payment.

Taxes

Property taxes are most likely paid for via funds from your escrow account and are automatic. If your lender does not require an escrow account, you will need to account for and make sure you pay your property taxes on time.

These are just a few of the additional fees you should plan for at closing.  Your professional Mortgage Consultant at Bank 34 can advise you on any other fees you’ll be expected to pay.

5. Plan to receive the “Initial Closing Disclosure” three days before closing

You’ll receive the “Initial Closing Disclosure” three days before closing.  Then the title company will work with the Bank 34 closing department and other third parties to provide the “Final Closing Disclosure” 24-48 hours before the closing date.

The “Final Closing Disclosure” states the amount of cash you’ll be required to pay for the loan on your home to close.

The Cash to Close will need to be in what’s called “good funds.”  That means the funds can be paid either by a cashier’s check or a wire transfer from your bank.

Bank 34: Mortgage Solutions for Everyone

Whether you’re purchasing your first home or your last, buying a home is one of the most significant decisions you’ll make throughout your life.  Bank 34 is committed to helping you achieve your dream of homeownership and is ready to assist you in the home buying process from beginning to end.  A professional Bank 34 Mortgage Loan Consultant can work with you to find the right mortgage product tailored to your needs.

Apply online for Pre-approval or speak to a Mortgage Loan Consultant at (575) 556-2276.

 

Download Printable Version