How To Buy A Home
Here's what you need to know about buying your own home and the loan process.
That's what we're here for!
There are five basic steps between you and your new home loan! We'll first list all five steps and then go into further detail about each one.
- Step 1: Know What You Can Borrow
- Step 2: Select the Best Loan Type for You
- Step 3: Apply for Your Loan
- Step 4: Your Loan Application Process
- Step 5: Close Your Loan
Step 1: Know What You Can Borrow
When you are looking to apply for a home loan, the first step is to see how much you will be able to borrow from a lender. Look over your finances and your budget to make sure the loan amount that you are seeking is affordable and will be enough to cover the cost of the home.
You can use our quick Pre-Qualify Online Mortgage Application to find out your buying power by answering a few simple questions. Click the link below to get started!
You should consider applying for pre-approval on a loan. This involves verifying your credit history, proving your income, and declaring your assets, debts and liabilities.
Once you are pre-approved for a loan, you will have a clear idea at the price range you will have to stay in when you are looking for your new home.
This will help in several ways:
- It will help you save time by only considering properties that you will be able to afford
- It will improve your position in negotiations between you and the seller
- You will be able to close the loan faster
- FICO Credit Score
- Loan-To-Value Ratio
- Down Payment Source
FICO Credit Score
Credit scores are used by all lenders when they are considering loan applicants.
The credit score is a representation of your ability and history of repaying the debts that you owe.
Missing payments, making payments late and defaulting on debts will have a negative impact on your credit score.
You have the option to view your credit score and improve it by avoiding late or missed payments.
If your credit score is low, you can also improve it by taking out additional debts and paying them off on time.
The lender will use your credit score to make decisions on whether or not you are a worthy candidate for the loan you are applying for.
Anytime your credit score is checked, it will show up and have a negative impact on your score. You should keep your credit checks to a minimum to avoid these penalties.
You should only authorize lenders to run your credit score after you have decided to apply for a loan with them.
The Loan-To-Value ratio (LTV) is the most amount of exposure that the lender will take on by granting the loan.
If your credit history is good, our lenders may be willing to lend up to 100% of the price for the home!
If your credit is poor, they may require you to make a larger down payment on the property. This is to reduce the risk that they are exposed to.
If you have a really high debt to income ratio you may have trouble getting approval for the exact type of loan that you're looking for.
Our lenders will also look at the income that you have and compare it to the debt that you have. Some examples of this include car payments, student debt and other personal loans.
You should aim to keep your total mortgage payments lower than 1/3rd of your monthly income.
Down Payment Source
In almost all cases, our lenders will require you to make some type of down payment on your new home.
You will need to verify that you will be able to cover the required down payment and pay any other fees that will be charged at the closing date.
If you do not have enough funds to cover these expenses, you can also accept “gift funds” from another source (usually help from a friend or family).
If this occurs, they will be required to provide documentation that states the given amount will not have to be repaid by the borrower.
If you are self-employed, you will be asked to provide proof of employment, proof of income and show stability within your career.
Unlike those who are employed by businesses, a self-employed individual may not necessarily have pay stubs or other proper documentation in order to prove their income.
Instead, a self-employed individual will likely be asked to provide proof through tax returns which may have to go as far back as 2 years.
Step 2: Selecting the Best Loan Type for You
There are many facets to a home loan and each of those sides will vary based on a number of factors. The main variables that you should consider when you are comparing home loans are:
- the interest rates, and
- the total length of the loan
In order to select the best loan, you should seriously consider this in order to make the decision that will suit your budget and long term goals the best.
Now let's talk about the basic types of loans that you can apply for.
Fixed Rate Mortgages
Fixed rate mortgages will typically last for 15 or 30 years. While it is possible to adjust the length of the repayment period to the timeframe that you desire, 15 and 30 year loans are the most commonly chosen lengths for home loans.
Throughout the length of a fixed rate mortgage, you will be locked into a set payment for each month. A portion of the payment will be applied to the cost of the home and a portion will be applied to the interest rate throughout the life of the loan.
The advantage that a fixed rate mortgage gives you is a monthly payment that will not change. This makes it easy to budget as you make each payment.
A fixed rate mortgage is the recommended option if you:
- Prefer a monthly expense that will not change month to month
- Want to avoid the chance of your payments increasing as interest rates change
- Intend to live in the home for 7 years of more
- Anticipate that your income will not significantly change in the future
Adjustable Rate Mortgages
An adjustable rate mortgage (ARM) is similar to a fixed mortgage rate with the exception of the interest rates. An ARM will typically last for 15 or 30 years.
The monthly payment for the loan will increase or decrease based on the interest rates at the current time.
An adjustable rate mortgage is the recommended option if you:
- Expect interest rates to lower your monthly payments in the future
- Can handle your monthly payments changing over time
- Intend to live in the home for 5 years or less
- Expect your income to increase in the future
With these options in mind, we recommend you consider your financial situation and how it will change in the future, and your long-term plan for the home that you are purchasing to help you decide what the best type of loan is for you.
Step 3: Apply for Your Loan
Click Here To Apply For Your Loan Online - You must have all your documents ready to complete the form.
Click Here To Download The Mortgage Application - Print it out and mail the completed application back to us.
Pre-Qualify Here - Short on time? Fill out this quick pre-qualification form and we'll get back with you.
Step 4: Your Loan Application Process
There are typically a set of standard procedures which are followed by lenders throughout the loan approval process. There are two main things they will look at when they are considering your loan application:
- Your ability to repay the loan, and
- The appraised value of the property
We will begin the loan approval process immediately following the completion and submission of your application. We will look for any issues regarding your application.
If any issues are found, your loan officer will attempt to sort them out.
Below is the main information that will be under consideration:
Income and Employment
Everything that will affect your income will be looked at in order to determine if you will be able to afford and keep up with the repayment plan of the loan.
You will be asked to provide proof of income and employment and show that your income will stay at or exceed the amount you will need in order to keep up with payments.
The rule of thumb is that your loan payments should not exceed one third of your total income after taxes.
If you are taking out the home loan with a partner, the income of both people will be included.
Evaluation of Current Assets
The evaluation of your current assets aims to determine whether or not you have or will be able to come up with enough funds to cover all of the expenses, fees, and the down payment for the house at the time of closing.
They will check your credit history to see how you repaid previous loans and debts. Someone with good credit is much more likely to be approved for a loan.
Good credit can also lower your interest rates in some cases.
The property will be appraised to ensure that it is worth enough and will retain enough value based on what you are paying for it.
The zoning laws and location of the lot will play large factors in determining this.
This will vary from loan to loan, but you may be required to provide additional documentation not mentioned above in order to be approved for the loan.
Make sure that you read what will be required from you carefully in order to avoid any holdups during this phase.
How to increase the chances you are approved:
Make sure you fill out the loan application in its entirety. Before you submit it, review all of the forms and make sure you did not leave out any information.
If any additional documents are requested from you, make sure you respond promptly and provide the requested documents as soon as possible.
Do not move any significant amounts of money into or out of your accounts without it being documented. If you receive money as a gift during this period, you should notify the lender about it.
From the beginning of the loan process to the closing, you should avoid making any major purchases.
Major purchases will increase the amount of debt that you have and may have an impact on your financial outlook.
Plan to stay local at and around the time of your closing date. Pushing back your closing date for any reason may further complicate the process. If you are unable to make it, consider signing over power of attorney to someone that can represent you.
Step 5: Close Your Loan
Once your load has been approved, you can proceed to the final step in signing the documents to make it official. Before you sign anything, make sure you carefully review the documents in their entirety.
A loan like this will have a huge impact on you financially so it is important that you ensure that all of the terms of the loan are correct.
Make sure the terms and interest rates are correct and check that the address and name is accurate. You should sign the documents at a notary.
There will be fees that you will be expected to pay for at closing. These fees will go towards obtaining the mortgage and transferring ownership of the property.
Personal checks are usually not accepted to make the down payment. A cashiers check is more suitable for this.
You may also be asked to provide proof of homeowners insurance and have the policy to show them on hand.
Once the closing process is complete, you will be required to wait 3 days for both parties to review the terms before it closes officially.
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