1. Credit Check / What does your score mean today?
Your credit score is the basis for your mortgage approval i.e. interest rate/term, FHA or conventional financing, mortgage insurance premiums, etc.
The higher the score, the better a borrower looks to potential lenders. A credit score is based primarily on credit history, number of open accounts, total levels of debt, repayment history, and other factors. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
Groupings of FICO scores:
- Exceptional 801 - 850
- Very good: 740 - 800
- Good: 670 -739
- Fair: 580 - 669
- Poor: 300 - 579
2. Budgeting/What is your budget?
To figure out ‘how much house can I afford’, a general rule of thumb is using the 28%/36% rule, which states that you shouldn’t spend more than 28% of your gross monthly income on home-related costs and 36% on total debts, including your mortgage, credit cards and other loans like auto and student loans.
Determining How Much Home You Can Afford:
- Estimate your income
- Assess your debt
- Analyze your monthly expenses
- Check your credit history
- Get pre-approved for a mortgage
- Learn about mortgage options
- Calculate the budget for homeowner costs i.e. utilities, taxes, homeowners insurance etc.
Check out our mortgage calculator.
3. Where do you want to live?
Here are seven major factors that can help you narrow down your location search.
- Budget. Before you start shopping for homes, figure out how much house you can afford.
- Convenience
- The future
- Transportation
- Schools
- Crime statistics
- Appearance
Location does affect property value.
For example, a neighborhood saturated with rental properties can decrease surrounding home values by as much as 15%. Value-wise you are likely better off having an average house in a great neighborhood, than having the best house in a less-desirable location. When looking to buy a home, remember to look beyond the house itself.
4. Assets for a mortgage application:
- Physical assets (land, buildings, vehicles, gold, silver etc.)
- Liquid assets (cash on hand, cash on bank deposit, and assets that can be converted to cash quickly and easily)
- Fixed assets (assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment)
Gift Funds/401K
If you have not saved enough of your own funds but you are ready to buy a home, many lenders allow borrowers to make a down payment with gift funds from family or friends etc.
A gift letter for a mortgage down payment is a written statement that the funds are a gift rather than a loan that has to be repaid. The annual exclusion for gifts is $15,000, meaning donors can give up to this amount without having to report it.
5. The difference between Pre-Approval VS. Mortgage Approval?
One word: verification. Pre-Approvals are an estimate, not a promise. A pre-approval is a non-binding statement saying, based on a cursory review of your unverified financial status, that you are eligible for a loan up to a certain amount.
Mortgage approval means that the lender has verified and collected all the backup documentation and financial documentation needed to verify final mortgage approval.
6. Finding a Realtor
Buying a home can be a complicated and intimidating process, so you'll want a professional to answer questions and look out for your best interests.
1st Securities Mortgage has a preferred network of vetted, experienced Realtors that can help you find your dream home if you don’t know where to start! Just let us know…
Asking friends and colleagues for referrals to find prospective agents is also a good way to start. Look up the agents’ websites and online profiles, read about their specialties, and experience, and check out customer reviews.
7. How To Get Right Interest Rate for You.
Best rates and terms are dependent on many factors but are most influenced by credit score and loan program. For example, on a conventional loan a borrower would qualify for the best rate if their credit score was at least 740. By the same token, on an FHA loan, 640 and higher is the benchmark. On all of these options you can still easily qualify even with lower credit scores and the difference in rate is negligible.
Some incredibly useful tips to keep your credit score as high as possible.
- Try to keep the balances on credit cards to less than 50% of the limit. When a borrower is highly leveraged, that can tank a credit score as much as a late payment.
- Make all your payments timely
- The more credit inquiries you have, the lower the score will be.
- Credit Karma and all these credit monitoring companies are only informational, they are helpful but are not used at all for lending purposes. For mortgage lending it uses a different algorithm and many time the credit scores we see on our reports can vary greatly.
8. Understanding Closing Costs
Closing costs typically range from 3% - 6% of the home’s purchase price. Example: if you have a $200,000 house, your closing costs could range from $6,000 to $12,000. Closing fees vary depending on state, loan type and mortgage lender, so it is important to pay attention to these fees.
1st Securities Mortgage is always here to help better understand, so please give us a call for more details.
9. The Loan Process:
- Pre-Qualification
- Finding a Home
- Loan Application
- Application Processing
- Underwriting Process
- Credit Decision
- Closing
- Loan Funding
10. The Closing
Closing day typically happens within 30 days after you sign the sales and purchase contract, though it may take longer if circumstances require that. The closing process itself typically takes an hour. Once all the papers are signed, you've secured your mortgage, and the closing is officially complete, you'll receive the keys to the property.
Steps leading to closing:
- Purchase agreement acceptance
- Optional buyer home inspection
- Loan origination
- Lender home appraisal and credit underwriting
- Loan approval
- Homeowner and title insurance
- Closing disclosures