Buying a home can be one of the most significant investments you are going to make in life. First and foremost, you need to make a realistic assessment of your finances and make sure you can afford to borrow. The next thing would be to understand the mortgage process fully and how you can take advantage of it. The whole process can be overwhelming at times due to the amount of paperwork that needs to be completed, but having comprehensive knowledge on what to expect can make help you arrive at wise home purchase decisions.
Determine the Amount You Need for a Minimum Deposit
As mentioned beforehand, assessing your finances comes first before deciding to go for a residential mortgage. One of your first things to consider in this step is to know how much money you will need to prepare for your minimum deposit. This residential mortgage guide will help you navigate through the home buying process effectively and help you to work out what you can afford. Lenders can provide a specific amount for the property you plan to purchase, but they require approximately 9% of the price you are paying for the property. Also note that if you have a minimum deposit of less than 20% of the purchase price, you must purchase a Lender’s Mortgage Insurance (LMI). This insurance is needed to protect the financial institution that provided the funds for your property in the event that you default on your loan. In order to skip this additional requirement, you can take the time to save up to 20% greater of the price of your property as a minimum deposit.
Know The People You Will Work within the Mortgage Process
Whether you are a first-time homebuyer or it’s your second time buying a house, the first person you are going to talk to will be a real estate professional and a loan officer. The loan officer is your mortgage specialist; by using your credit, financial and employment information, they will help you determine how much you can afford to spend on a residential mortgage loan and help choose the mortgage option that best suits your financial situation. The Real Estate Professional (REP) will help you find the right home for you and your family. They examine comparable homes and compare different neighborhoods and provide detailed community information such as property taxes, schools, shopping and more. Also, they consider your financial circumstances and the mortgage option you are considering when they look for homes that meet your financial factor and specific needs.
Choose a Loan Option that Suits You
Your financial situation has a lot of bearing when you are considering your loan options. Also, your payment preference and work type can also influence your loan type choice. Here are a few loan types you can choose from:
- Fixed-rate Loans – This home loan is one of the easiest loans to understand. As the name suggests, the rate of interest will stay the same for a predetermined amount of time.
- Variable Rate Loans – This other option can have your interest rates change depending on the changes when banks raise or lower their rates
- Split-rate Loans – Split-rate loans combine both fixed-rate and variable loans. This means that a part of your loan will have a fixed interest rate, and the remainder of the loan will fluctuate with changes in bank rates.
- Low-doc Loans – Low-doc loans tend to be higher than the other kinds of loans, but provided is an excellent option for freelancers and self-employed individuals who have unconventional documentation unlike, individuals who work for a traditional employer.
Get Pre-approval and Find a Realtor
Getting pre-approved means the financial institution agrees to loan you a specified amount for property purchase. Pre-approval can give you several benefits such as easier negotiating terms, easier budget planning, and home shopping and get prioritized by sellers and realtors.
Most realtors require you to get pre-approved before they can provide you potential houses for purchase. As a buyer, you don’t have to pay the realtor as the seller is responsible for paying commissions to both their realtor and your realtor. Thus, they always utilize their services. However, take extra care and research to choose a reliable realtor. You can seek referrals from friends, relatives or your loan officer.
Choose a Home and Get Under Contract
This is where you’ll thank yourself for having a realtor help you. Now that you’ve chosen a house that suits you best, you’d also want to arrive at a great deal without paying too much. Your realtor can help you win some purchase price discounts or seller credits or even both. Once both you and the seller have agreed to the terms of the deal, you can get officially under contract.
Interest Rate Lock-in, Inspection, Appraisal, and Loan Approval
The closer you are to the final stages of your home purchase the more challenging the process will become. Don’t worry, your realtor will guide you through the process. You need to provide the lender a copy of the executed contract so that you will be given documents to sign to have your interest rate locked in and submitted to the underwriter. Your realtor will work on getting you a home inspection to ensure that nothing is wrong with the house. After the inspection, the lender will request an appraisal to determine the value of the home. The home needs to appraise for the purchase price or go even higher to proceed with the final approval of your loan.
Closing on Your House
Three business days prior to closing, your lender will provide you a Closing Disclosure or the legal form listing your final loan terms, payments and closing costs. Once you determine the final amount due at closing, schedule a wire transfer or get cashier’s check to take to the title company/attorney for closing. There will be plenty of documents to sign on the day of closing but the important items are closing Disclosure, Mortgage Instrument and the Deed of Trust/Title. The title company will send all of the signed paperwork to the lender for the loan to be funded. The process can be finished within several hours, so the closing day is also the day you get the keys to your new home.
Purchasing a new home can be overwhelming if you are not well-equipped with knowledge and readiness. While you will be needing the help of several professionals connected with a home mortgage, being educated on the mortgage process can help speed it up and make it easier to accomplish. Your home is one big investment, so take time to consider many factors and think things through carefully before deciding to buy a new home.