Purchasing a new home is by far one of the largest investments that you will make in your lifetime. If you haven’t been through the process in the last three years or this is your first time, you might be unsure of what all you need to do to get your ducks in a row. Here is a simple guide to prepare you for your next home purchase.
The first step in understanding if you are ready to purchase is going to be knowing your full credit profile. Credit monitoring services and apps will give you a fairly good idea of what your score will be, but know that what the lender sees is going to be slightly different.
The very best thing you can do is view your entire credit profile by taking note of your balances, your payment history, your collections, and your disputes. All of these items will be addressed by your loan officer. You don’t want there to be any unexpected surprises.
Your loan officer is going to be able to explain to you which products and programs you qualify for with your current situation. If you are just establishing yourself, you might be required to have the assistance of a co-signer or have a larger down payment. For this reason, you want to make sure that you are working with a loan officer that is knowledgeable and willing to answer all of your questions.
Lender tip: Shop lending services by the loan officer and not by lender name. You pay the loan back at the end of the day. You should feel comfortable with who you are working with. Most big banks are going to have an assembly line type process where they keep passing you off from person to person.
Some smaller operations or specific mortgage lenders are going to give you one point of contact that will stay with you the entire process. (This is important if you are a first-timer or don’t want to keep explaining your situation over and over.) Communication is key when finding the perfect mortgage product.
Know the Market:
The real estate market is still thriving as we are seeing rates hit historic lows. This means that many people are wanting to take advantage of the beautiful pricing, and homes aren’t staying on the market very long. For this reason, you will have to make your decision very quickly if you want to put in an offer on a home.
You can strengthen your offer by working with a skilled agent, increasing your earnest money deposit, opting for a shorter closing period, and getting your documents to your loan officer as soon as they ask for them.
Anyone who has ever worked with first-time home buyers knows that there is always a chance that they are going to go rogue and fall in love with a home they can’t afford. It’s almost like clockwork. However, truly understanding what you can afford will help you dial it back.
Once you have chosen your loan officer, ask them to explain your qualifications to you. You need to know more than the high-limit that you qualify for. You’ll need a good grasp of how much down payment money you will need, how much your closing costs are, and what your monthly payment is going to look like. This can sometimes be a 30-45 minute conversation when you get into the true framework of your qualifications.
Let’s explain this further. Let’s say a borrower qualified for a $180K home according to his income, but he only had $8K to contribute to the transaction. What this meant for him was that he had enough money for his down payment, but he was going to need the sellers to help cover his closing costs. Even though this had been explained to him, he didn’t take the time to fully understand his restrictions.
He made an offer on a home $12K under the asking price, and he stated that he would pay his own closing costs. This might have saved him some down payment money, but he didn’t have the funds to cover his closing costs. Luckily, the sellers did not accept his offer.
The point is, you choose which real estate agent and which loan officer you want to work with. They are experts in their field, and you should listen to the advice that they are giving you. They are going to help you get to the closing table, but you have listened to what they have to say. Otherwise, you are going to end up costing yourself money and losing out on what could be your perfect home.
Hiring a Knowledgeable Realtor:
With the internet at everyone’s fingertips, it’s almost as if everybody thinks they can be real estate experts. They might even try cutting corners by looking at homes online, scheduling their own appointments with the listing agent, and put in their own offer with little direction. This is one of the BIGGEST mistakes that you can make in real estate.
The buyer does not pay for their realtor’s commission as it is part of the buyer’s expenses. If you put in your offer to the listing agent, you are handing them a double commission. They are now acting as a representative for both of you, and your best interests will not be their initial responsibility. That being said, you will want to hire your own representation.
Hiring a real estate agent can be a bit like speed dating. You will want to interview a few of them that you can tell will answer your questions, stick to your budget, has a good grasp of what you are looking for, and will fight for your best interests if needed. This is especially helpful in real estate markets where inventories are super low.
Scottsdale, Arizona real estate is one such market, and having an experienced Scottsdale Realtor is incredibly helpful when it comes to knowing what to offer and which homes are the best value.
Inspection vs. Appraisal:
If you don’t know the difference between the two, know that you are not alone.
An appraisal is a type of inspection that is completed that ensures that the value of the home is consistent with the condition of the home. The appraiser will issue a report that the lender will use to help build your loan structure. If the appraiser notices any issues with the home that could affect the salability of the home, they might request additional inspections be completed.
An inspection is used to inspect the home with a fine-toothed come. They are taking a much deeper dive into the condition of the home by looking at the foundation, roof, electrical, plumbing, heating, and air, etc.
While most lenders don’t require a general inspection upfront, not many people in the real estate industry are going to suggest that you sidestep this important milestone. It’s going to ensure that you are aware of the investment that you are making and preventing you from a potential money pit down the road.
Mortgages are not cookie-cutter products that are one-size-fits-all. In fact, they are more like sandwiches. There are many different ways to make the perfect sandwich for your liking. Based on your specific sandwich, your loan officer should be able to explain your options thoroughly to you.
Different loan products are going to have different requirements when it comes to the down payment, mortgage insurance, and escrow. Due to the long lists of guidelines, it has created various half-truths when it comes to choosing the right program for your situation.
The biggest myths circle around down payment requirements and mortgage insurance. Not all loan products require that you have 20% to put down, and some require mortgage insurance even if you put 20% down. This is why it’s so vital that you choose a loan officer that is willing to explain all of your options to you.
At the end of the day, making the loan does for you what it needs to do for you is of the utmost importance. The down payment needs to fit your budget, and you might save more money by having the mortgage insurance. It’s going to depend on your particular situation. Before you take any unsolicited advice from someone that doesn’t work in the industry, talk about the pros and cons with your loan officer. They have your numbers right in front of them.
Buying a house can be very intimidating, but if you arm yourself with the right tools, you will be able to make an educated decision that won’t break the bank. Listen to your gut, work with a knowledgeable real estate agent, and choose a loan officer that you feel comfortable with. Your all-star team is what will get you to the closing table.