To Buy A Home

Sure, there's being financially ready to buy a
house, but are you emotionally ready? Even if it's
just going to be your starter home, you're making a
big financial commitment and putting down some
roots.

You'll want to think about your other goals for the
next few years. Are you buying with a partner, and
if yes, are you on the same page when it comes to
money? Is there any chance you'd need to relocate
for work? Are you thinking of starting a family?

These big-picture questions can add to the pros
(or cons) of whether this is the right time to buy a
house.

Your lender won’t just want to see how much
money you make. They’ll also want to see a
work history (usually about 2 years) to make
sure your income source is stable and reliable.

Preparing your income is all about pulling the
right documentation together to show steady
employment.

Decide Whether You’re Ready

Income And Employment Status

If you’re on the payroll, you’ll likely just need to
provide recent pay stubs and W-2s. On the other hand,
you’ll need to submit your tax returns and other
documents the lender requests if you’re self-employed.

Debt-to-income ratio (DTI) is another financial
instrument mortgage lenders use to evaluate your loan
application. Your DTI helps your lender see how much
of your monthly income goes to debt so they can
evaluate the amount of mortgage debt you can take on.

Income And Employment
Status continued

Credit Health

Your credit score plays a huge role in what loans and interest
rates you qualify for. Your credit score tells lenders how much
of a risk you are to grant a loan.

Taking steps to improve your credit score and reduce your debt
can pay off big as you prepare to get a mortgage. Better
numbers mean better loan options with lower interest rates.

Your credit score is based on the following information:

• Your payment history

• The amount of money you owe

• The length of your credit history

• Types of credit you’ve used

• Your pursuit of new credit

What score will you need to qualify for a home loan? Most
lenders require a credit score of at least 620 to qualify for the
majority of loans. A score above 720 will generally get you the
very best loan terms.

DTI is calculated by dividing your monthly debt by
your gross monthly income. For example, if your
monthly debts (credit card minimum payments, loan
payments, etc.) total $2,000 per month and your
gross monthly income is $6,000, your DTI is
$2,000/$6,000, or 33%. Your lender will use the debts
shown on your credit report to calculate your DTI.

Depending on the type of loan you’re applying for,
your lender may also calculate your housing expense
ratio, also sometimes referred to as front-end DTI.
This is a ratio that looks at your total monthly house
payment (principal, interest, taxes, and insurance)
compared to your monthly income. For example, if
you have a $1,200 house payment and the same
$6,000 monthly income, your housing expense ratio is
$1,200/$6,000, or 20%.

It’s smart to review your DTI before you apply for a
loan. In most cases, you’ll need a back-end DTI of
43% or less to qualify for most mortgage options,
although this number varies based on your lender,
loan type, and other factors.

Your down payment is a large, one-time payment toward the purchase of a home. Many lenders
require a down payment because it mitigates the loss they might suffer in the event that a borrower
defaults on their mortgage.

Many home buyers believe that they need a 20% down payment to buy a home. This isn’t true. Plus,
a down payment of that size isn’t realistic for many first-time home buyers.

Fortunately, there are many options for buyers who can’t afford a 20% down payment. For example,
you can get a conventional loan for as little as 3% down. Federal Housing Administration (FHA)
loans have a minimum down payment of 3.5%. Department of Veterans Affairs (VA) loans and
United States Department of Agriculture (USDA) loans even allow eligible and qualified borrowers
to put 0% down.

There are advantages, however, to making a larger down payment. For one, it typically means
you’ll have more mortgage options. It also usually means you’ll have a smaller monthly payment
and a lower interest rate. Plus, if you put at least 20% down on a conventional loan, you won’t need
to pay for private mortgage insurance (PMI).

Save For A Down Payment And Closing Costs

There are many ways to save for your home purchase, including through investments and savings
accounts. If you have relatives who are willing to contribute money, you may be able to use gift
money toward your down payment (in which case, be sure to provide your lender with a gift letter).

But how much do you need to save before buying a home? Let’s look at some of the major
expenses related to the purchase, and how much you might want to save for them.

When you’re ready to start house hunting, it’s time to get pre-approved for a mortgage. When you apply, your
lender will give you a pre-approval letter that states how much you’re approved for based on your credit, assets,
and income. You can show your preapproval letter to your real estate agent so they can help you find homes
within your budget.

To get pre-approved, you need to apply with your lender. The preapproval process typically involves answering
some questions about your income, your assets, and the home you want to buy.

Pre-approvals are a dress rehearsal for your mortgage and are necessary to make a serious offer on a home. They
typically expire after 90 days and can be refreshed if you don’t find the home you’re looking for in that time.

Know that pre-approvals don’t guarantee your mortgage approval or interest rate. After you’re pre-approved,
avoid opening new credit lines or making large debt payments that can impact your FICO score.

Working with a lender to get preapproved for a mortgage is an important step in accurately determining your
budget. A mortgage preapproval will give you real numbers since the lender will have detailed info about your
finances. That includes a hard inquiry, which will show up on your credit report. The good news: If you apply with
multiple lenders around the same time, it'll only count as one hard pull.

Get pre-approved for a mortgage

You’ll also need to save money to cover closing costs –
the fees you pay to get the loan. There are many
variables that go into determining how much you’ll pay
for closing costs, but it’s usually smart to prepare for 3 –
6% of the home value. This means that if you’re buying a
home worth $200,000, you might pay $6,000 – $12,000
in closing costs.

The specific closing costs will depend on your loan type,
your lender, and where you live. Almost all homeowners
will pay for things like appraisal fees and title insurance.
If you take out a government-backed loan, you’ll
typically need to pay an insurance premium or funding
fee upfront.

Closing Costs

Before you close on your loan, your lender will give you
a document called a Closing Disclosure, which lists each
of the closing costs you need to cover and how much
you’ll need to pay at closing. Look over your Closing
Disclosure carefully before you close to know what to
expect and to catch any errors.

important!

Create a wishlist

Make a list of the things you'll need to have in the
house. Ask yourself how many bedrooms and
bathrooms you'll need and get an idea of how
much space you desire. How big do you want the
kitchen to be? Do you need lots of closets and
cabinet space? Do you need a big yard for your
kids and/or pets to play in?

Once you've made a list of your must-haves, don't
forget to think about the kind of neighborhood
you want, the types of schools in the area, the
length of your commute to and from work, and the
convenience of local shopping. Take into account
your safety concerns as well as how good the rate
of home appreciation is in the area.

We will make sure to check out
the little details of each house

•Test the plumbing

•Try the electrical system

•Open and close the windows & doors
to make sure they work properly

Evaluate the neighborhood
and surrounding areas

•Are the surrounding homes well
maintained?

•How much traffic is on the street?

•Is it conveniently located to schools,
shopping, restaurants, & parks?

The most commonly missed step...

Documenting your visit

Is there enough space or too much space?

Where could you use more space?

How would you describe the layout?

Do you like the fixtures and finishes?

Are you happy with the windows (enough natural light,
well-placed, too sunny)?

Does the home have curb appeal?

Does the home have adequate parking?

Before you make an offer on a house there are three key elements
that you'll want to have in place before you make an offer on a
house.

The first is a mortgage preapproval from at least one lender.
Ideally, you should get preapproved before you start looking at
houses. It can be time-consuming to pull together all the
required documents, but most importantly, a preapproval lets you
know how much house you can afford. Having a preapproval in
hand also lets the seller know that you're serious and provides
reassurance that the deal will close. That can be extra helpful in
a scenario where the seller is in a hurry to move.

Second, know your market to ensure you're making a competitive
offer. This can be based on comparable sales, other market
information from your own research, or a comparative market
analysis provided by your real estate agent. You'll probably want
to make an offer that's for slightly less than your preapproval
amount, which leaves room to negotiate.

Last, verify that the down payment required by your lender is in
the bank and ready to go. Simply having earmarked certain
assets as the funds to buy a home (including the money required
for the earnest deposit, down payment, closing costs, etc.) is not
enough to ensure a smooth transaction. Having direct and
immediate access to the cash is essential.

writing an offer

You've Found The One

Now it is time to make an offer

You know the property you want to buy and how much you'll have to pay for it. Now you'll choose a lender to get a
mortgage from (you can go with a lender that preapproved you or start fresh with a different one).

Even with an online-first lender, you'll often work closely with a loan officer to complete the actual application.

This is a paperwork-heavy process, so get ready to do a lot of uploading.

Here's what you're likely to need:

• W-2 forms from the past two years (possibly more, if you've changed employers).

• Pay stubs from the past 30 to 60 days.

• Proof of other sources of income (including documentation of any gift money).

• Federal income tax returns from the past two years.

• Recent bank statements (usually for the last couple of months).

• Details on long-term debts like car or student loans.

• ID and Social Security number.

finalize your mortgage