Buying a home

buying a home

Are You Ready to Buy a Home?

So you’re thinking about buying a new home.  Before you start the process of applying for a mortgage ask yourself:

    • Are you planning on any major life changes, like changing jobs or starting a family, in the next few years that could impact your financial situation?
    • Can you commit to staying in a home for at least five years?
    • Do you have a stable income?
    • Are you confident you can handle house repairs (or can take the time to learn), or are you willing to pay a specialist when something breaks?

How long do I need to own my house before it pays off?

Generally, we recommend you only consider buying a house if you plan to live there for at least five years, but this depends on a lot of factors, like the housing market, rental prices and how much equity you have in the house.

Buying vs. Renting a House

Each option has its benefits, so consider what matters to you.

Benefits of Buying

    • No landlord means you can make changes to your house however you want without anyone else’s approval.
    • Unlike rent payments, a portion of your payment is helping you build equity.
    • You can find a mortgage tailored to your budget and goals to keep your monthly payment from going up as the market changes.

Benefits of Renting

    • No Surprise Costs. A leaking roof, a heating and air conditioning system that calls it quits and all you have to do is pick up the phone and call your landlord who is often responsible for home repairs and upgrades.
    • Flexibility – Moving can be easier since you won’t have to sell your home or find renters. Pack up and move without having to worry or even put your belongings in storage and head to Morocco for a few months!

How to Evaluate Your Financial Situation Before Buying a House

Buying a home is big commitment. I could be a great investment allowing you to build wealth but it could also become a burden that requires constant repair and upkeep.

Therefore it’s important to make sure your financial house is in order. Start by reviewing your bank accounts and billing statements to get a handle on how much money you’re making and spending each month. If you’re planning to buy a house with someone else (like your spouse), review their finances as well, and then ask yourself some questions:

    • Do you have a stable income/job?
    • Are you able to put away some money each month into a savings account?
    • Do you have a plan for managing debt, like student loans and car payments?
    • Do you typically pay your credit card debt quickly? Keeping your credit debt low will help you qualify for a better mortgage.
    • Do you have some money already saved up for emergencies? A good rule of thumb is having three months of income saved.
    • Do you have some money saved up for a down payment and closing costs? You should avoid using your emergency savings for this, or you could put yourself in a tight situation.

 

Are You Ready to Buy a Home?

Determining Your Down Payment

How much you need for a down payment depends on the type of loan and how much the house costs, but the more you can put towards a down payment, the lower your monthly payment can be and the more you’ll save on interest.

Conventional loans typically require a down payment of at least 5% of a home’s price. FHA loans require as little as 3.5%. VA and USDA loans might not require anything at all down.

Along with your down payment, you’ll have to pay closing costs, or fees associated with processing and securing your loan. These can vary depending on the price of the house and the type of mortgage but estimate between 2% and 5% of the home’s value.

These costs may or may not be able to roll into your mortgage balance.

Let Us Help you Find the Right Mortgage Program For Your Situation

A Mortgage Approval Shows What You Can Afford

It can be tempting to start searching for a new home by browsing listings and scoping out potential neighborhoods. But before you fall in love with a house, you should get approved first. A mortgage approval will help you estimate your monthly payment and understand what you can afford.  

What’s an approval?

An approval is a lender deciding that, based on the financial information you provide, you’re a good candidate for a mortgage. In the approval, you usually get an estimate of your loan amount, interest rate and what your monthly payment could be. This process can vary from lender to lender, and some lenders will call this a “preapproval” or a “prequalification”.

Why Getting Approved Is Important

Getting approved first has a few advantages:  

  • You and your real estate agent will understand what you can afford so you don’t waste time looking at homes outside your budget.  
  • You’ll be in the best position to make a strong offer on a house because the seller will know a lender already verified your finances.  
  • After your offer is accepted, you’re less likely to run into surprises that could slow down closing the loan.  

Keep in mind an approval is just the start of getting a mortgage. Once you find a house and make an offer, the house will need to pass inspections and be appraised by a third-party. Your approval amount could also change if your financial situation changes.

How long is an approval letter good for?

Approval letters generally expire after 90 days, though that can vary based on your type of loan. If you haven’t made an offer within 90 days of getting an approval letter, you should renew your approval before making an offer on a house.

Do You Do A Credit Check to Get Approved?

Yes, there is a hard credit check to get an approval letter.

What Lenders Review

    • Credit Report – As a borrower, it is important to obtain credit reports from each of the three major credit bureaus and examine them carefully. Incorrect information can cause higher rates, or keep the borrower from getting a mortgage altogether. It is estimated that over forty percent of all credit reports contain errors. Any discrepancies need to be corrected as quickly as possible. Click Here to get your free annual credit reports from Equifax, Experian, and Transunion
    • Credit Standing Carry low credit card balances, or pay them off, along with any other outstanding bills before applying for the mortgage. Lenders have strict criteria as to how much debt and how many payments someone has before they will originate a mortgage.
    • New Credit Accounts – The amount of a borrower’s credit accounts can make a difference when applying for a mortgage. Avoid closing current accounts or applying for new ones, as this can make the lender suspicious.
    • Down Payments –  The more money a borrower can afford to pay up front, the more likely they are to be approved. It also makes for a lower loan. Of course, borrowers with an excellent credit history are likely to be approved regardless of how much money they can afford to put down.
      For those with less than perfect credit, the amount of a down payment could make the difference between approval and rejection. Lenders look for steady sources of income, so avoid changing jobs or quitting right before submitting a mortgage application.
    • Interest Rates Loans are not approved or denied based on interest rates, but they do help to determine monthly payments. Interest rates can also change while the loan application is being reviewed and processed by the lender. Therefore, if the borrower thinks the interest rates could rise, they may consider paying a “lock-in” fee in order to guarantee a favorable rate.
    • Available Funds –  Along with a good down payment, lenders look to see how much reserves you have available to make payments for a period of time.
    • Price Ranges – For a borrower to get an idea of how much they can afford monthly, it is important to figure out their debt-to-income ratio. Lenders are unlikely to approve the mortgage for a house the borrower cannot afford. Learn about the “front-end” and “back-end ratio” here.

MLO Kevin Wenke NMLS #1910000
Mortages Provided by Freedom Mortgage NMLS Lendor #2767