1. Get Pre-Approved or Pre-Qualified
Experts recommend speaking to a lender about getting pre-approved or pre-qualified for a mortgage as soon as you become serious about buying a home to see what price range you can afford and what your approximate monthly payments will be.
* most homebuilders have their own mortgage companies, or they have a list of preferred lenders with whom they do business. Homebuilder sales consultants are very skilled in helping potential home buyers get a good idea of what they can afford. Many offer a mini application that can help buyers begin the application process. They can also provide a list of preferred lenders they do business with.
* if a home buyer decides to work with a Realtor, one of the first things the Realtor will do is help the buyer become pre-approved or pre-qualified
* if the home buyer is working with an assistance program, the program can help match the buyer with the best lender.
* a home buyer can also contact a mortgage lender directly. The buyer is always free to choose the mortgage company of their preference. Always compare interest rates and fees. A single percentage point difference in the interest can make a big difference in your monthly payment.
* to become pre-qualified, you submit general information about yourself and your finances to a lender. Based on information you provide, which is not confirmed at this point, the lender will issue a pre-qualification loan amount. This can help you start thinking about what you can afford, and can help you begin looking at new homes. Pre-qualification is not to be mistaken for a letter of approval for a certain loan amount.
2. Pre-approval
To become pre-approved, you agree to a loan, you give the broker or lender a check to cover the cost of a credit report. The lender may ask for other information, such as your last two or three bank statements, W-2s, and pay stubs. Once the credit report is back, the lender should be able to provide a loan rate, lock the loan in if you wish, and provide a truth-in-lending statement. This statement will outline the costs of the loan, and what would be required to close the purchase. We buy houses in Knoxville
There are several advantages of being pre-approved for a loan. Most important, you can relax and feel comfortable that you already have your loan ready for when you need it. Now, all you have to do is find the right home.
3. Think Credit
You don’t have to have perfect credit to buy a new home, and you don’t necessarily need to have credit cards. Today, many lenders consider alternate forms of credit, such as rent and utility payments.
Checking your credit report before you apply for a loan is a very good idea. In general, lenders are going to want to see a credit report with no problems on it for the past 12 months.
Potential lenders will view your credit history, which includes information on how much debt is accrued, how many accounts are open, whether the payments are made on time, etc.
There are three credit reporting companies: Equifax, Experian, and Trans Union. You can obtain a report from each company to ensure it is accurate, and clear up any problems before you apply for a loan.
Avoid credit repair companies, as they will charge you for a service you can do on your own. They do not try to resolve credit issues, but only contest any negative issues on your report. What happens is they raise your credit score temporarily, without resolving any negative issues.
It’s very important to not make any major purchases, such as a new car, during the time you are trying to buy a new home. You can jeopardize your pre-approval by getting credit on another major purchase during the preclosing period and ruin your chances for a new home.
4. Decide what you can afford
A lender might approve you for a certain amount, but it doesn’t necessarily mean you can afford it. Be sure to factor in other debts and expenses, along with savings goals. When looking at a certain loan amount and interest rate, it is very easy to figure out the monthly principal and interest (P&I), using a mortgage calculator. For example: A 30-year loan for $100,000, with a 6 percent interest rate. The monthly P&I payment would be $599.55.
You must also add other costs to your payment such as:
* Hazard Insurance
* Property & School Taxes (in some cases Municipal Utility Dist. Taxes)
The 1% rule is very reliable. Just take 1% of the loan amount, and that is what your approximate monthly payment will be. Usually, it will be a little bit less. If you had a loan for $100,000, then your total monthly payment (including P&I, insurance and taxes) will be right around $1,000.
5. Shop for Insurance
As a home buyer, you will need to purchase insurance, and your builder, Realtor or lender can be good sources for recommendations. Again, make sure your credit report is accurate. Credit histories are sometimes used to determine whether a company will insure you, and at what rate. Many people think that all homeowner insurance policies are the same, but they are not. The Texas Department of Insurance governs offers a helpful English and Spanish website, with a price guide and shopping tips.
6. Know Everyone’s Role
Who is involved in the home purchase process? Let’s quickly define their roles:
The Realtor – Represents YOU and can provide you with invaluable help and advice in your home buying process. Remember, there is NO CHARGE TO YOU for using a Realtor; the home builder you buy from pays the Realtor commission fees; whether or not you decide to use a Realtor, the home builder will charge you the same price.
Experts recommend interviewing several Realtors, getting referrals from family, friends and neighbors. Select someone who knows your market and the neighborhoods you prefer. If you are going to need down payment and closing cost assistance, ask potential agents if they know about the programs.
The Home Builder Sales Consultant – The sales consultant is an employee of the homebuilder who works in a specific community or neighborhood. Sales consultants are very skillful in helping buyers begin the loan process, if they have not done so already. They might recommend the builder’s own mortgage company, or a list of preferred lenders. The buyer is free to choose whichever lender they want.
The Loan Officer – The loan officer is the human face of the lender, which is the company or institution that provides the funds to the home buyer. Try to choose a lender who has been referred either by your Realtor, your home builder sales consultant, or by someone who has gone through the entire loan process with that lending institution and loan officer. The best advice we can offer you is to: shop and compare lenders as you would with any other major purchase. It could save you a lot of money.
The Title Company – The title company is often overlooked and little understood, but it plays several important roles in the purchase of your new home. The company conducts a title search and provides the buyer with title insurance. This is to make sure that when you buy a home, the people selling it actually have full and legal title. In other words, they are the legal owners, and the home is theirs to sell. Title insurance protects against loss arising from a dispute over ownership of the property. Title companies also collect and disburse the funds needed in the selling and buying of the property. Finally, title companies ensure all documents are executed and filed correctly with the county courthouse, so that the property becomes legally yours.
7. Understand What You Sign
You will be asked to sign numerous documents in the home buying process. Remember that everybody else in the home buying process is a professionals, and they do this for a living. The only one who does not go through this process regularly is you. Read and thoroughly understand everything before you sign. Don’t let anyone pressure you to sign a document if you don’t understand or don’t feel comfortable. If you need one, a translator can be provided to you. It’s your right.
8. Closing
Closing is the formal transfer of ownership from the seller (the builder) to the buyer (you). There are several things that take place leading up to the closing.
A “Walk Through” – is your final chance to inspect your new home. Make sure everything has been completed and is properly working.
“Closing Statement” or “Settlement Sheet” – is an itemized statement of charges to be paid at closing. The charges can vary depending on your loan type. You will attend the closing meeting where you will be asked to sign the final documents. If you have one, your Realtor and the Builder Sales Consultant will also be in attendance. Your loan officer will guide you through every document to be signed. Ask questions if you do not understand something.
Closing documents you typically are asked to sign include some of the following:
* HUD-1 Settlement Sheet. An itemized list of closing costs.
* Truth-in-Lending Statement. This outlines the cost of the loan and the APR (annual percentage rate). It also defines the loan terms and number of payments.
* Mortgage Note (also called Promissory Note). This is legal evidence of your promise to repay the loan according to the agreed terms outlined in this document.
* Mortgage. The legal document that gives the lender a claim against your house if you fail to uphold the terms of the mortgage note.
* Deed. This document is signed by the seller at closing to transfer ownership to your name. You receive a copy at closing. The original will be sent to you after it is recorded.
When you’re finished, you get the keys to your new home!
