Here are the 10 steps to keep in mind in your journey to homeownership:
- Checking credit report
- Getting familiar with the mortgage process
- Planning for the right mortgage
- Getting a pre-approval letter
- Comparing loan estimates
- Selecting the right loan
- Making an offer
- Finding a closing agent
- Closing the deal
Step 1: Checking credit score
Having a good credit score is an important part of buying a home. Lenders will use this information, and the information in your credit history to find out if you qualify for a loan, what type of loan and the interest rate.
Errors in the credit report can unnecessarily lower your credit score. It is a good idea to check the report thoroughly, and have any errors corrected as quickly as possible.
Credit scores range between 300 and 850. Having a higher credit score typically means a lower interest rate, and more options when choosing a home. There is a difference between soft credit check and hard credit check:
A hard check occurs when a financial institution checks your credit for making a decision on granting a loan. A hard check will likely lower your credit score by a few points. A soft credit check happens when a person or company checks the credit score as part of a background check or monitoring changes in credit score. They will not affect your score and might not even be reflected on your credit report.
Step 2: Budgeting
Have a budget, and consider the total monthly payment, which includes mortgage principal, interest, property taxes, homeowner’s insurance and mortgage insurance, and other expenses and making sure that it is payable is vital. Also take into consideration utility bills, emergency savings and other goals.
It is very important to be realistic when considering the amount you’re willing to spend on your home, and making sure it accounts for all the upcoming costs. Also consider how much you can have to use as a down payment, and the cost of closing the deal.
Step 3: Getting familiar with the mortgage process
The mortgage process may seem like a daunting task, but it doesn’t have to be. It takes research to get to know which loan is right for you and your circumstances. While you can begin looking at homes early in the process, it is better not to wait until you find the home you want before thinking about loan options. Another thing to consider are the closing costs that are associated with the mortgage.
Step 4: Planning for the right mortgage
There are many types of mortgages available, with fixed or adjustable rates, short- or long-term loans. Exploring your options will give you a good feel of the market. An experienced mortgage broker can help you understand the pros-and-cons of different mortgage options.
Once you have an idea of what sort of loan you’d like to get, it is time to contact a mortgage broker. Your mortgage broker will help present your application to multiple lenders and help you compare the deals they offer. Consulting with experienced loan officers will help you a better view of what is required to complete the loan application.
The next step is to request formal loan estimates, which will help you compare costs across different lenders.
Step 5: Getting a pre-approval letter
While pre-approval and pre-qualification letters the two terms are used interchangeably, there are key differences between them. A pre-qualification is an estimate given to you by a lender estimating what loan you qualify for. A pre-approval usually requires a hard check on your credit report, and verification of your assets, income and debt. These letters are conditional and do not guarantee a loan offer. They assure the seller that you’ll be able to get financing for your home, once the conditions are addressed. Getting this documentation early in the process is helpful in spotting potential mistakes and correcting them.
A pre-approval letter doesn’t commit you to a lender, but helps spot any issues early on and tells the seller that you’ll be able to get financial assistance.
Step 6: Comparing loan estimates
Many people are picky about different things, the amount of milk in their coffee for instance. But they might not be picky about something much more important, their mortgage. A 2018 study done by the U.S. Consumer Financial Protection Bureau found “Mortgage interest rates and loan terms can vary considerably across lenders. Despite this fact, many homebuyers do not comparison shop for their mortgages. In recent studies, more than 30 percent of borrowers reported not comparison shopping for their mortgage, and more than 75 percent of borrowers reported applying for a mortgage with only one lender.”Contact an experienced mortgage broker and compare different mortgage products that are available to you. You will save by shopping around and getting offers from multiple lenders and then decide on the one that is best suited to you. Click To Tweet
By shopping with only one lender, homebuyers lost out on better deals, lower interest rates, and a large amount of money lost over the lifetime of the loan. All of this adds up to thousands and thousands of dollars being lost. A difference of even 0.5% in the interest rate can amount to thousands, which can either be saved, or be lost.
Contact an experienced mortgage broker and compare different mortgage products that are available to you. You will save by shopping around and getting offers from multiple lenders and then decide on the one that is best suited to you. Also keep in mind the variety of costs involved in the mortgage, as some may have a lower interest rate, but a higher closing cost. When reviewing the loan estimates, check if the interest rate is locked. By getting loan estimates from lenders, you are not obligated to proceed with them.
Step 7: Selecting the right loan
Once you have compared loan offers and found the one that is best for you, it is time to choose a loan and a lender. Contact the broker and convey your intent to proceed.
Getting to this stage in the mortgage process is time consuming, stressful, and takes an enormous amount of paperwork. It would be convenient if there was a group of experts willing to work through this process for you, giving you the options that are best for you. Luckily there is! With Stem Lending, you enter your information once, and they go through this process for you, saving you time and money.
Step 8: Making an offer
When making an offer on a house, it is important to keep in mind your budget and priorities. You will come across houses that you’d love to buy but which stretch your wallet. Keep in mind your priorities and how much you can afford comfortably as monthly payments.
Step 9: Finding a closing agent
Now that you have selected your mortgage lender and the loan, the lender will proceed with underwriting and revert back with conditions to be resolved prior to closing. They might request for additional verifications, so it is important to promptly address closing conditions.
Ask for price quotes and references from past customers. Once you have chosen your closing service, it is time to notify the lender and move on to the final step.
Step 10: Closing the deal
Before signing anything final, take your time to review the Closing Documents. Ensure that the information is accurate. If there are discrepancies, promptly consult your mortgage broker to get them resolved.