1.) Understanding the Mortgage Market

Many are swayed from starting the home search process because of the unknown.  During and after the recession, many were turned away from getting the mortgage they so desperately wanted.  They have many questions but, don’t know where to go to get the right answers.  So many of them just simply give up and continue renting.  Well, the tide has changed and many young buyers are now being approved for home loans.   Now it is easier than ever to get into the housing market and purchase the home of your dreams.   As many can attest, the mortgage market can be confusing because many do not understand its structure and how it works.   Many others do not understand the actual process involved.  Then there are others that have no idea where to begin.   Many of those vital questions can be answered by a lending professional at Kloze.  We are expert in home loans including  FHA home loans and can offer many opportunities to educate others on what should be done to get started on the process.  Knowing what is involved in the process is a good first step to take.  Before you get started here are a few things you may need to know to get you off on the right foot.

2.) What It Takes to Get Approved

Knowing the structure of a mortgage loan can help you to understand what your lender may be telling you to do.  Without that information, what the lender may be telling you can be meaningless.  First, know the difference between conforming and non-conforming loans.  These terms are used to explain underwriting guidelines set by Fannie Mae and Freddie Mac which are created by the federal government and operate under the Federal Housing Finance Agency.  Know that non-conforming loans are risky for lenders and have high-interest rates and fees.  This type of loan is usually meant to purchase high priced properties.  However, a loan can be non-conforming for reasons like a low credit score, high loan to income ratios and possibly lack of income verification.  It is best to know your credit score beforehand to know where you stand.  This can all be explained in detail by an NHL lending professional.  Once you know the fundamental types of mortgage loans, including FHA Loans, you are better able to find the best loan for you based on current rates, fees and the best mortgage terms that fit you and your situation.  This will help you to understand the mysteries of a mortgage.

3.) When Should You Apply for a Mortgage?

As stated before, make sure your credit is in order first.  You want to get your credit score on the higher end.  Pull your credit reports and take stock of what it has to tell you about your credit past and clean it up. You want your credit to be as flawless as you can get it.  Next, once you get that credit history in order, keep it there.  Do not let anyone pull your credit.  Paying everything on time will help too.  And, whatever you do, do not apply for new credit and do not close any account you can pay down to zero.  Making other large purchases is not recommended as well as carrying a balance on any revolving account that is more than 25% of the card’s limit.  If you do have a card as such, pay the balance off or below the 25% and do it when the bill arrives.  Another tip is, open a separate bank account to save your down payment funds.  Make sure it is dedicated to only your down payment. Lastly, if you follow the aforementioned steps, your mortgage application process will be less of a pain and will not feel like everyone is being so intrusive into your personal business.

4.) Where Should You Apply for a Mortgage?

Get to know who the best mortgage lenders are.  Here at NHL Lending, we have the expertise you need to get started on your lending process and give you the support that could get you prime mortgage rates. We are the best first step in your home search process.  The information we can give you is vital in making sure you are ready for all that is coming your way.  We can also make the process a bit more palatable and give you more of an upper hand in choosing the right mortgage rate for you.

5.) Should You Get Pre-Approval?

And lastly, Pre-Approval.  Should you, or shouldn’t you?  That is a question that is asked by many because they have no idea if pre-approval will help or hurt any strides they have already made towards the purchase of their new home.  Really, Pre-Approval is an evaluation to determine if the borrower qualifies for a loan.  It is not to be confused with pre-qualification which is an informal meeting with your lender and give them information about your assets, your income, and liabilities.  Based on the information you give them your lender will be able to give you an estimate of how much money you can borrow.  It is not a sure thing as pre-approval involves more in-depth investigation.  In a pre-approval, it is more formal when meeting with the lender.  You will be asked to complete the official mortgage application, probably pay an application fee and then give the lender the official documents to perform an extensive check of your financial past and current credit rating.  From the pre-approval, you will find out how much mortgage you are approved for and possibly find out the interest rate you will be charged on the loan.  In the end, the pre-approval process will get you closer to the actual loan and speed up the home purchase process.

6.) Make sure your income is sufficient

It’s going to be your dream home.  It’s going to be your lifetime home.  With that being said, know what you want in your new home.  Right now, you believe there is no reason not to get what you want.   Or is there?  From the moment you begin to look for your dream home, you dream about buying the largest and most modern home in the neighborhood.  However, you may want to check your reality at your new front door, especially if you are a young home buyer. The fact is, your actual budget may be more prepared to get you a three bedroom, one and a half bath cottage starter home with the unfinished basement.  Now think about your current income situation.  Are you ready and able to fund the purchase of cottage without financing?  If the answer is no, then it would be wise to likely rethink your plans and probably go back to the drawing board and reconsider your plans.  According to Realtor Home Buyer and Seller Generational Trends Report, there were 88% of home buyers that had to finance their home.  97% of the younger generation needed approval for a mortgage.  A lender will look closely at the income of potential borrowers just to make sure they can afford the loans.  By verifying income, they can get a better view of what you can or cannot afford.  It may be your luck or lack thereof to get a lender that have stricter policies than other lenders.  Due to past financial crises and increased government regulations across the housing market, it is not surprising that lenders are being more cautious about their lending practices.  When contacting a potential lender, just simply cut to the chase and secure a list of the items this lender would need.  These items could include,

• Purchase contracts.
• Individual taxpayer identification and/or Social Security number.
• Current home address and any previous residences over two years.
• Names, account numbers, and current balances of checking, savings, retirement, and credit card accounts.
• Your bank’s address.
• Past three months’ checking and savings account statements.
• Income verification statements like pay stubs, W-2’s and/or proof of employment.
• Past two years’ Federal income-tax returns.
• Proof of any additional income you received.
• Balance sheets and tax returns especially if you are self-employed.
• Canceled checks showing your payment history of rent and utility bills.
• Documentation of any other consumer debts.
• If family members or organizations are helping you cover the cost, it is best to have a gift letter stating the money is a gift and will not need to be repaid.

Keep in mind, it is to your advantage to get this documentation to the lender as soon as you can.  Not doing so can delay the underwriting process for months.  Getting into your dream home can come in the blink of an eye.  But in order to do so, you must do as much financial prep work as possible.

7.) Calculate your monthly debt obligations

Take a close examination of what your finances look like at present and get your future financial ducks in a row.  Many may wonder how much that dream house is really going to cost.  Some others are surprised when they find out how much home they can really afford.  Your cost can be determined by your current monthly debt payments and the current interest rate.   If you want just a general idea, you can use one of many online calculators that use standard ratios.  But in the end, it will be up to you to determine how much money you would be comfortable with adding to your budget.  Also, keep in mind that a monthly mortgage payment could possibly change based on the type of loan you get.  In addition, consider the current interest rate and other additional costs such as homeowner’s insurance, property taxes, and HOA fees if applicable.  While you’re at it, toss in the cost of maintenance and repairs.  Think about it, will you have any funds left over for an emergency fund?  So, have you really planned for increases that may come your way in the future? One last question. Could have a sizeable mortgage get in the way of other future savings such as your retirement or a child’s college fund?  There is quite a bit to consider, isn’t it?  Do your homework before you go to that lender for pre-approval. Know your credit score, how much you can afford, and have the information you will need to prove it.

Also, know your debt-to-income ratio (DTI).  It is an important factor in getting approved for a mortgage.   The DTI will show your ability to both afford and pay back a loan.   You can’t totally rely on A FICO score.  It may tell the lender about your past, but it says nothing about the present.   A DTI ratio can assist lenders in measuring your ability to afford a monthly mortgage payment.  How is it calculated?  The DTI is calculated by dividing your total recurring monthly debt by your gross monthly income.  Take for example, if your monthly debts equal $1,000 and your gross monthly income is $4,000, your debt-to-income ratio is $1,000 / $4,000 = .25 or 25%. Typically, you will not qualify for a loan if you have a DTI ratio greater than 43%.  This is when it is best to work on reducing your monthly recurring debt before applying for a loan.

8.) After loan approval, how long does it take to close on a house?

When homeowners were asked what part of the home purchase process kept them on pins and needles, the larger majority of them said “closing date”.   They did not want anything to delay that happy day.  After a mortgage loan has been given its final approval, the closing can happen quickly thereafter.   It can generally take a week after mortgage approval, just enough time for the lender to assemble the loan closing packet.  Many times the buyers and sellers can just simply agree on a closing date.  Most times they agree to close within 30 days.  Keep in mind, that many mortgage lenders will want a home appraisal before they give their final loan approval.  Problems with the borrower’s finances or a home appraisal can delay the closing date.  From time to time, missed closing dates happen and must be rescheduled.  In this case, purchase agreements may contain specific language about closing date timelines and what must be done in the case of a missed closing date.  Mortgage lenders want to assure closing dates happen as scheduled so that they can fund and close their loans.

9.) Pre-Approval for a mortgage – What is the process

Pre-approval is the first important step in the home purchase process.  Your documentation in the process will typically consist of,

• Proof of Income

These documents will include, but may not be limited to:

• Thirty days of pay stubs that show current income and year-to-date income
• Two years of federal tax returns
• Sixty days or a quarterly bank statement showing asset accounts that includes your checking, savings, and any investment accounts
• Two years of W-2 statements
• Any additional income from alimony or bonuses.

Assets

All your assets could be under scrutiny, so be ready to provide documentation of what you have. Have in hand those present bank statements and investment account statements to prove that you have funds for the down payment and closing costs on the residence, as well as cash reserves. If you receive money from a friend or relative to assist with the down payment, you will need gift letters which certify that these are not loans and have not required or obligatory repayment. These letters will often need to be notarized.

Good Credit

Most lenders agree that if you want the lowest interest rates, a credit score of 740 or above is the charm.  Anything below that, a borrower may have to pay more in interest or pay in additional discount points to lower the rate. To get an FHA loan, most lenders require a credit score of 620 or above to approve especially if you want to qualify for a 3.5% down payment.   However, borrowers with a credit score below 580 would need to make a larger down payment of 10%.   Lenders will often work with borrowers with a low credit score and suggest ways they can improve it.

Employment Verification

Your lender will want to see your pay stubs and will likely call your employer to verify that you are still employed and to check on your salary. If you changed jobs recently, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable work history.  If you are Self-employed, borrowers will need to provide additional paperwork concerning their business and their income.

Other Documentation

Lastly, the lender will need to copy your driver’s license or state ID and your Social Security number and your signature allowing the lender to pull a credit report. Be prepared for the pre-approval session and later to provide any additional paperwork requested by the lender. The more documentation you have, the easier the mortgage process will be.

10.) Are Pre-approvals a guarantee?

After you go through so much to make this dream happen, only to find out that you did not get the loan.  However, there is a common misconception that many first-time home buyers have that a pre-approval letter guarantees that they will get financing. They seem to miss the keyword “might”.  Pre-approval is really a preliminary look at a borrower’s livelihood to determine how much of a loan they “might” be able to borrow.  Although pre-approval is helpful in getting the attention of all involved like the real estate agents and the sellers, it will also give you an advantage over other potential home buyers who did not get pre-approval.  But it is not a guarantee of a loan

11.) How do you get pre-approved?

During pre-approval, the lender will check your credit and verify your financial and employment situation.  With this information, the lender can determine your ability to qualify for a mortgage and approves a specific loan amount tailored just for you.  It is a formal process that can get very involved.  During the beginning of this process, you will complete a mortgage application, pay the application fee and then give the lender all your necessary documents needed to check into your financial background and your current credit rating.  With this information, the lender can tell you the mortgage amount you will be approved for and the interest rate you will be given on the loan.  Pre-approval means the lender is sure and convinced that you have the ability to make the necessary down payment and an income that can sufficiently cover mortgage payments and household bills. There is one concern that remains and that is of the lender making certain that the home must be appraised for an amount more than or equal to the purchase price.

12.) Finding Your Perfect Home – Walking Through the White Picket Fence

The moment you’ve been waiting for has finally arrived and you can finally see happiness at your doorstep.  With the help of your lending professional Kloze, you were able to see your loan options, get prime mortgage rates and pre-approval was a snap.  This morning you woke up on the sunny side of the street, ready to tackle the next obstacle.  According to your lending professional, finding that home that speaks volumes about who you are is the fun part.   You know how much you can borrow and you know that this will determine how much you can truly spend on that home.  You have that wonderful pre-approval letter in hand and the potential sellers can now officially see that you are a serious home shopper with money in hand.

13.) House Shopping, Wish List versus Reality Check

You want a big back deck for those endless cookouts, but he wants that precious man-cave for the big pool table.  What could be a cause for dissension between husband and wife can be solved by looking at what you’ve got to spend.  A house with both wish list items could be beyond your budget and you may have to settle for a nice backyard and a patio set.  He may have to give in and accept an unfinished basement and a dart board.  Face it, what you really need to understand is knowing the difference between what you want and what you can live with right now.  Sure, you can have that deck built on later, much later.  That unfinished basement can still become that dream man cave.  With some hubby sweat, equity, and a few DIY videos, in time, that pool table will find a spot.  You will soon find it necessary to revise the wish list and find your reality list.  Your budget for buying your new home may not allow you to purchase the house that has everything you want, but you could most likely find the perfect house that has everything you need.  Decide what you cannot live without.  Could it be a window in every room, hardwood floors, no carpeting, a kitchen with an island for more counter space or at least 3 bathrooms?   You can find these items easily when you use your reality list.  Wait!  Don’t put the wish list in the trash yet.  You can still have what you want from your wish list, just have it in due time.  Your dream home can still be your future dream home with these tips.  Think of it as making that home truly fit your style.  Home is where the heart is and you can find your heart within your budget.

14.) The Convenience of Shopping for Your Dream Home Online

Many start their home search online after learning essential home buying facts.  Searching online is great for those that are unfamiliar with the desired community in which they wish to move into.  We all know that one of the biggest home purchase reasons is its location.  Online, you have access to every possible source of information concerning that property that you probably would not have access to otherwise. There is a plethora of information available about the area such as schools, crime statistics, and tax bracket.  For the most part, searching for a home online can save time, money and footwork.  Can you imagine how long it would take for you to physically visit every house with a sign in front before you would get to the perfect house for you?  Online there is so much information available to you in one place and space that it can actually make your home search the fun activity it is supposed to be.  It can be fast and give you many details about a home that is important to you.  Not only are you able to view pictures of every room inside the home, there are now virtual walkthroughs that give you a turn-by-turn, bird’s eye view of the home. You are able to map out neighborhoods, parks, proximity to work and most importantly purchase price.  Many sites now show you pricing trends and approximate monthly mortgage cost.  How nice it is to use the tools the website may provide to determine your monthly budget if you were to purchase that particular home.  You are also able to set variables in searchable databases so that you will automatically receive notifications when homes fitting the criteria you are searching for.  Computer technology has come a long way and now it can be one of your best tools in finding the home you desire without an enormous amount of effort.

15.) The Real Estate Agent – Your Guide in the Right Direction

Some that start out searching for their new home may begin the search on their own.  Many wonder why they need a Real Estate Agent.  Simply put, the Real Estate Agent is your representation through the home search and purchase process and can help you avoid bad decisions.  There are other things to understand about your Real Estate Agent as well.   A professional real estate agent has the education, training and experience necessary to guide you and assist you in choosing the right home to fit within your budget.  They help make the process palatable, understandable and practical.  Most importantly, they help you in the decision process so that you won’t make regrettable choices.  Your real estate agent typically knows the neighborhoods where the properties are located and can give you candid information about each.  They are there to make comparisons, provide you additional information on schools, crime statistics and demographic details.  Your real estate agent is your price guide and negotiator.  If you want to know what price similar homes are selling for, your agent will have that information available. Knowing what the current market conditions are could give you the information you need to make the best decision about your purchase.  Because your agent will have a track record of professional networking and therefore know which vendors will have a reliable and professional reputation.  These are vendors whose services may come in handy during your purchase process.  Just as your lending professional at NHL, your real estate agent will be by your side through closing.  They all want to make sure that the purchase of your new home is complete and the white picket fence is yours.

16.) Finding the Perfect House in the Perfect Location, Searching Using Map-Based Queries

How many times have you been simply just driving around and come across a house with a sign in the yard.  Have you ever looked at it, looked around the neighborhood and thought that this would be the perfect house just because of its location?  Now fast forward a few years and you’ve finally decided that it is time for you to purchase your first home.  Now, where do you want that home to be located?  Would you be happy to be near schools, the city center, have the walkability to grocery stores or parks?  If the area is new to you, searching your desired location using map-based queries such as Google Maps “Lifewire” is a great way to get started on your home purchase adventure.

When in doubt you can always just drive around or possibly get that exercise while walking through endless neighborhoods.  However, if all of that twisting and turning is not your cup of tea and you want a quick and fast way to locate that home of your dreams, then a home search website may be better suited for you.  Try using a home search website such as Trulia or Zillow.  With the assistance of these websites, you will be able to,

1. Personalize your home search. Imagine the possibilities of your dream home.  By keying in your preferences, you can narrow down the type of home you are looking for from a condo or cottage to a ranch or townhome.
2. Make more precise choices concerning your home floor plan. Whether you want two bedrooms and one bathroom or six bedrooms and 4 bathrooms, it is all up to you.
3. What makes these websites so much better than doing the footwork or the driving is the ability to focus in on the precise neighborhoods, schools, stores and parks that fit you. Even if you wish to live out your life as a pedestrian, these websites can help you find the home where the sidewalk will come right up to your front door.

17.) Getting ideas about neighborhoods that fall within your price range

Someone once said, “Not all neighborhoods are exactly what you are looking for. Great house, wrong price.”  Thinking about it that way can put a damper on the search for that perfect house that you were hoping for.  Many may have been looking for that perfect house for quite a while.  Some for maybe a year or more.  But the home they want could possibly materialize in the neighborhood they don’t want.  However, the neighborhood they do want will not give the house they can afford.  A limited income will lower pre-approval amounts, limiting their options for an affordable home in the neighborhoods they desire.  But keep in mind, one of the first basics of purchasing a home is loving and knowing your desired location.  Getting the chance to purchase that perfect home that has all the amenities you could ever want in the neighborhood that provides all the luxuries you could ever want can be tricky.

But what should you do?  Which should you truly buy for? The house or the neighborhood?  Online website, Apartment Therapy give these tips,

1. The best first thing to do is to go and physically visit the communities that appeal to you. Take the time to walk around the area on the weekend and go shopping at the local grocery store.  Play pretend.  Act like you already live in the neighborhood.  Look for the things that are important to you and see if they are there.  Do you want public transportation?  The ability to walk to the stores and restaurants from your front door?  Is there a local park for the kids? How close are the schools?  Now think it out and consider how did the atmosphere feel to you?
2. Go online and do some research on the cost of the available homes for sale in the area. How are they priced?  Are they affordable for you?  Are you financially able and ready to purchase a home in this community?  If it all feels right to you and think you are ready to move forward, your next step is to get real estate agent representation to help you ascertain your best financing options.
3. Get all of your paperwork ducks in a row and be prepared. In the meantime continue to look at homes online, visit open houses and continue to figure out your finances.  Get your pre-approval done, so that when that home in your desired community happens to come available, you will not hesitate in grabbing the opportunity right away.  Don’t let even a few hours cost you the chance to get the home of your dreams in the neighborhood you desire.

18.) Putting together a list of properties you want to see in person

There is an art form to the Open House.  According to U.S. News and World Report, an Open House is an important part of the home purchase process to all buyers.  Here is where you get to make so many preferential home buying decisions.   To many, they may feel like a kid in a candy store when they are visiting an open house.  There is so much to see and consider.  The larger the house is, the more overwhelming the visit can be.  However, learning to pace yourself can take the “over” out of the “whelming” and open house visits can be pleasurable and relaxed.

By taking the following measures to prepare you for personally looking at properties, will ensure that you will get the biggest benefits from home visitations.

1. Go online and find the date and time of the open houses in your desired neighborhoods.
2. Go check out the neighborhood. Make yourself familiar with this neighborhood, taking close note of the adjacent properties, especially those that are up for sale nearby.
3. Visit the homes on your list, being sure to take your time. Open doors, open cabinets and write down any questions concerning the property you may have.  But take heed, when asking the listing agent these questions, it is best NOT to share details such as your timeline, mortgage approval or how much you are in love with the home.  You would not want to compromise any power you may have later to negotiate.
4. Tell the agent you are simply browsing. Make it a no-pressure “look-see”.
5. If you already have an agent, feel free to bring them along. Why not keep everyone on the same page.  If there is any real talking to be done, allow your agent to speak to the listing agent on your behalf.

By following the above tips as a guide to finding your perfect home in your perfect neighborhood, you will have no problem getting in the home of your dreams.  Next time, more tips and topics on finding the home of your dreams.