Buying a house doesn’t have to be complicated. Use the following roadmap as a guide to help you understand the journey that you will need to take to purchase a home. There is no set timetable, your journey can be short or long depending on several different variables like your credit but, having a plan will ultimately help you avoid some common pitfalls and achieve your goal of home ownership.
1. Check Your Credit Reports and Scores
You can access your credit reports for free at a myriad of places like annualcreditreport.com, creditkarma, creditsesame, etc… but, if you want an accurate credit score (FICO score) you will want to go to myfico.com. MyFICO.com will give you your credit reports from all 3 credit bureaus as well as 37 different FICO scores including the scores used by mortgage lenders for home loans.
Make sure that the information in your credit reports is 100% accurate and if your credit score isn’t high enough to qualify for a mortgage or too low to get the best interest rates and terms possible, you will want to work on improving your credit scores.
2. Improve Your Credit Scores
If your credit scores aren’t up to par you will want to work on increasing them. Feel free to use this quick guide to help you increase your credit scores or you can always hire a professional credit repair company to do the work on your behalf.
3. Figure Out How Much You Want To Spend On A Home.
You’re the only one who can determine how much you can afford to pay for down payment, your monthly mortgage payment, insurance, closing costs, etc…
For example, determine how much money you have available for your home purchase by adding up all of the available money that you have, your checking accounts, savings, investments, and cash. Then, subtract moving costs, money for renovations for your new home, a small emergency fund, and you will have the amount that you can allocate toward a down payment and closing costs. According to Zillow, on average buyers pay roughly $3,700 in closing cost fees.
4. Explore your mortgage options.
There are many different types of mortgages out there, conventional, FHA, VA, USDA, Jumbo, etc… Research the different loan terms, interest rates, and talk to lenders, loan officers, and mortgage brokers to help you decide the type of loan that fits you best.
5. Get Pre-Approved.
A pre-approval means that your income and credit have been verified through documents which you provided and you are pre-approved for a mortgage. Don’t get this confused with a pre-qualification which is solely based on loose information from your credit and your DTA (Debt to Income Ratio).
A pre-approval letter helps show sellers that you are a serious buyer.
6. Find Your Home.
This is the fun part. With a pre-approval letter in hand, you drive around looking for your dream home. You already determined your budget so you know what you can and cannot afford. Once you find your dream home make an offer. Don’t be discouraged if your first offer isn’t accepted, negotiate.
7. Compare Loan Terms.
Get some estimates from a few different lenders and compare the terms, rates, and monthly payment amounts. Find the loan terms that you are comfortable with and get the best deal possible.
8. Choose The Loan That’s Right For You.
Choose the best deal on the table and submit your documents to get ready to close on your new home.
9. Shop For Closing Services.
At the top of page 2 of your Loan Estimate, there is a section titled, “Services you can shop for.” These include services such as the property appraisal, title insurance, home inspection, etc…. Your lender will give you a list of service providers but, there’s no requirement to use them. Feel free to shop around and save yourself some money with less expensive options.
10. Close on Your New Home.
Examine the closing documents to make sure that there are no errors and all of the terms are as you previously agreed upon. Then, sign the closing docs and get your keys.
Now, it’s time for some Champagne.
NOTE: If your credit score is holding you back from being able to qualify for a mortgage, CreditFirm.net is here to help improve your scores and get you ready to buy a home.
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In a previous article, Credit Firm discussed the importance of fixing your credit and paying your debts in order to buy a house. While that is important, there are also other factors to consider when looking to get a mortgage approved. Aside from credit and debts, here are some other steps to take:
1. Update your documents
Before meeting with the lender, make sure all your necessary documents are in order. This will reduce the requirements needed by lenders, thereby speeding up the application process. Bankrate compiled some questions to expect from lenders including the paperwork they usually ask from applicants. In general, you will need to present documents to prove your annual income, additional earnings, debts, and assets.
2. Maintain a good savings history
The key to gaining your lender’s trust is to prove you are capable of saving money. For that to work, you will have to avoid making major purchases. Hold out until after the approval. Also, your savings will come in handy for two purposes: firstly, it will be used for your down payment, and secondly, it can be used to cover other requirements in your application.
3. Make a large down payment
Most first-time buyers worry about coming up with the 20% mortgage down payment. However, the Los Angeles Times notes that most people don’t follow that practice, as 54% of all buyers over the last five years put down less than 20%. However, it was stressed that there are many benefits to depositing 20% as a down payment, including lower monthly payments and lower mortgage interest rates. Big deposits will help you reach mortgage approval faster, but as mentioned earlier, you should still leave enough funds for other expenses.
4. Ensure your employment is stable
Since lenders will need proof of your income, it’s recommended to stick with your employer during the home buying process. Being self-employed or failing to hold down a permanent position for a long period of time will not leave a good impression on them because they will see the loan as a risk.
Furthermore, the first set of accounts may take over a year to be audited. Some lenders will even request two years’ worth of accounts. In short, do not apply for a mortgage if you plan to shift jobs in the near future.
5. Seek expert advice
You have the option to ask for help from HUD-approved housing counselors, who are trained and certified by the government. Housing counselors will assess your financial situation and help you determine your options if you have problems with loan payments. You can use the Consumer Financial Protection Bureau’s Find a Counselor tool to get a list of HUD-approved counseling agencies near you.
Aside from counselors, you can also ask assistance from licensed CPAs when it comes to financial matters. Maryville University’s summary of its bachelor’s degree in accounting revealed that trained accountants will be able to give sound advice on financial planning and management. They are equipped with knowledge of financial reports, income taxes, and auditing, so they will be able to help you with your unsettled accounts, tax liabilities, and other shortcomings. In case there are any other complex problems with your mortgage application that you can’t solve on your own, seeking expert advice is your best bet.
As mentioned at the start, a key part of speeding up the mortgage application process is keeping your credit in check. On that note, consider Credit Firm’s services, since we offer an easy 3-step process for you to fix your credit. Keeping all these tips in mind, you may be able to get your mortgage loan in less time.
Article composed by Sophie Morgan for creditfirm.net