- Don’t Be Late on your Credit Card Payments or Charge Excessively: You need to show your stability with managing money responsibly.
- Don’t Apply for a New Credit Card: Unless your mortgage lender has advised you that this is a good idea to build up your credit, then avoid applying for any new credit cards. Looking for new credit translates into higher risks for lenders.
- Don’t Purchase a New Car: Or any other form of transportation that you’ll have to finance. This will increase your debt-to-income ratio, which is not anything that loan officers want to see.
- Don’t Change Your Job: Do not go looking for a new job during this time. Even if you’re bored at your current job, or tempted by possible pay increases from a different career path, it’s best to keep your current employment situation going during this time. This demonstrations to lenders your stability- Which means you will be less likely to default on the loan.
- Don’t Change Banks: As with your employment, you want your banking history to show stability.
- Don’t Spend Your Money for Closing Costs: You’ll likely be responsible for part of the closing costs associated with a property transaction. Make sure you have enough to pay for your share of the obligation.
- Don’t Close Credit Card Accounts: It may seem like a good idea to close one of your lines of credit after completely paying off the balance, but this is not a good idea. Closing out the credit card wipes that information away- meaning that your loan officer will not be able to take into consideration the fact that you made payments and completely paid off that card.
- Don’t Purchase Furniture on Credit: I know it’s exciting to start picking out fresh furnishings that will go perfectly in your new home, but WAIT! Like a new car, financing large ticket-items will only increase your debt-to-income ratio, and now is not the time.
- While it may seem tempting to go out and spend a bunch of money on that new TV, a fancy new couch, or furniture, your best bet is to keep that money in hand. Avoid buying a bunch of new things until you close the deal on the house itself.
- Don’t Make Large or Cash Deposits into your Bank Account: Lenders like to see that the money for you down payment is “seasoned”, meaning it has been in your account for at least two months. It doesn’t necessarily look good when funds just appear all of a sudden.
- Don’t Co-sign a loan for Anyone: Even if you’re not the person making the payments, it will still increase your debt-to-income ratio. And as we’ve learned, that’s not what lenders like to see.
Maybe you’re ready to buy a home, or maybe you’re just curious about the process and want to start by dipping your toes in. Whether you’re merely interested, or you’re completely ready for that house you can call your own, you’re going to want to do some research on it. Unfortunately, the home buying process can be confusing for some. But it’s much easier than it looks. Don’t let this confusion drive you up the wall or intimidate you–I’m here to make it easy for you! I have listed a handful of home buying terms and tips for you below:
- Prequalification: If you’re going to need a loan, the first step in buying a home is to get prequalified. This may sound hard, but it’s actually very simple. You’ll want to start by providing your lender with your financial situation. The lender will then evaluate your finances and provide you with a general idea of the potential mortgage amount that you could qualify for.
- Remember This: Keep in mind that this is only a general idea and is not set in stone. Just because you are prequalified for it, doesn’t mean that you will 100% qualify for a loan that you were preapproved for.
2: Preapproval: Here is your next step in the home buying process. You must fill out a mortgage application. Here you will provide information to your lender. Your lender will then verify the information and approve you for a particular amount. This will provide you with a better idea of what your interest rate will be.
- What This Does: This will give you a leg up and provide you an advantage with any seller. The seller will realize that you are another step closer to getting a mortgage.
- Home Loans: There are 3 common types of home loans that you may qualify for. (Keep in mind that there are other loan options as well, but these are the most typical). They are as follows:
- Conventional: A conventional home loan is a mortgage that is not insured, or guaranteed, by the federal government. They’re popular with borrowers who have good credit, a stable job and income, and who can afford a down payment. People who are financially stable overall.
- FHA (Federal Housing Administration): An FHA loan only requires a minimum of 3.5% down. They are great for home buyers with meager savings for a down payment, and less than perfect credit.
- VA: If you’ve served in the United States military, a Veterans Affairs loan can be an excellent alternative to a traditional mortgage. If you qualify, you can score a sweet home with no money down and no mortgage insurance requirements.
- Adjustable Rate: An ARM, or an adjustable rate mortgage, can offer a home buyer a low interest rate on their home loan for a specified amount of time.
- Note: After this time is up, the interest rate can fluctuate or increase for the remaining duration of your loan. This means that your interest rate can possibly increase.
- Fixed Rate: When it comes to a fixed rate mortgage, you interest rate on the mortgage is set at a particular rate for the whole duration of your home loan.
- Example: If your mortgage is set at 30 years and fixed at 8%, then you will be paying 8% for the entire 30 years, regardless of any fluctuations in the housing market.
- Offers: When you are ready to buy a home, your real estate professional will write up an offer for you. This offer is the amount of money that you would like to purchase the property for. The seller may or may not accept your offer. Keep in mind that you don’t always have to offer the listed price.
- Counter Offer: The seller may respond with a counter offer. This is when a seller is offering different conditions to agree to. You may or not may not accept this new offer. Negotiation skills are key in this step of the process.
- Home Inspection: A home inspection is an evaluation of the present condition of the home. This is based on a visual inspection, completed by a professional. It focuses on the performance of the home, rather than cosmetic, code or design issues.
- Note: After the inspection, you will typically get a full report via email. Most inspectors get the report back to you in a couple of days.
- Appraisal: An appraisal means that a real estate appraiser will examine the house for sale. The goal of this examination is to provide the monetary value of the particular house and land at that time.
- Remember: Your lender will order the appraisal during the mortgage loan process. so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate.
- Home Warranty: Remember that not everything goes the way it’s supposed to, and as such, a home warranty has its advantages. Basic coverage for a home warranty will include anything from major appliances, to pluming, heating, electrical, etc.
- Note: This warranty is only for a specified amount of time, such as one year.
- Escrow: While buying a house, escrow is a safe holding area where important items are kept secure until the deal is closed, and the house officially changes over to the new owners. The third party is there to make sure everything during the closing runs smoothly, including the transfers of money and documents. Escrow protects each party by assuring that no funds and property change hands until all conditions in the agreement have been met.
- Remember: The escrow officer is a third party—perhaps someone from the closing company, an attorney, or a title company agent (customs vary by state),
I hope defining these terms has helped the future home buyers out there. It can be a messy process trying to buy a house that you’ve always dreamed of. But taking a few moments out of your day to do research can help you loads more when it comes to buying a home.