Your Guide to Home Financing
Home shopping? That’s the fun part. Loan process? That’s … not so fun. Even though the loan process comes with a learning curve, we don’t believe it has to be painful. You just need the right people on your side.
Mortgage loans are designed slightly differently from other types of loans. The value of the home backs the loan – that’s the easy part. It gets a little confusing navigating the types of loans, however: how they work and which one is best for your needs. But that’s what Dash Home Loans is here for. We’re your partner in this process, giving you the information you need that gives you the confidence to choose wisely.
Are you ready to buy a home? Reach out to Dash Home Loans now. Let our Mortgage Consultants help you start the process. If you’re doing preliminary research, read on. Here’s what you need to know and what you need to do to get the best possible results.
Five Signs You’re Financially Ready to Buy a Home
We hear it all the time: Buying a home and building equity is the best way to accumulate wealth. It’s the American dream, right? We need to add an important caveat: In order for homeownership to create wealth, it needs to come at the right time in your life. Time your home purchase well to set yourself up for success. Here are five financial signs you may be ready to take the leap:
- Credit score: The better your score, the lower your interest rate. You’ll need a FICO credit score of about 580 for an FHA loan, but if you get that past 620, your loan options improve. If your score is lower than you’d like, consider investing time in bringing that score up to bring your interest rate down. If you’re unsure, call us. Even with a less-than-ideal credit score, you may have better loan options than you expect.
- Debt-to-income ratio: It’s the first rule of personal finance. Earn more than you spend. But lenders get specific about this for potential homebuyers: Your monthly bills plus your new mortgage payment should not equal more than 43% of your monthly income. If your percentage is higher, consider a less expensive home or paying down debt first.
- Down payment: Ready for some good news? You don’t need a 20% down payment. According to the National Association of Realtors, first-time homebuyers made a median down payment of 13% in 2019. While a lower down payment may add mortgage insurance to your monthly payment, you may be able to get a conventional mortgage for as low as 3% down.
- Out-of-pocket costs: The down payment isn’t the only upfront cost you’ll face, however. Consider appraisal fees and inspection costs, not to mention closing costs – which may be 2% to 5% of the home’s price. Also, remember that right after you buy a home, you begin maintaining it. A trip to a hardware store for a lawn mower and tools is probably in your imminent future.
- Steady salary history: Another myth that lingers in mortgage lore is that it’s impossible to get a mortgage if you’ve started a job within the past two years. While lenders do want to see a stable employment history, many will take a more holistic view and consider the stability of your earnings, as well as your credit score and debt ratio.
Don’t Count Yourself Out – Ask Us
Is your credit score not as high as you’d like? Is your down payment too small? Don’t assume you’re not ready to buy a home. Call us and we’ll take a holistic view of your financial readiness and give you a realistic assessment. We don’t want you to hold yourself back unnecessarily. We have loan types for all kinds of buyers, and we pride ourselves on matching the right buyer with the best loan for them – even if they have a low down payment or borderline credit score. Learn your options from the professionals to make your savviest decision.
Should I Rent or Buy?
You can probably guess how we’ll answer: Buy, buy, buy. Not necessarily! There are good reasons to choose renting over buying. Do you expect to move or make a big relationship change within the next couple years? Rent. Do you value flexibility over all else? Rent. Are you struggling to establish savings? Renting may be better. When you buy, you no longer have a landlord to fix leaky pipes or a broken air conditioner – you’ll need a fund for maintenance and home emergencies.
If you’re at a stable point in your life – when you don’t foresee changes in your career or location – home ownership may be for you. If you value roots over flexibility, it may be time to buy. For the right person at the right life stage, purchasing a home may become the investment of a lifetime.
What Comes First: The Mortgage Company or the House?
This answer is an easy one: Always start with a mortgage company. Always. When you have that pre-approval* letter in hand, real estate agents and sellers will know that you are a qualified, serious homebuyer. Often, you can’t even look at a home or make an offer without this letter. The pre-approval process will also help you understand your appropriate price range, which could save you a lot of time during the home-shopping process.
With DASH, we can help you with both. Not only can we get you pre-approved (and you do know about our $10,0000 closing guarantee, right?), we can also link you to a trusted realtor when you’re ready. You and the realtor will have all the information you need to shop confidently.
Start with Research
You have options about the mortgage companies available to you. Learning about your lender is important – it sheds light onto their business practices and the types of service you can expect. Here are some key areas to focus on when comparing mortgage companies.
Mortgage Companies: Should I Go Local or National?
While this does not define the quality of a company, it can make a difference in the type of experience you have. Both local and national mortgage companies are likely available to you. Local lenders are those you can visit in person to meet with and handle the transaction. National lenders may have local agents, but other times the transaction is handled online until the closing process, when you’ll meet with a title agent.
How to Find a Reliable Mortgage Company
Finding a reliable mortgage lender – one that you can connect with and trust to help you with the process – is crucial. There are a few places to look for this type of lender:
- Ask your real estate agent if they have recommendations. Many times, they will have strong relationships with existing lenders. You can ask questions about most area lenders, too. Real estate agents have gone through dozens and dozens of transactions with lenders, and they often know which are the most flexible to work with.
- Ask for recommendations from friends and family. If you know of someone who recently purchased or refinanced a home, ask about their experience with their lender. Most lenders have a variety of different lender agents, so you may want to get a specific person’s name and contact information if your friends had a positive experience.
- Learn about the agency online. Doing a search online will give you lots of information – and hopefully plenty of reviews – about available mortgage companies.
What to Look for in a Mortgage Company
Once you find a few contenders, take the time to reach out to them to inquire about the services they offer. Ask for a consultation. Then, take a closer look at these important factors:
- Are they good at communicating with you? Do they get back to you quickly and show up for appointments on time? Do they talk to you in easy-to-understand terms or are they only fluent in finance jargon?
- What type of education and training does the representative have? Are they skilled in this area?
- What is the process for obtaining a loan? At Dash Home Loans, we make it as easy as possible for you to secure a loan through a streamlined process. (Warning: Not all lenders do.)
- What are they offering to you? Do they have access to the loan programs you are interested in?
- How do their numbers stack up? How acceptable are their interest rates and monthly payments?
Know Who You Will Deal with During the Transaction
When you learn how to buy a house, one of the most confusing aspects could be this one. Not every person on the phone with you will be a lender who can offer you a loan. There are several people you could be working with, such as:
- Loan processors who take in your loan information
- Loan officers who present offers to you and provide you with insight into your options
- Loan officer assistants who handle the paperwork and tend to be the person you talk to about documentation
- Administrative assistants also handle documentation and the process
- Closer, a person who prepares the documents prior to closing
That’s a lot of people – and that means a lot of potential risks. At Dash Home Loans, we get rid of this confusion. Our Mortgage Coaches replace all of these individuals. You have just one person you have to talk to and discuss your needs with for a home.
Now that you have a lender, pre-approval comes next. You’ll usually do this about 30 days prior to the closing on the loan. We recommend working on this step quickly to ensure that you can start bidding on the home of your dreams.
How to Get Pre-Approved
To obtain pre-approval, you’ll need to submit information to the lender. Your online application is the first step. The goal is to provide accurate and complete information so that the lender can easily go through and verify it. Your lender is looking at your income, credit, employment verification, and other steps to know exactly what your credit qualifications are.
How Long Does Pre-Approval Take?
This part is often the quick one. You can usually have a pre-approval letter within one to ten days of submitting your application.
Know the Details of Your Loan Offer
Once you submit this information, the lender will provide you with a detailed loan offer. This will outline what you can expect to pay to buy the home. It will include details about:
- The down payment, including how much you need to pay down
- The type of loan available to you (including FHA, conventional, VA, and other offers)
- Mortgage term, or the length of the loan (usually 15, 20, or 30 years)
- The interest rates and all fees, so that you understand what exactly you’ll pay to buy your home
- Estimated closing costs, which are dependent on the closing terms with your lender
- Escrow fund requirements, which holds any funds you need to put down for good faith transactions, like the earnest money check
The lender should make all of this information clear and easy to understand. Having questions at this stage is completely expected, so ask about anything that seems confusing. This is a big deal (and a lot of money!), and it’s important that you understand and are comfortable with the details.
When to Obtain a Pre-Approval Letter
Once you start to look for a home, you’ll want to have your pre-approval in place. You will find that many home sellers like to hear you’re pre-approved because it means the transaction will move ahead quickly. It can be a negotiating tool for you if other would-be buyers do not have pre-approval.
To prove this to them, you can provide them with a copy of a pre-approval letter. It is a simple document that states that the lender has verified your financials and is willing to lend to you once you find a home to buy.
What Does Pre-Approval Mean?
Pre-approval is not a guarantee of a loan. It means the lender has verified your information and has made a loan offer to you. They have provided information to you about the fees and costs to borrow from them (which you agree to). In addition to this, they also commit to lend to you, as long as none of the information you provide changes – and assuming the home meets their requirements.
Go Shopping and Make an Offer
It’s time for the fun part! Now it’s time to find homes that interest you. When you find one that you wish to buy, you can then make an offer. An offer is a legal contract you must stand behind, so make sure you’re serious about the purchase.
How Does Pre-Approval Fit into Your To-Do List?
Good news: It’s a good step toward buying your home. Bad news: There’s still a lot to do. (Sorry.) One of the most important first-time home buyer tips is this one: Always work with your lender hand-in-hand. When they ask for information, provide it in a timely manner. Stay in contact with them throughout the week to check off a few key things, including:
- Due diligence fees and timelines: These will include the research that the lender will do to ensure you are ready to buy.
- Earnest money deposits: These deposits – which are put into escrow to show the seller you are serious about making a purchase – are made once you place an offer on a home and the seller agrees to it.
- Home inspection: A good inspection will tell you and the lender that the home is in good condition. If the inspection brings up any unhappy surprises, you may want to walk away from the offer you’ve made.
- Home repairs: If you find concerns with the home, you can ask the seller for repairs to be made or for compensation to be added to the transaction so you can handle these repairs.
- Appraisal: It allows the lender to have a third party to inspect the home to determine the value of the home based on recent sales in the area. The value must be at least what you are borrowing to buy the home.
- Settlement date: This is when you agree to purchase the home, and the lender starts working on the closing documentation to move your transaction forward.
What is a Real Estate Attorney?
Once you have a home to buy, and you have worked through the details with your lender, the real estate closing process begins. You may work with a real estate attorney during this process, who will draw up the contracts, including purchase agreements, mortgage documents, and title agreements. Some states require that a real estate attorney be a part of a real estate transaction; other states allow buyers to handle this themselves. (A note of caution: Handling this portion of the sale yourself would require a lot of knowledge of real estate law.)
Your real estate agent can refer you to a real estate attorney who will help you in the closing process.
Why is Insurance Necessary Now?
Before you can close on the home’s sale, you will need to talk to your insurance agent. Your lender will require that you have a home insurance policy that is ready to go on the home. Insurance helps the lender know the home is protected, in case a covered incident, like a fire, should occur. Within your mortgage contract will be a requirement for you to maintain your insurance policy to at least the value of the loan. Insurance policies are good investments because they protect your investment.
Your mortgage lender may offer recommendations on a home insurance company if you do not have one. Shop around for a comfortable insurance rate and be sure you purchase coverage that reflects your needs.
Do I Need a Home Warranty?
Home warranties are an added benefit to buying a home with certain real estate agents. The seller may provide a home warranty to the home buyer at the time of the transaction. They often do this – at no cost to the buyer – as a way to encourage offers on the home. Warranties differ widely, however. That means it is very important for you to know what type of warranty you are getting and the terms of it.
If the seller does not offer one, and the real estate agent does not, you can purchase a home warranty separately. If you consider this option, be sure to review what you are buying and the cost to you. Often, these warranties will provide financial protection for you that covers larger systems in the home from costly repairs.
The Importance of a Good Partner in the Home Buying Process
As you can tell, a lot can go poorly without a good partner guiding you through the process. A home is a big investment – likely your biggest investment. Every step of the way, you want to ensure you have the very best team by your side to support you as you buy a home.
If you’re a first-time home buyer evaluating lenders, contact us to hear how our Mortgage Coaches can help you. Ask us about our $10,000 wager that your home will close as expected (warning: we don’t expect to pay up because we’re that confident in our process!). We’d love to tell you how we can guide you through the tricky parts toward the best one: Walking into your very own home.
*Pre-approvals are given to clients who have met qualifying approval criteria, and specific loan requirements, at the time of applications. Results may vary.