It’s officially March, that means it’s been nearly a year since we began social-distancing, working remotely, and spending more time than ever in our homes.
Fortunately, we’re finally starting to see the light at the end of the seemingly never-ending tunnel that was 2020. After months of being cooped up indoors, Zoom calls with your entire family putting on a performance in the background, and the sudden realization that one bathroom is in no way shape or form enough for three people…you may be asking yourself, “In lieu of traditional spring cleaning, should I just pitch the whole house?”
You’re not alone! On average more than 40 million people move each year in the United States and it’s estimated that 80% of those moves occur between April and September. That’s no coincidence.
Spring is synonymous with new beginnings, and this year, more than ever, people are looking for a fresh start – myself included!
If you’re ready to trade in your dusty old digs for some fresh new scenery, there are some steps you can take ahead of time to make the process smoother.
Know Before You Go: Your Credit Score
One of the best ways you can set yourself up for success when buying a home is to make sure you have your finances in order.
While your credit score isn’t the only determining factor in your mortgage eligibility, it does make up a big portion of it. It allows lenders to see a snapshot of your financial history and gives them a clearer picture of how you manage your money.
Fortunately, there are multiple options available to keep tabs on your own report.
Credit Karma is a free service that will show you your TransUnion and Equifax score. While the service is free, it is not necessarily your best option. It will alert you of credit inquires, and allow you to dispute incorrect information but it only provides two scores and they are based on a model called VantageScore 3.0, which is not widely used. This is a good option for beginning to understand your credit but is not an accurate score to determine your mortgage eligibility.
myFICO is the service that I personally use because I find its features most beneficial to my financial goals. This service has a monthly subscription fee but allows you to review your scores from all three credit bureaus. It provides inquiry alerts, and dispute options like Credit Karma, but it adds on additional security features in identity theft monitoring as well as advanced scoring models that allow me to see an accurate representation of my scores for Mortgages, Auto Loans, Credit Cards, and Other Loans.
Once you’ve figured out your credit score, reviewed your report, and disputed any errors, you’re ready to look for a lender. There are multiple options available – but not all are equally beneficial.
Know Before You Owe: Understanding Mortgages
Do your research. With all of the lending options available, it may be tempting to submit applications to as many as lenders as possible and hope for the best, but this strategy not only risks damaging your credit report with multiple inquiries, it also does you a disservice because you won’t be able to establish a relationship with your lender prior to seeking financing.
One of the best ways you can make sure you’re working with the right lender is to speak with their loan officer.
It’s important to understand your options and the right loan officer will be able to present you with all of the mortgage options you may qualify for as well as break down all of the major steps and expenses that typically come up when you’re buying a home.
While there are many different types of mortgages, the most popular is Fixed Rate. The consistency of having a set interest rate has made this the most popular choice for buyers. The typical terms are for 30-years or 15-years.
First Time Homebuyer and Construction Loans fall under Fixed-Rate Mortgages
First Time Homebuyer: A first time homebuyer mortgage is done to purchase an existing home in livable condition. Up to 97% of the appraisal value or purchase price whichever is less with PMI or 80% without PMI is lendable. To loan over 80% applicants must meet all the underwriting conditions of the PMI company.
Construction: A construction loan can be done for a completely new build or a major remodel but the applicant is required to own the property first. Only 75% of the projected appraisal value of the home and land will be lent for a construction loan.
Because there are benefits and drawbacks to all loans, sit down and work with your loan officer to what the best option is for you and your circumstances.
Help your Realtor know What to Show: Pre-Approval
Once you’ve picked your perfect lender, you’ll be ready to get the pre-approval process started!
This process will typically begin with your lender pulling your credit report.
Once your credit score is pulled your lender will ask you to provide several documents. These are the most often requested
- ID and Social Security number
- Pay stubs from the last 30 days
- W-2s or I-9s from the past 2 years
- Proof of any other sources of income
- Federal tax returns
- Recent bank statements
- Details on long term debts such as car or student loans
- Real estate property information
Once your lender has compiled a comprehensive overview of your debt to income ratio and determined your mortgage eligibility, they’ll be able to pre-approve you for a certain amount and you can begin your hunt for the perfect home!
Closing Fees to Expect (and Budget For)
After you’ve found “the one” and your offer has been accepted, it’s time to seal the deal!
While your down payment is typically what most buyers focus on, it’s not the only expense during closing you need to be aware of.
Because fees can vary based on the type of mortgage you get, you’ll want to speak with your lender to make sure you know what’s expected from you.
Before you go in for the closing, your lender should provide you with a Closing Disclosure statement.
Here are a few expenses you may be responsible for:
- Application fee: This can vary based on your lender. Typical prices can be around $100-$300 to apply for a mortgage.
- Appraisal: Lenders require this as they need to calculate the loan to value ratio.
- Escrow Deposit: When you purchase your home, you need to put money into your escrow account to cover expenses like your property taxes and insurance.
- Home Inspection: When buying a home, it’s smart to have a professional home inspector look over and make sure there aren’t any significant issues with the house.
- Homeowners’ Insurance: When buying, you’re expected to prepay for the first year of your home owner’s insurance.
- Origination Fee: Basically, this fee compensates your lender (or mortgage broker) for their work performed.
- Private Mortgage Insurance (PMI): If you put down less than 20% down, your lender may require that you pay PMI as a way to ensure the loan. It’s an additional fee rolled into your mortgage payment.
- Title Insurance: This is actually a protection for you and your lender. Should something come up (like a dispute over the title), the company will cover legal costs.
Your closing may have some of these expenses and not others, either way, it’s good to be prepared ahead of time!
Stop Waiting for Tomorrow: Taking the First Step
If you’re ready to start the process of buying a home today or sometime in the near future, you should visit crancecu.org to check out some of the great products and services they offer to make your mortgage simple.
Sources: Movinglabor.com, Creditkarma.com, Experian.com, Myfico.com, Consumersadvocate.org