95% of first-time home buyersÂ used mortgage financing when purchasing a home in 2015. This year, the percentage is similarly high.
According to the National Association of REALTORSÂ®, cash buyers in the market are dwindling; and, mortgage lenders are backing a growing numberÂ of low- and no-downpayment mortgages.
But you can't just "buy a home". There's prep work first.
Potential home would be well-served to spend time on mortgage and housing research; and to test potential payments using anÂ online mortgage calculator.
By doing advance study, you can know exactly how much home you can afford. You can also get a mortgage pre-approval to help you with your shopping.
Pre-approved buyers "stand out" versus home buyers without them.Click to see today's rates (Sep 29th, 2016)
Most home searches start with the question "How much home can I afford?".
There's a system to help you find your maximum purchase price.Â That maximum price means nothing, though, if you can't get a bank to approve you.
Luckily, there are two different ways to determine whether your loan can be approved without actually submitting a complete home loan application to a lender.
The first method is known as a pre-qualification, and the second is known as a pre-approval.Â Although theÂ terms sound similar, they are far from interchangeable.
Pre-qualifications are preliminary approvals based on information provided by a borrower to a lender verbally; by phone or in person, and not verified with "official" documentation.
By contrast, a pre-approval is based on review and verification of W-2s and pay stubs; tax returns and credit reports; and, other considerations.
Because of these extra verifications, pre-approvals are a far more powerful tool in home price negotiations. Pre-approvals inform the seller that you can afford to purchase their home; and that you've met with a lender who has agreed to finance your purchase.
Pre-approvals are the closest you can get to an actual loan approval without submitting an application. They can be used for any loan type, including VA loans, FHA loans, conventional loans, or something other.
And, if you're unsure of which mortgage is best for you, with a proper pre-approval, a lender can make suggestions.
None of this is possible with a pre-qualification. A pre-qualification is just a piece of paper.
This is why every potential home buyer should seek pre-approval prior to starting the home search. It's the best way to know how much home you can afford, and for which you can get approved by a bank.Click to see today's rates (Sep 29th, 2016)
Nearly 9 in 10 home buyers use real estate agents to help with their home search.
This is because real estate agents are professionals with in-depth and up-to-date knowledge of local communities; and, because real estate agents can be an excellent source for information not found readily online.
For example, skilled agents will help home buyers navigate the real estate laws and regulations of a city, town, or community. Skilled real estate agents will alsoÂ point out features or faults in a property that may otherwise go unnoticed.
Plus, in the course of doing their job, real estate agents build thorough bases of information about a given search area and the condition of competing homes.
A good real estate agent will help you negotiate a lower price than you might negotiate for yourself.
There are several ways to find and hire a quality real estate agent to represent you in your home search. The best way, however, is often via recommendation from a person you know and trust.
Note that home buyers don't pay their real estate agent's commission directly. Real estate agents for both sides of the transaction are typically paid by the home seller at the time of closing.
After you've found a home and negotiated a sales price, there are two steps you'll want to pursue simultaneously. The first step is to schedule your home inspection.
Home inspections are a common "next step" between buyer and seller once a home is under contract.
Home inspections are so common that most purchase offers are written with a contingency clause stating that the offer is subject to a satisfactory inspection by a licensed home appraiser.
As a home buyer, you should always exercise your right to a home inspection.
Home inspections will cost between $200-600, depending on the size and age of the home; and should only be performed by a licensed home inspector who will be impartial to the inspection's outcome.
Licensed home inspectors are trained to look for defects in a home which you, or your real estate agent, may have missed including faulty electrical wiring, building code violations, roof issues, and other health or safety hazards.
A thorough inspection will take anywhere from 2 hours to 8 hours to complete.
Several days after the inspection, the licensed inspector will provide to you a report which details the home's system and structure. Expect for the report will note deficiencies. It will then be your choice whether to ask the seller to remedy the deficiencies found.
If the seller agrees to make repairs (e.g.; replace jiggly door handle; repair cracked window sill), you will have an opportunity to "walk-thru" the home prior to closing to ensure all repairs were made, as agreed.
Inspections should be performed on all homes -- even newly-built ones.Click to see today's rates (Sep 29th, 2016)
Once the home inspection is complete, home buyers should begin preparing for their mortgage approval.
For pre-approved home buyers, getting prepped will be simple.
Your lender may ask you to provide an updated pay stub from work; a recent bank statement; and for permission to review your current credit rating.Â You'll likely be asked to sign a few templated loan documents, too.
While that's all in process, get started with your homeowners insurance policy.
Known officially as â€śhazard insuranceâ€ť, homeowners insurance is a requirement of your loan approval.
Lenders want to be sure that your home can rebuilt to its same specifications in the event of catastrophe, and won't approve your home loan until such a policy is in place.
You have the right to shop for your hazard insurance and your quotedÂ premiums will vary by insurer based on the age of your home, the home's construction type, your home's proximity to services such as police and fire departments, and your deductible amount.
You'll be asked to show proof that your policy is in effect as of your closing date.
Many insurance policies are pre-written, and made effective upon payment of the first year's premium, which typically occurs at closing.
"Closing" on a home goes by different names, depending on in which part of the country you live. In many areas, it's known as "closing". In other areas, such as California, closing is often called "escrow".
In some parts, closing is known as "settlement".
Regardless of what you call it, however,Â closing is the last step prior to getting the keys to your new home.
Closing is the legal process by which ownership of a home moves from one person to another in the form of a deed.
Closing is a relatively simple process. In advance, all of the necessary paperwork for signature will have been delivered by your lender, and your final Settlement Statement (HUD-1) will mirror the preliminary statement sent to you prior to closing for your view.
Most times, closing is just the formality of "sealing the deal". Sometimes the seller is there; or an agent for the seller is there. Your real estate agent may be there, too, as may your lender.
Closings can take anywhere from 25 minutes to two hours, depending on the complexity of the transaction.
It's a terrific time to buy a home. MortgageÂ rates are low and mortgage lenders are making it easier for today's home buyers to get home loan-approved .
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Sep 29th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
The Mortgage Reports is an excellent resource. I depend on the Mortgage Reports for the most up-to-date information regarding shifts in government policy and mortgage rate information in general.
Thomas D. Software Developer
As a first time home buyer, The Mortgage Reports has been the only voice that I can trust, and the expertise has been helpful.
The Mortgage Reports is very informative and very helpful. Its daily updates are among the first emails I open each morning.
2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)