We get a lot of general questions about the home buying process in today’s housing market. Since the loan approval process is ever changing we thought it might be a good idea to share some general tips and potential pitfalls that a first time home buyer may run into when purchasing a home.
Purchasing a home requires a lot of planning and preparation. Many people handle most of this preparation by simply managing their personal finances and credit responsibly on a daily basis. It takes time to save money for a down payment, and a credit score is ever-changing based on an individual’s practices. Some borrowers need more preparation in this department before they apply for a loan. Examples can include paying down high credit card balances or paying off bad debt. Our loan officers are trained to guide a new borrower if they need help. Responsible use of credit and proper financial management will weigh heavily on an underwriter’s decision to approve or deny a loan.
In this environment, it has become more important than ever to be able to document your financial history. The documentation required to obtain a home loan can be a long list. In the past I’ve had some borrower’s feel it borders on intrusive. We must remember when borrowing the amount of money a typical person needs to purchase a home is a privilege not a right. Loan officers understand that you didn’t have to disclose as much information as when you bought your car or obtained a line of credit. People will often lose sight of the fact that the individual risk based on the loan amounts alone is going to require a more strict lending process.
The best thing a borrower can do to get ready for this is to have a conversation with their loan officer early on in the pre-approval process. Loan officers will be able to help address items that they see on things like your credit report or other records but it’s up to the borrower to disclose the items we can’t see. It is good to mention any financial situations may need to be addressed: such as new major purchases, outstanding credit applications, major changes in income or savings, large cash deposits to banking accounts, or anything else that you feel is important to your financial life. These items can have a major effect on determining your loan program, the maximum loan amount we can offer you, and even the ability to get approved.
Act Fast! Remember that when you have an offer on a home that you also have a deadline to get your loan approved. There are many items a loan officer has to manage for you during the process. When a loan officer needs you to act on something don’t procrastinate! Slow reacting borrowers are the biggest cause of missed deadlines on purchase contracts.
Don’t forget about taxes and insurance! This one can really irritate a first time home buyer. Often they will fall in love with a home that is at their maximum housing cost, only to find out that the taxes and insurance are not going to allow for them to get approved. When a loan officer works with you on a pre-qualification they will often estimate these numbers for you. I recommend to all my borrowers that they check with me one final time before actually putting in an offer on any property. The reason I do this is so I can check the tax bill and make sure it will fit the debt to income ratio. We also can see if there are any unique issues with the home that would require a higher insurance bill such as being located in a flood zone. Don’t wait on getting your homeowner’s insurance quotes. If it is possible, have you potential agents picked out prior to applying for a loan. Just like anything else, it is in your benefit to shop around for the best coverage at the best rate- but it also takes valuable time.
What about closing costs? Many borrowers save for a long time for down payment and want to stretch it as much as possible. Please realize this isn’t the only cost that goes into a closing. There are fees associated with many parts of the process including title, inspection, appraisal, processing, and underwriting. You will also need to consider homeowner’s insurance, moving costs, Homeowner’s association dues where applicable. Your lender and real estate agent will disclose these costs to you at various points during the process but it’s important to pay close attention!
Communication is key! It may sound cliché, but there are a lot of moving parts to the home loan approval process. Open lines of communication between you, your realtor, and your lender will ensure a smooth process. Being available and responding timely are some of the best traits a borrower can have!
Look at the big picture – furnishing a home and investing in curb appeal are fun and can provide an unmatched feeling of accomplishment. But don’t forget it can be labor intensive and expensive. Find a property that will suit both your budget and experience. A lot of couples really want to buy that fixer upper down the street and see a huge bump in value. Unfortunately many of those families don’t have the experience or the resources to do the project the right way causing a huge amount of stress and financial strain.
These are just a few of the tips that came to mind. If you have anything that you’d like me to specifically address feel free to contact me with the information down below or leave a comment and I’ll respond. Make it a great day!