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Advantage of getting an independent mortgage broker

Home Buying Process: A Simple Timeline for First-Time Buyers

It isn’t very often that you get to choose your home. So once you arrive at this point in your life, you want to make the most out of it. After all, when you buy a house, you will most likely spend most of your life’s savings. So this decision you will make today will significantly affect your next ten, twenty years, or more.

What do you do then if you don’t want to screw it up? It’s simple: preparation is essential. This is not something you learn in school, folks. There are some things you have to pick up along the way. Maybe reading this article is your first step in this journey, in which case, we’re happy to say that you’ve come to the right place!

Today, we’re going to walk you through a general home-buying timeline. We recommend you read this to the finish before you even start house-hunting. Trust us; it’s going to be worth it!

House-Buying Timeline

Prep Period

This period can take as long as six months or more. It depends on how soon you need to buy a house.

Even if you think you’ve saved enough money, don’t skip this section. If you need to get a mortgage loan for a new house, it’s going to take more than money for a down payment to get you approved. First, you must meet the credit score requirements of the mortgage.

Credit Report

It’s free to request your report from the three major credit bureaus. However, the credit score you’ll receive may not be the exact one a mortgage lender will see on their end.

Credit scores can change as often as you make monthly payments for your existing loans. So whatever score you get, aim to improve it by doing the following:

  1. Scan your report for any errors you can raise with the credit reporting bureau. It may take time to see any results, so try to report mistakes as soon as you find them. These are more common than you might think. There have even been cases when consumers have sued the bureaus for glaring inaccuracies in their reports.
  2. If you haven’t made it a habit to pay your bills on time, this time around, submit your payments ahead of due dates. Aside from increasing your credit score, it will save you money in finance charges. If your gross monthly income is not enough to pay for your obligations, you have to find ways of increasing it as well—the less debt you have before your mortgage application, the better.
  3. Avoid spending more than 30% of your credit card limits. Never go over your limits, so you don’t tank your score. Keep a notebook where you can monitor your spending and choose to pay in cash for subsequent transactions once you have crossed this threshold.
  4. Let’s say you don’t have a credit card. One sure way to improve your score is by piggybacking on someone else’s excellent FICO Score. To do this, you have to find someone you trust who trusts you back completely, and this person must have a credit card and a score of 670 or higher. If you can get this person’s permission, you can become an authorized user on their credit account. Usually, the people who can do this for you are your parents, and this is commonly accepted by banks. Even if you don’t use this person’s credit card, the favorable line items on this person’s credit history will be added to your report, thereby giving a much-needed boost to your score.

Mortgage Pre-approval

Some people are probably unaware of it, but you can get yourself pre-approved for a mortgage. Sometimes they call it pre-approval; other times, pre-qualification. They are one and the same.

Getting pre-approved is like a dry run for the actual thing. So you submit requirements, and the mortgage lender tells you whether you may or may not borrow money. This will create a hard inquiry on your credit history, like the real mortgage application, so you might see this included in your following report. The difference is that you aren’t buying a house just yet, and you can still get rejected even after being pre-approved. Remember, it’s as good as applying for a mortgage already, and every time you apply, you knock a few points from your score.

Why get pre-approved then if it’s not a sure thing? Well, you can mostly get rejected if the house doesn’t pass the home inspection. Your financial background and situation may pass the lender’s scrutiny, but the house may not hold up.

In any case, having this letter is already a powerful bargaining chip once you are seated with a real estate agent or a house seller. You will want to have this edge, especially in a hot market. This document says you are ready to get funding so you can shake on a deal faster, which is basically all a seller would want.

Before we move on to the next thing you need to prepare, though, be aware that many mortgage lending companies today give fake pre-approvals. Although they’re not scams, these pre-approvals don’t hold any water unless they are specifically called desktop underwriter approval. An actual letter worth its salt will indicate that it is underwriter-approved. If you get your pre-approval online, you have to make sure this is a real pre-approval from the company so that the real estate agent can take you more seriously.

Down Payment and Closing Costs

Once you have a pre-approval letter, you’ll discover your budget for your dream home. Your letter will indicate just how much the lender is willing to let you borrow, and from this figure, you can determine the ideal purchase price of the house you will be buying.

From here, you will also be able to figure out just how much down payment you should prepare, depending on how much you’re planning to put down. Some people like to put more than 20 percent because this figure allows you to skip private mortgage insurance. This additional fee is included in the monthly mortgage payment that insures the lender if you default on your mortgage. However, you can pay as low as 3% with the right type of loan. If you are a service member or you are buying a house in a rural area, you may even qualify for a zero-down payment mortgage.

Don’t forget that you still have to consider closing costs. Once you talk with the lender you prefer and go through the pre-approval process, you can use this time to clarify what they charge at closing. This amount can vary depending on how much you are borrowing and how complicated the transfer will be, so you must know what fees they will include for the closing process.

House-hunting

Now, on to the home search! We think we can all agree that this is everyone’s favorite part. Unfortunately, there is no average time we can promise for this period. But, if you’re using a pre-approval letter, you should note that these are usually only good for a maximum of 4 months. Ideally, before those 16 weeks are up, you should already have found your dream home.

However, hunting for that perfect house can take some time, especially if the supply is on the low end, as it has been throughout the pandemic. So, while you are looking, make this time work for you by continuing your best practices for an improved credit score.

Some questions you might want to ask as you search for a home:

  1. Is this the right location? Depending on the situation, your journey might take you far across the country that you might lose sight of your goals. You might fall in love with a house and quickly forget how it can affect your living prospects. Remember to stay grounded and try to imagine your typical day should you choose a particular house as your new home. Will you need to make more adjustments than necessary in your life with this house? Are you willing to make these adjustments?
  2. Why are you buying a house? Write down your goals. Are you moving to a new house because you’re building a family, or is it a work-related decision that will open up new opportunities? Whatever the reason, keep this in mind as you walk over each threshold.
  3. Is this the space I need? If your goals are always firmly in your mind, you’ll easily be able to answer this no matter what kind of house you find yourself in, but there are two aspects to this particular question. When you consider a space, you have to be mindful of the value this will bring to your life. How much house can you afford? How many bedrooms are in it, and will you be able to use all of it? Do you need a pool, a basement, or an attic? These are some of the few factors you have to consider.

Closing Process

So you’ve found yourself a new house. Congratulations! You’re already halfway there.

All that’s left now are negotiating with the real estate agent and passing the home inspection so your lender can approve your loan.

For any real estate transaction, it’s tough to predict how long before you get to a closing date. This is when most of the paperwork will be shuffled around and when all the signings occur. Consider yourself very lucky if your mortgage is closed within 45 days. But nobody said any part of this was going to be easy! It will happen in due time.

How to Prepare for Closing Day

1 – Make sure you have valid identification

It is essential that you get all your bases covered, so you need to check on your identification documents to confirm that they haven’t expired. If your IDs are invalid, there will be no use signing all the paperwork on closing day.

2 – Familiarize yourself with the contracts

Whether or not you like to read, you have to go through every line of all the contracts you will sign. But, more importantly, you have to understand what they all mean.

If you plan to hire a real estate lawyer, you can ask your attorney to explain to you some of the legalese that might go over your head. If you don’t plan on having a lawyer on closing day, do your best to research and understand the papers you will sign. If you’re still worried, you can also ask someone you trust who has been through this process to come along with you.

3 – Get your funds ready

When you sign the purchase agreement, you need to make an earnest money deposit.

You should be ready with initial payments by closing day. See that there will be no issue transferring or handing over the funds required for the down payment and closing costs.

4 – Give notice to utility companies

You’re just about ready to move into your next home at this point. Don’t forget to notify utility companies to ensure that everything will be up and running for your first evening in the new house.

5 – Inform everybody about your change of address

Finally, you must update your subscriptions, your banks, or your place of employment with your new residential address. You wouldn’t want to miss any of your mail!

Who You Meet at Closing

You might be wondering about all the people you’ll be meeting at closing. It’s not all real estate agents you’ll see at the table.

It’s possible that you might meet the sellers themselves, but that is not always the case. Instead, you might only meet the seller’s agent or attorney.

Since you are using a mortgage to pay for the purchase, your loan officer and mortgage broker might also be present. There will also be title company representatives and a closing agent to witness you signing all the forms.

This day will definitely be the most important one in your mortgage journey. So, before the keys are handed over to you, make sure you get a good night’s sleep and arm yourself with your favorite pen. There will be lots of i’s to dot and t’s to cross.

Good luck!

 

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