Once you’ve decided to move forward with the mortgage loan process, you should get pre-approved for a loan. Pre-approval is essentially a solidified version of a prequalification, and it requires a hard credit check and a review of all your financial information by an underwriter.

Pre-approval is all but essential if you want sellers to take your offer seriously, especially if you’re in a competitive real estate market. It’s important to note that a pre-approval is only good for 60-90 days, so you’ll only want to complete this process when you’re ready to actively search for a home. It’s also part of the reason why you shouldn’t engage in activities that will risk your pre-approval, such as:

• Making large purchases that will lower your credit score
• Leaving your job
• Taking on additional debt

During the prequalification process, a lender will need to see relevant documents that prove your income, such as:

• Your two most recent pay stubs
• Two years of your most recent W-2s or 1099 forms
• Your two most recent bank statements
• Monetary gift letters, if applicable (for example, proof of money given to you by your parents)

Any income you report on your taxes will be looked at, meaning unreported income from a side hustle does not count toward qualifying you for a home loan, unfortunately. Loan officers recommend meeting with a financial planner or filling out a budget sheet to see what your true expenses are on a monthly basis and determine whether you’re in a good position to add a mortgage to that.

While your credit score is not the only item in consideration by a lender it is an important one.  Scores below 620 are considered “subprime” and may make securing a mortgage harder.  FHA and USDA are government backed mortgages which may allow for a lower credit score.  If your score is subprime you may want to hold off buying a home and work on increasing your score.  You can improve your score by:

Sigining up for a credit card and paying it off regularly

Increase your spening limit or spend a smaller percentage of your limit each month

Refraining from making major purchases

Avoiding any hard inquiries, which occur when you open any new lines of credit

You are entitled to an annual credit report through each of the three credit agencies: Experian, Equifax and TransUnion.  You can also get them through https://www.annualcreditreport.com

When selecting a mortgage lender, you should find someone who is going to have your best interests in mind and has the capacity to handle another client. One of the main downsides of working with a lender who is overloaded with clients is that the pre-approval process can take longer than necessary and it might be a hassle to get your pre-approval letters in time to place an offer on a home.

Another major factor when choosing a lender is the interest rate they can offer. You should always meet with multiple lenders to make sure you’re getting the best rate and service quality. Additionally, you don’t have to stick with the lender who processed your pre-approval. You can take out a mortgage from a different lender if you find another one you prefer.

You will work with your lender to select the best mortgage for you based on your credit score, income level, property location, and other factors. Here are a few different types of loans to consider:

• Conventional mortgage: A mortgage that abides by the lending rules outlined by Fannie Mae and Freddie Mac.
• First-time homebuyers can put as little as 3 percent down with the purchase of mortgage insurance.
• You will need good credit (620 or above), a low debt-to-income ratio, and secure employment.
• Government-backed loans: With government backing, lenders are able to offer loans with more flexible underwriting requirements and lower down payments.
• FHA: Ideal for those with low credit or a small amount of savings
• USDA: For those interested in properties located in designated rural areas
• VA: Great for veterans, service members, and their families
• Jumbo loans: For financing homes worth more than the conventional loan limit ($510,400 for most areas).
• Adjustable-rate mortgage: Has a fixed rate for the first few years of the loan, and then a rate that fluctuates at set intervals. Might be right for you if you plan to sell the mortgage after a few years, otherwise a risky move.

The best mortgage for you will, of course, depend on your specific situation, but if you have a good lender, you should be able to find the right fit.

For more than half of homebuyers (55 percent), the most difficult step in the home-buying process was finding the right property, according to NAR’s 2020 Home Buyers and Sellers Generational Trends Report. It’s easy to experience love at first sight when you see a home that fits your needs, but buying a home is a decision you shouldn’t take lightly. Consider these factors that might not be immediately apparent:

Location

The home itself may be perfect, but if it’s in a less-than-ideal location, is it really worth it? When touring homes, it’s a good idea to walk around the neighborhood and get a feel for the area. You can also check to see how long your commute would be and how close the property is to parks, bars, and restaurants. Even if you don’t have children, you should make sure the home is located in a good school district because that will affect the home’s value.

 Investment Considerations 

Speaking of home value, you should take a look at the values of other homes in the neighborhood. Does the neighborhood and town seem to be on the rise? If the home is an investment, these details are especially important.

If you’re a first-time homebuyer and you want to build a real estate portfolio, you might consider looking at multi-family homes. You can buy a 2- to 4-unit property with a minimal down payment (3.5-5.0 percent down), live in one of the units, and rent out the rest for additional income. If you try buying a multi-family property after you already own a home, the cost of entry goes up and you’re going to put 15-30 percent down.

 Structural Considerations

Does the home require a lot of costly renovations that you will need to pay for? Is the home in a flood plain or in the path of natural disaster that will require costly home insurance? These are factors you need to know before signing any contracts.

Hiring a real estate agent is not required, but it’s certainly recommended. A good buyer’s agent knows the housing market in your area and can help you find a home that fits your needs. They are also well-versed in contract language and know how to negotiate. Plus, the seller pays the agent’s commission, so you really have nothing to lose.

If you’re looking for a good agent, look no futher.  Call me (302-265-5414) today to setup a meeting and I will go my best to find you the home your looking for.

You will work with your real estate agent to make an offer on a home you’re interested in. When determining the offer price, your agent will look at the value of other properties in the area and try to get an idea of how many other offers are on the table.

If you’re in a position to negotiate, you can request the inclusion of appliances or other non-liquid assets in the purchase price. You can also include contingencies, such as a home inspection. You should consider hiring a real estate attorney to look over your offer and any contracts.

In order of desirability the types of offers are: Cash, Conventional Fianancing, VA Financing, then FHA and USDA options.  This is the order of desirability for the seller, which may influence their decision as to what offer to accept.

Once your offer is accepted you should schedule your home inspections.  Unfortunately, if you’re in a seller’s market, you may have to waive your right to an inspection in order to get the property. But if you’re lucky enough to have the home inspected, make sure the inspector is thorough and ask them plenty of questions to get an idea of the home’s condition.  In an AS-IS property listing you can still get inspections and if they are unacceptable you have the right to walk away from the deal with only the inspection costs out of your pocket.  

At this point you have found a lender and secured financing, if required.  You have hired an attorney to handle the closing.  All the T’s are crossed and the i’s dotted.  Once you’re sitting at the closing table, the finish line is just around the corner. The closing process is the orchestration of the lender, attorney, and realtor, so if you’re working with solid people in all of these areas, closing should go smoothly.  This is an exciting time don’t be afraid to ask about anything you don’t understand.

The closing documents should specify the official move-in date, which can help you make your moving plans. If you still have some time in your current rental or home, consider completing some renovations on your new home before move-in. Painting the walls and putting in new flooring can be a pain to complete when you’re surrounded by boxes of your belongings, so fit this in before move-in day, if possible. It’s also a good idea to set up utilities in advance so the home is fully functional right away.