So you want to buy a house! Some condo caught your eye? This means you’ll have to take out a mortgage. The use of loans, or mortgages, makes purchasing a home much easier. In getting a mortgage, you agree to pay a certain amount every month until you have successfully paid for your home.
If you are a first-time home buyer be sure you can comfortably make the monthly payments on your mortgage while saving money to maintain your lifestyle and pay for the repairs and decoration of your new home. This is why your total monthly payment is key.
First You Talk
The first thing you’ll need to do is talk to a mortgage professional to explore your finances and ensure you can afford your purchase. Your bank will come to mind, but we recommend you talk to three to five mortgage lenders to find someone you trust to help guide you through the process and secure the best interest rate for you.
At Carolina Home Mortgage, we will arm you with either a free pre-qualification letter or a pre-approval letter. A pre-qualification letter indicates your ability to purchase a home of up to X value based on your stated income, assets, and a credit score we have accessed. If you’re in a competitive real estate market, you may prefer the pre-approval letter which means your stated income and assets have been verified by us.
Next Make An Offer
Armed with this letter to reassure sellers, you can make an offer to purchase. You have likely looked for homes along with a real estate agent who will be key to helping you frame your offer to purchase and create a purchase contract. If you are purchasing new construction, skip to Step 3. If your contract is to buy an existing home from a seller, that contract will require you to have cash on hand.
Step 1 Due Diligence Money
You will pay the seller a non-refundable amount of $100-$4,000 for the due diligence period, depending on the value of the property. This period should allow ample time to inspect and appraise the home and get your mortgage request submitted. A home inspection costs you about $500, and you’ll pay another $100 for a termite report. You also pay for the appraisal which varies in cost but budget $525. Frequently, borrowers will “fold” the cost of the appraisal into the mortgage request, and the appraisal will be paid later.
You and the seller will negotiate repairs which the home inspection will reveal. An appraisal report will verify the home appraises for the purchase price. If not, you and the seller will negotiate the purchase price. Your mortgage lender will get your loan request “conditionally” approved during this period. This means you can get a mortgage dependent on satisfying the lender’s need for more documentation.
Step 2 Earnest Money
You will write a check to cover the amount of earnest money shown on your purchase contract. The amount of earnest money varies, depending on the purchase price of the house and your initial offer, but is generally between $2,000 and $5,000. The money is held in escrow. If you do not buy the house for any reason, you forfeit the earnest money. If you do buy the house, both the due diligence and earnest money are credited towards your closing costs and down payment.
Step 3 Down Payment
A down payment is the amount of money you must put down on the home to satisfy the lender. Many first-time home buyers have not been able to save much money to use for a down payment. For this reason, USDA, VA, and FHA loans appeal to first-time buyers because they require no money or very little money for a down payment. Unless you can afford to make a down payment that is 20 percent of the purchase price, you may be required to purchase mortgage insurance which is added to your monthly mortgage payment. The down payment money is wired to the attorney the day of closing OR you must bring a cashier’s check payable to the attorney to closing. The attorney, of your choosing, will provide verbal instructions.
Step 4 Closing Costs
These costs generally run from $1,500 to $3,000 depending on the amount of money you need to borrow.
Hint: Experiment with our Mortgage Calculators here to see the costs you might incur. Please call us. We want to help you and can offer free advice on improving your credit, a free analysis of your financial health, and even refer you to a local realtor. We’re local and have been around for 20 years. We know the communities we serve.
Consider Where to Buy
Get to know the local housing market. Many things affect the price of a home.
- Size matters. Obviously, a larger house sells for more unless it is in a remote area. That is why what greatly affects the price of a home is…
- Location, location, location. There are areas perceived to be more appealing than others. Often the closer you are to town or the city, the pricier the home.
- Local schools. Local public and private schools draw families for differing reasons, and the homes within particular school districts can vary.
- Property taxes. Each city and county has its own tax valuation. Call these tax offices. Usually, there is a website that lists the tax value of any given address.
- Market trends. Follow the housing market to see which homes sell quickly and which linger on the market. You can make a lower offer on homes that have been for sale longer than a few months.
The Steps to A Mortgage
Once you’re comfortable with the idea of buying, you’ll want to make sure your finances are in order.
- Get your taxes up to date. If you are self-employed, you should be in the same line of work for two years and have submitted one tax return.
- Check your credit score. There are many online services offering free credit scores. We recommend the following as there are a lot of “free” credit reports that are just shady advertising gimmicks: FREE Credit Report. Resolve any errors that you see. This score is just to get you started.
- To apply for a mortgage, you need a tri-merge credit report or a Residential Mortgage Credit Report (RMCR) which we can get for you. We can review your credit report from the three largest credit-scoring agencies, Equifax, Experian and Transunion. This score is stricter, a tighter measure of your ability to repay a mortgage.
- Find the documents you’ll need. It seems like a lot, but all lenders will require the following documents from you (and your co-borrower if there will be one) in addition to your two year’s tax returns:
- Copy of pay stubs from the last 30 days.
- Copy of most recent W-2.
- Copy of all pages of bank account statement from last two months. Be sure to save all pages even the page that reads, “This Page Left Intentionally Blank.” Do not black out or white out any information.
- Copy of all pages of last retirement account statement. Again, save all pages and do not mark the pages.
- Copy of drivers’ license.
- A letter if you need to explain any recent activity on your credit report.
Hint: First-time home buyers need to get pre-qualifed or pre-approved. We offer both services at no charge and will be happy to send you a copy of your credit report for your review. Do not confuse getting pre-qualified with getting pre-approved.
Getting pre-qualified means filling out a loan application, having your credit report reviewed, and telling a loan officer about your income and assets.
Getting pre-approved means you have submitted supporting documentation on income and assets for review by a lender (the documents mentioned, above). If you are competing with another buyer in making an offer on a home, a pre-approval letter makes you a stronger buyer than a pre-qualification letter.
Why Work With Us?
Carolina Home Mortgage is local and an independent small business. We have relationships with many lenders. You’ll find our rates are low if you do the comparison. For 20 years we have helped clients become our neighbors. You don’t get to do that unless you offer quality and client-centered service.
Email your questions to
info@carolinahomemortgage.com
or call us. At the end of the day, we report to you, not the bank. We are available after hours and weekends, too!
