You have heard that owning a home leads to stability, long-term wealth and a sense of pride but you have kept putting it off until now. If now is time to leap into homeownership, then taking the time to educate yourself to make the best possible decision is the best course of action. Learning the basics of homebuying will set you up for success.
With the assistance of a realtor and a mortgage loan officer from Mortgage Equity Partners in Easton, you should be able to accomplish your mission. There are many things to understand about the mortgage process, so we have put together a list of the top 6 tips to help you get started.
1. Know your credit score
Your credit score is used by lenders to determine how likely you are to repay a loan. It affects how much you can borrow and how much it will cost you to borrow the money for your new home (the interest rate). Most lenders will use a FICO score. A FICO score comprises information collected by the credit bureaus, your credit reports, and your FICO score. Equifax, Experian, and TransUnion house your credit data, and this information is represented on your credit reports. Credit reports contain information about your credit history, credit cards, inquiries, and payments. They can vary from one bureau to the next. And your FICO score is based on data in the credit reports.
All consumers are entitled to a free credit report annually from the three major credit bureaus.
2. Know your DTI
Similar to your credit score, your DTI or Debt to Income Ratio plays a significant role in getting you approved for a home loan. DTI indicates where your money is going and how much you have left over after paying your monthly bills.
3. Get Pre-approved
In this market and maybe forever, a pre-approval is a must for anyone serious about buying a home. A pre-approval is an in-depth examination of credit and assets. At Mortgage Equity Partners, we offer a fully underwritten pre-approval. Your loan officer can pre-approve you for a loan even without a property address. First, submit a complete application with your asset and income documentation. Then, you can receive a conditional loan commitment from an underwriter to find the home you want to buy. A pre-approval of this kind makes your financed offer equivalent to a cash offer.
4. Plan for a down payment and closing costs
Down payments are a hot button. Do you need 20% for a down payment? Well, yes and no. The more money you have for a down payment, the better your mortgage interest rate will be and the lower your monthly payment. However, some loan programs have no down payment requirements. For example, if you are eligible for a VA or USDA loan with no down payment requirement. FHA loans require smaller down payments, 3.5%. As a first-time home buyer, you are eligible for many state and county down payment assistance programs. This is a great topic to discuss with your loan officer. Another upfront cost home buyers need to save for is closing costs. Closing costs include the various charges associated with processing and closing your loan. The total amount will vary, but typically the closing costs run 3-6% of the purchase price.
5. Explore different loan types
An experienced loan officer is your guide to loan products. After a series of questions about what you want to accomplish and what your finances look like, your loan officer will help you determine the type of loan that fits you best. However, knowing the most common loan types in advance would be a good idea and they are listing below but these are not the only options just the most common.
Conventional Loan: 3-20% down programs available
- FHA Loan: 3.5% down, best for borrowers with credit challenges and lower to moderate incomes.
- USDA Loan: 0% of sales price required for down payment, best for borrowers looking for a single-family home in rural and some suburban areas.
- VA Loan: 0% down loan for the with active or former US military status.
6. Learn what makes an offer competitive in the Easton market
Working with your realtor and loan officer to write a strong offer is imperative right now. In your offer, you can highlight what makes you a strong buyer. For example, you do not have a home to sell as a first-time homebuyer. You would want to include that you have a fully underwritten TBD loan commitment which is much more potent than a standard pre-approval. Experienced partners are invaluable in this part of the process.
Buying a home in the Easton and Southeastern Massachusetts market isn’t something to be scared of. It may take some time and some planning, but educating yourself on the home loan process in advance will set you up for success. Our team of local, experienced loan officers can help you take this major step in your life!
