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You may have stumbled upon countless articles, videos & guides on how to secure a mortgage, each offering its own spin on the process. But consider this your final stop - THE ULTIMATE GUIDE that breaks down the whole process into easy steps. In this guide, we've made buying a mortgage as simple as checking off items on your shopping list.
See also : How to choose a mortgage lender
How to buy a mortgage (Step-by-step)
Step 1: Double-Check Your Readiness
Assessing your readiness involves not just financial but also emotional considerations. Financial readiness involves understanding your -
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✅Budget
✅Debt-to-income Ratio
✅Income Stability
However, emotional readiness is equally vital. Consider whether you're ready to commit to homeownership, as it involves stability and long-term planning.
Let’s say you are considering getting your first home. Financially, you have stable incomes and have saved for a down payment. However, you’re also discussing your long-term goals, such as starting a family, which influences your decision to buy now or wait.
📖 Read On >> Must-Haves When Buying a House
Step 2: Straighten Out Your Finances
Start by using KreditSanta’s home affordability calculator to determine how much you can comfortably afford. Consider factors such as your
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✅Monthly Income
✅Existing Debts
✅Potential Future Expenses
By using our home affordability calculator, you can assess your budget based on your income and current debts. You might discover that you can afford a monthly mortgage payment of $1,500. Additionally, it's crucial to proactively check your credit score and take steps to improve it before moving forward with your mortgage application.
Step 3: Plan Your Down Payment
Planning your down payment involves determining how much you need to save and exploring options for assistance. While a 20% down payment is ideal to avoid private mortgage insurance (PMI), it's not always necessary. Many first-time homebuyer programs offer assistance with down payments, allowing buyers to put down as little as 3-5%.
So, assuming you have plans to get your first home and have set a goal of saving $20,000 for a 10% down payment. You then explore state first-time homebuyer programs and find the one that offers a grant matching your down payment savings, making homeownership more accessible.
However, emotional readiness is equally vital. Consider whether you're ready to commit to homeownership, as it involves stability and long-term planning.
Let’s say you are considering getting your first home. Financially, you have stable incomes and have saved for a down payment. However, you’re also discussing your long-term goals, such as starting a family, which influences your decision to buy now or wait.
⏭️ Next Step : Try our mortgage calculator to find out your monthly payments.
Step 4: Bring Out Your Dream Wishlist
Creating a wishlist helps you prioritize what you're looking for in a home. Consider factors such as -
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✅Location
✅Size
✅Layout
✅Amenities
✅Features
Determine your non-negotiables and nice-to-haves to narrow down your search and focus on properties that align with your preferences and lifestyle.
For instance, let's say you and your partner create a wish list for your dream home. You prioritize a suburban location with good schools, a spacious backyard for your children to play in, and a modern kitchen for entertaining guests. You also list features like a home office and a finished basement as nice-to-haves.
Step 5: Settle on the Right Mortgage for You
Choosing the right mortgage involves understanding the various types available and selecting one that suits your financial situation and goals. Common mortgage options include conventional loans, FHA loans, VA loans, and USDA loans, each with its own eligibility requirements and benefits.
👉 More Info - 10 Types Of Mortgage Loans For Homebuyers
Suppose, you research different mortgage options and decide that an FHA loan is the best fit for you. As a first-time homebuyer with a lower credit score, you qualify for a low down payment and competitive interest rates offered by FHA loans.
👀 See More : What are APR fees on a mortgage?
💡Important Reminder
If you’re a first time home buyer, then an FHA loan with 3.5% down and a credit score of 580 can get you started. Or, if your score is above 620, a conventional loan might be a better choice.
Step 6: Lock-in Preapproval
Getting preapproved for a mortgage involves submitting your financial documents to a lender, who assesses your creditworthiness and determines the amount you can borrow. A preapproval letter strengthens your offer and demonstrates to sellers that you're a serious buyer.
Here's a rundown of the essential documents you'll need to secure your mortgage
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Proof of Identification: Present a government-issued ID like a driver's license or passport.
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Proof of Income: Include recent pay stubs, W-2 forms for the past two years, and tax returns if self-employed.
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Employment Verification:Provide contact details for current and past employers to confirm your work history.
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Tax Returns:Furnish the last two years of federal tax returns with all schedules.
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Bank Statements: Provide recent statements from all your accounts - checking, savings, and investment (some offers insurance) accounts, to show your assets and liabilities.
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Credit History:Ensure you're prepared to go over your credit report thoroughly and address any negative items that may arise. A credit score of 580 or higher is required for eligibility.
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Debt Information: Detail any outstanding debts such as car loans, student loans, or credit card balances.
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Proof of Assets: Include documentation for additional assets like stocks, bonds, or real estate.
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Rental History and Property Information: If renting, provide proof of rental payments. If purchasing a property, share details like address, purchase price, and property tax information.
🧑💼Expert Tip
Reviewing quotes from multiple lenders, preferably three or more, has been proven to potentially result in significant cost savings.
For example, you send your financial documents to a lender, and they provide you with a preapproval letter for a $250,000 mortgage. With this letter, you can start looking for a house with confidence, knowing exactly how much you can afford. When you find a property you like, you're ready to make an offer.
📖 Read On >>7 Things You Need For Mortgage Pre Approval
Step 7: Connect with a Trusted Real Estate Agent
Finding the right real estate agent is essential for a successful home purchase. Look for an agent with experience in your desired area who understands your needs and priorities. Interview multiple agents, ask for referrals, and choose one who communicates well and makes you feel comfortable throughout the process.
Visualize, you and your partner meet with a few real estate agents before choosing one who knows a lot about the areas you like. They always answer your questions quickly and make you feel comfortable. You feel sure they can help you find the perfect home.
Get expert guidance on your next move from our loan officers
Step 8: Begin Your Home Search
Starting your home search involves exploring listings online, attending open houses, and scheduling private viewings. Consider factors such as location, price, size, and condition when evaluating properties. Take notes and photos during viewings to help you remember each property's features and compare them later.
In this scenario, you and your partner start your home search by browsing listings on real estate websites. You create a shortlist of properties that meet your criteria and attend several open houses to get a feel for different neighborhoods and home styles. You take notes and photos to help compare your options and narrow down your choices.
🔎Find Out : How much house can I afford
Step 9: Make an Offer
Making an offer on a home requires careful consideration of the property's value, market conditions, and seller's motivations. Work with your real estate agent to draft a competitive offer that reflects the property's worth and your budget. Negotiate terms with the seller, including price, contingencies, and closing costs, until both parties reach an agreement.
Consider this: you find your dream home and decide to make an offer. With guidance from your real estate agent, you submit a competitive offer slightly below the asking price, including contingencies for home inspection and financing. After negotiations with the seller, you both agree on a purchase price and terms that work for both parties.
📰 Get Details - Explore 1.7M New Homes!
Step 10: Seal the Deal on Your Mortgage
Securing a mortgage involves completing the loan application process with your chosen lender. Submit required documents, such as income statements, bank statements, and tax returns, and undergo underwriting to finalize your loan approval. Prepare for closing day, where you'll sign the necessary paperwork and officially become a homeowner.
🎓 Essential Advisory
As of February 2024, the average "time to close," which refers to the process of getting a mortgage, is 44 days, according to ICE Mortgage Technology.
Think about your mortgage application being approved, and you receiving a clear-to-close from your lender. You review the closing disclosure and prepare the necessary funds for closing day. At the closing, you sign the loan documents and receive the keys to your new home, marking the culmination of your home buying journey.
Congratulations, you've done it! From sorting through emotions to signing stacks of papers, you've braved it all. And now, with the keys to your new home in hand, it's time to bask in your accomplishment.
Have thoughts to share or questions to ask? Hit us up! We're here to listen. Write to our Head of Editorial (info@kreditsanta.com).
Frequently Asked Questions
Yes, it's possible with lenders considering other factors like income and employment history. Improving credit, saving for a larger down payment, or seeking specialized lenders can help.
There's no fixed minimum, but a stable income showing repayment ability is crucial. Lenders assess income through pay stubs, tax returns, and employment verification.
Use a mortgage affordability calculator, considering income, existing debt, down payment, interest rate, and loan term. Aim for a monthly payment below 25% of gross income.
Closing costs cover finalizing the loan and property transfer. They typically range from 2% to 5% of the home's purchase price, including appraisal, title insurance, and attorney fees.
Yes, but expect extra scrutiny. Prepare proof of stable income through tax returns, profit-and-loss statements, and bank records. Maintaining good credit and working with lenders experienced with self-employed borrowers can be beneficial.