Photo by Kevin Prieto

I want to buy a home.

Where do I start?

If you need a mortgage, you will need to start by contacting a lender. The lender will help you determine the best loan program for you based on your credit, liabilities, income and down payment. This is also the time for you to determine the maximum monthly payment you want to make based on your desired monthly budget. With this information, your lender can then determine the maximum loan amount you qualify for before you start searching for a home.

Do I pick a lender online or go to a local lender?

Most “online lenders” are based in offices out of your area and often in another state. Most banks underwrite and process your loan out of state as well. Typically, out-of-state lenders and underwriters in big cities don’t know the local market you are buying in or understand things like acreage and local zoning laws. They are required to make decisions based on those guidelines that are restrictive and meet general requirements nationwide. Local lenders live in the area where you are buying and understand your market. They make local decisions based solely on you and the property you are buying. If you don’t know a local lender, your real estate broker can refer you to one.

If my credit is only fair, can I buy a home?

A credit score is based on many factors: credit paid as agreed, revolving accounts with large balances, accounts with missed payments or accounts with late payments. Collections, judgments, bankruptcies and foreclosures all play a major factor in your credit score, which, in turn, will determine the loan program, down payment required and amount of loan you can qualify for. A credit score of 580 will have tighter guideline requirements than that of a score of 800. FHA, USDA, Federal VA, Conforming and Jumbo loans have different minimum credit score and credit requirements. Government loan programs such as FHA will allow a credit score down to 580 when all other guidelines, buyer and property requirements are met. Finally, a jumbo loan (loans more than $417,000) could have a minimum credit score requirement of 680.

What is the difference between a “pre-qualification” and “pre-approval”?

A “pre-qualification” is usually done with a conversation between you and a lender. The lender will ask you your income, if you know what your credit score is, how many liabilities you have and how much of a down payment you wish to make. It is very generic and the information is not verified. Because the information is not fully verified, the “pre-qualification” can, at times, be incorrect and lead to costly mistakes later.

A “pre-approval” is done by making a loan application and providing the lender with all the documentation required to secure a mortgage. The lender reviews your credit and credit scores, the documentation provided and determines the maximum loan amount you qualify for with the best possible loan program that fits your needs. The “pre-approval” is the strongest and most reliable process to determine your qualifications. Offers provided to sellers with a strong “pre-approval letter” attached give the buyers a greater chance of obtaining an accepted offer.

Can I buy a home with minimum to no money down?

Loan programs are available that do offer as little as $0 down. The programs are specific to income limits, buyer eligibility and the location of the property being purchased. These programs require the homebuyer to occupy the property full time, all year around.

I lost a home to foreclosure. Will I ever be able to buy a home again?

Loan programs are available that allow you to buy again as soon as three years following a foreclosure and after the title of that foreclosed property has been removed from your name. There are very specific requirements following a foreclosure. These requirements vary between loan programs, down payment amounts, credit requirements, buyer eligibility and type of foreclosure.

Can I have a co-signer on my loan?

Yes. A non-occupant co-signer is a person, usually a relative that most commonly lives elsewhere, that brings additional qualifying income into the scenario to assist a buyer to qualify for a mortgage. The non-occupant co-signor is also on the loan with the buyer, but does not live in the home. The buyer is required to occupy the property full time, all year around. The “non-occupant co-signer is equally obligated on the mortgage and must qualify as well. If monthly payments are late or missed, that person’s credit can suffer as a result. This scenario is not available on all loan programs.

Do I have to escrow taxes AND insurance in my monthly payment?

A lender may, depending on your loan program and down payment amount, require you to “escrow” funds to cover the annual property taxes and homeowners insurance. Instead of you writing a check at year’s end to pay those taxes or insurance, a lender will have you split that total annual amount into 12 equal payments. Your mortgage payment would include that month’s portion of your property tax and homeowners insurance. That money sits in an “escrow” or sometimes called a “reserve” account with your lender until they pay the bills each year on your behalf.

After I am pre-approved and have an accepted offer on a home, how long before I can move into my new home?

Because you have already obtained a pre-approval up front, the process becomes easier after you have found a home and have an accepted offer between you and the seller. You may be required to update some documentation for your lender depending on how long it took to find a home after obtaining your initial pre-approval. The lender will order the appraisal about the time you complete your home inspection. The appraiser usually takes about 5-7 business days to complete the appraisal and return it to the lender for review. Once the lender’s underwriter determines if the appraisal meets guidelines, the value is the same or higher than the agreed sales price and there are no repairs required (by the appraiser or home inspection), the lender can then have your loan documents to escrow for you to sign within 12 to 24 hours after your final loan approval. At escrow, you will then sign your loan papers; this is called your “signing.” Then, about 24 to 48 hours after signing, your purchase is recorded at the county courthouse and you usually get your keys that evening.

Is there anything I shouldn’t do before my loan closes?

Your lender will double check financial information, employment status, credit scores and other program requirements throughout the loan process and again before your loan closes. Don’t change jobs if you can help it. Don’t move large amounts of money around or suddenly make big deposits. Avoid major purchases. Any changes to your credit or your overall financial stability can disqualify your pre-approval and put your loan at risk.