5 Home Loan Milestones

Buying a home may seem a bit complicated, and sometimes it can be. It is important to understand what to expect when preparing to buy a home, and what to expect during the home buying process. Below we’ve provided a short outline of the five main milestones of the home buying process.

Pre-Qualification

You’re ready to buy a home, congratulations! The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. Your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

Application

Once you have found a home, you will make an offer to buy it from the seller. A real estate professional will conduct negotiations and a contract will be submitted to purchase, accompanied by the pre-qualification letter. Once your offer is accepted, you will receive your initial disclosure package and you will begin the application process. You will most likely need to provide your loan officer and processor with updated income and asset documentation, such as pay stubs and bank statements. To ensure your loan stays on track, you’ll want to have your docs completed quickly and thoroughly.

Processing

In this step of the process, your appraisal and title work will be ordered. Once all necessary documentation is present, the processor will review everything for completion and accuracy. He/she will verify information on the title work, appraisal, credit report and any additional docs needed. Once the processor has completely reviewed the full application package, he/she will pass it on to the underwriter. Your loan officer will keep you informed, answer any questions and navigate you through the loan processing stage.

Underwriting

Once your loan gets to this milestone, the underwriter will review the entire loan package to determine if your loan meets the guidelines for approval. Your underwriter will review your disclosures, credit, asset documentation, employment, appraisal and additional documents along with the loan program’s guidelines and regulations. Once conditions have been met and any contingencies on the loan have been cleared, the underwriter will give the clear to close/final approval and the loan is sent to closing. Once the loan gets through underwriting, you’ve rounded the last turn and are in the home stretch!

Closing

You are now in the final home loan milestone, closing! A date, time and location should have already been confirmed for closing. At least 3 days prior to closing, you will receive your closing disclosure (CD). This document shows your closing costs, terms of the loan and how much money you need to bring to settlement. Once at settlement, documents will be signed, funds will be distributed and ownership of the property will transfer from the current owners to you. The house is finally yours!

It may seem like a long process, but we strive to make it as seamless as possible. If you are ready to start your home buying process, contact one of our loan officers today!

What is Homebuyer Education, and Why Do You Need It?

Homebuyer education, also called housing or pre-purchase counseling, helps homebuyers prepare for the process of purchasing a home and the challenges of being a new homeowner. Some loan programs, like the Maryland Mortgage Program (MMP), require homebuyer education courses.

Recently, the Maryland Mortgage Program has made updates to their homebuyer education requirements to simplify and standardize the process. Effective for MMP reservations dated on or after October 1, 2018, the following will be implemented:

  • Homebuyer education may be taken online or in person, individually or with a group, as long as the class has been approved by HUD, Fannie Mae or Freddie Mac.
  • For Baltimore City and Baltimore County, the above flexibility will apply, but the homebuyer education must be completed prior to signing the sales contract.

The homebuying process is complex and if you are a first-time homebuyer (someone who has never owned a home, or has not owned a primary residence in the last 3 years) it can be a little confusing. This is why homebuyer education courses are so important. They help new homebuyers understand the process and what to anticipate as a homeowner. Below are some of the topics you can expect to learn about during your pre-purchase counseling.

  • Process of purchasing a home- You will be given an overview of the entire homebuying process, from application to closing, exploring each step more in-depth.
  • Budgeting- Buying a home will be one of the biggest purchases you will make, so knowing how to afford your mortgage and budget for extra expenses will be covered.
  • Shopping for a mortgage- Different types of home loans will be reviewed and what you will need for pre-approval. Your credit score, and ways to raise and improve it, will also be covered as a topic since this can help determine which type of mortgage and rate you qualify for.
  • How to maintain a home- Upkeep and regular maintenance of your home lowers the risk of major problems down the road; it is essential to know how to maintain your home and the budget you should keep for maintenance.

Even if you aren’t a first-time homebuyer, taking a homebuyer education course can be beneficial, since the mortgage industry is always changing and new programs are emerging. Additional one-on-one homebuyer counseling is available, and it is sometimes required, depending on the state/county you are purchasing in or loan program you are using. It’s better to have more information than not enough, especially when it comes to buying a home. Please reach out to any one of our loan officers if you have questions.

Buying a Home in a Gig Economy

A gig economy refers to a workplace in which temporary or flexible jobs are the norm, such as freelance or contract work, as opposed to permanent, full-time jobs.  There is no fixed salary, so income may be irregular and sometimes it may not even be documented.  Future income is also unpredictable while working freelance or contract jobs.  This may lead to some complexity if you are trying to obtain a mortgage, but it’s still possible.

So how do you get a mortgage when you don’t have a standard, full-time job?

First thing’s first; it’s time to get organized.  Start by getting your paperwork together.  You will need to provide copies of signed federal tax returns from the last two years and a year-to-date profit and loss statement.  You will also need a list of your debts (monthly payments such as car loans, credit card debt and/or student loans) and assets (checking and savings accounts, stocks, bonds and other securities).  Two years’ worth of documented income will also be reviewed.  Additional paperwork will also be required; the loan officer will keep you in the loop of what is needed.

Keep adding to your down payment.  Having a larger down payment will lower your loan-to-value ratio, or LTV.  The LTV is the relationship between the amount of the mortgage loan and the value of the property. The lower this ratio is (the larger amount you put for a down payment), the less risk you are as a borrower to repay your loan.

Pay down your debt.  Work to eliminate all of your debt, or get your balance as close to zero as possible.  Having a lower amount of debt will lower your debt-to-income ratio, or DTI.  Your DTI measures your ability to manage monthly payments and repay debts.  The lower your DTI is, the less risk you are as a borrower to repay your loan.  Repaying all of your debts, on time, is also a key factor in keeping your credit score high and healthy, which is important when obtaining a home loan.

Contact one of our loan officers to see how to get the ball rolling.  Having an informational conversation will educate you on what to expect during the home buying process and what type of paperwork will be required.  Having this initial conversation does not require you to apply for a mortgage, but it will give you the insight needed when you are ready to purchase a home.

Pre-Qualification vs. Pre-Approval

You’ve heard the terms pre-qualification and pre-approval, but what do they mean? They are the same thing, right? Not quite! The terms have been used interchangeably, but their true definitions differ. We’re going to break it down and explain the difference between the two.

Pre-qualification

The very first step to take if you are ready to start your new home search is to get pre-qualified. This is a no-cost, no-commitment, 10-20 minute analysis that will give you a great starting point for your new home loan. You can do this in-person or on the phone with a loan officer, or in most cases complete an online form. You will need to provide some basic information such as income, current monthly debts and credit score, but typically you won’t need to provide any documentation. By providing these items, your lender will be able to determine an estimate of your maximum monthly mortgage payment and how much you can borrow. These aren’t concrete numbers, more of a gauge so you know your price range.

Pre-approval

Once you have been pre-qualified, the next step would be to get pre-approved. This process is more involved, requiring more paperwork and the help of a loan officer. Documents you typically need to provide are copies of your paystubs, bank statements and tax returns; additional documents may be needed as well. The loan officer will also pull your credit report to get a better understanding of your credit history and financial situation. Once your information has been reviewed, your loan officer will provide you a pre-approval letter stating how much you are approved to borrow. Having a pre-approval letter can give you a competitive edge against other buyers; it shows the seller you are serious and ready to buy.

You should refrain from making large purchases and incurring new debt at this time, as this can affect your pre-approval amount. Keep in mind getting pre-approved does not mean final approval; once you put an offer on a home and the offer has been accepted, the loan will still need to go through processing and underwriting before final approval is granted.

Getting pre-approved will help speed up the home buying process since you will have a solid foundation of information. Once you are pre-approved, you are on your way to homeownership! Contact one of our loan officers to get started.

Which mortgage is right for you?

As a home buyer, you may have more options than you realize to finance your investment. Figuring out which loan suits your needs requires research. Your Loan Officer will assess your situation and walk you through all of your choices. However, it never hurts to have a head start by knowing the basic categories of home loans.

Fixed Rate or Adjustable Rate Mortgage

A main deciding point during the loan process is the type of interest rate you prefer. You can have a fixed or adjustable interest rate. Here are the highlights of each loan type to help you decide.

Fixed-Rate: this mortgage is considered the “standard” choice for most borrowers. It allows you to pay off your home loan in a set amount of years (usually a term of 10, 15, 20 or 30) with the same interest rate. Although overall housing market rates may go up or down, your specific rate will be unchanged. Usually, a shorter term comes with a lower interest rate. For example, a 10 year fixed will have a lower rate than a 30 year fixed. This is an attractive choice for those looking for stability. You will know, for the most part, what your monthly mortgage payment will be. If rates start to drop significantly, you could have the option to refinance.

Adjustable-Rate (ARMs): while a fixed-rate stays true to its name, so does an adjustable-rate mortgage. ARMs offer a lower initial interest rate, but it might fluctuate after a certain period of time. A hybrid ARM is represented by fractions, such as 5/1, indicating the rate will adjust after 5 years, then continue to reset each year. Since the initial lower rates are appealing, ARMs are best for borrowers who don’t plan on staying in their home for long.

Conventional or Government-Backed Loan

The next step in selecting your mortgage is whether you quality for a conventional or government-backed loan. The main difference between the two is the institution which insures your loan.

Conventional mortgages are insured by private companies, while government-backed loans are subsidized by the government. FHA, VA, and USDA loans are all government-backed loans and available to eligible borrowers. This means there are certain guidelines home buyers must meet in order to receive funds. These loans usually help those with limited savings for a down payment, served in the military, or are looking to buy in a rural area. Your Loan Officer is well versed on these guidelines and can determine whether you qualify for a government-backed loan.

Conforming or Jumbo Loan

One of the final choices you can face as a borrower is deciding between a conforming or jumbo loan. These loan types concern the location and price of the home you are shopping for.

Conforming loans follow Fannie Mae and Freddie Mac’s conforming guidelines, which include maximum loan amount – how much you can borrow to purchase your home. These loan limits differ depending on where you are located and can change from year to year. In some counties the loan limit for a single unit is $417,000, while in others it can be upwards of $625,500.

Jumbo loans allow higher loan amounts not allowed by standard confirming programs (Fannie and Freddie). These loans are also known as “non-conforming” mortgages. If you are in the market for a  home that is priced higher than your county loan limit, you might want to ask your Loan Officer about a Jumbo loan. The requirements to qualify for this type of loan are different than a conforming loan, so it’s important to discuss whether it is fitting for your situation and home buying goals.

Review the highlights of the different loan types here, and become familiar with mortgage terms as you start the loan process. Your Loan Officer is available for any questions you may have.

Why It’s Important to Pre-Qualify for a Loan

Growing up, most of us heard the words “be prepared”. Although it sounds ominous, this advice is applied to most aspects of life, including home buying. In order for the loan process to run smoothly, one of the smartest things to do is get pre-qualified for a mortgage. A pre-qualification is an estimate of how much you can borrow from a lender and it allows you to explore loan options specific to your financial situation. Pre-qualifying for a loan before you go home shopping helps you set a budget and strengthen your negotiating position when making an offer.

How to pre-qualify

Pre-qualification is a simple process which can be done at zero cost and completed online or in person. Contact your Loan Officer to find out which documents you should prepare and to complete the pre-qualification form. Once you pre-qualify successfully, you can request a letter stating how much you may be able to borrow based on the information you provided. You can share this with your real estate agent or simply tell the agent a price range based on the outcome of your pre-qualification.

Pre-qualification vs. conditional approval

A conditional approval requires more information and is a much more serious level of approval. Conditional approval means you will have a commitment to a specific loan program at a specific loan amount. It will also provide more information about your interest rate and monthly mortgage payment.

Before you start your journey as a home buyer, the best place to start is by contacting your Loan Officer and getting pre-qualified

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