Movin’ On Up…How to Navigate the Home-Buying Process - Part Two

Welcome to Part Two of our Home-Buying post. If you need a refresher on Part One, click here. Now, if you’re ready, let’s begin.

Your Mortgage Lender

There are no shortages of mortgage lenders out there. If you just turn on the TV for half an hour, you’re sure to see a commercial for one of those “speedy” mortgage lenders. The truth is, sometimes what seems too good to be true IS too good to be true. If you think back to the mortgage crisis of 2008, you’ll understand exactly why corners shouldn’t be cut during any portion of the home-buying process.

Your best bet for securing a mortgage is always going to be your credit union. If you have questions about rates, terms, and other mortgage options, it doesn’t cost a dime to call and ask questions. Your representative will be happy to help put your mind at ease. After all, it's not every day you buy a house, and it’s an important decision.

Get Pre-Qualified

Did you know that when it comes to mortgages, there can be a pre-qualification AND a pre-approval process? As if it weren’t complicated enough, right? To be fair, some lenders use the terms interchangeably, but just in case you run into one that doesn’t let's review each phase in a bit more detail.

Getting pre-qualified is where you gather all of your documentation to present to your lender. Lenders will use this opportunity to give you a broad-strokes view of what you might qualify for. They may take a look at your credit score, they might ask you general questions related to income and liabilities (including liquid assets, investments, properties and any items that are on your credit report as an obligation for repayment).

A pre-approval, on the other hand, is more specific. It lets you know exactly what your credit and financial situation will qualify for based on:

• Financial statements (including bank statements, tax returns, and income statements)

• Credit card statements

• Letters of explanation (lenders may request this if they have questions about a particular account or inquiry that appears on your credit report)

*Bonus Tip: An example might be if you have an inquiry from a creditor but no account or you have multiple inquiries that the lender wants to make sure aren’t contributing negatively to your debt to income ratio.

• Proof of employment

• Proof of residence

• Proof of insurance

On another note, just because you are pre-approved for a certain amount doesn’t necessarily mean that you should get a house for that much. It’s okay – preferable, even – to come in under budget. It is tempting to keep up with the Joneses, but being house poor just isn’t any fun. You might be able to make the payments work every month, but what good is the fancy house when you can’t afford to make it your own, or do anything fun outside of those walls once in a while. Just some food for thought.

Get Prepared

There may be no such thing as a truly perfect home, but that doesn't mean you can't decide which features are a must for you. The sooner you remove those deal-breaker homes, the better off you'll be. Not only will you be more satisfied with the homes you're considering, but it will significantly narrow down your search results.

Speaking of your search results, there is nothing wrong with researching which homes are available online. Remember when I mentioned that our preferred agents can help you get more cash back at closing? Well, they also help you easily search and compare homes that meet your criteria, including researching specific neighborhoods, schools, etc. Combine what your agent says with your own independent research because your agent may not be aware of local sex offenders or specific crime reports. Furthermore, being aware of an incident will not necessarily obligate any agent to disclose that information to you. Google should be your second-best friend during this process.

Even if you haven’t decided on an agent, you can still do your homework. While your agent will have access to a more comprehensive listing, scoping out prospects early on gives you an idea of what you might find in a given area. It can also provide insight into what to expect when visiting a home in person, what the neighborhood is like, which schools are in that district (and their rating), annual taxes, and how much residents currently pay in HOA fees.

I Want This House

You’ve gotten to the point where you have seen what feels like hundreds of houses and have finally found one that you want to make an offer on. Now what?

This is where the right agent comes in handy. They will help you negotiate the offer to make it as attractive as possible to the seller. After all, the goal here is to have your offer come in above all others, which isn’t always an easy feat. Especially in a seller's market, the competition is steep. Your agent will review the agreement with you and have you sign the offer before submitting it to the seller’s agent. If your offer is rejected, then it’s time to counteroffer or move on. If it’s accepted, you’ll move onto the appraisal period. The appraisal (and inspection) ensures that the asking price of the home is indeed fair, based on the value of the home. This is crucial because if the home is appraised for an amount less than the asking price, it gives you a legitimate opportunity to exit the contract without any further obligation, (plus, you won’t lose out on your earnest money). You could also choose to renegotiate with the seller to see if they will lower the price to meet the appraisal. After all, who wants to pay more than the value on a home?

Hopefully, everything checks out so you can move on to the underwriting phase, at which point the lender will perform another review of your financials to ensure that nothing has changed. It’s important to remember not to open any new credit lines during the mortgage process. There are multiple opportunities for lenders to pull credit. The last thing you want is to no longer qualify for your loan because your new store credit card bumped your debt to income ratio out of line.

The last step in the process is the closing or settlement. This is the part where you meet with all of the parties involved to complete the paperwork – and boy, is there a good amount of paperwork to be filled out. The good news is after that’s all is said and done, you’ll walk away with the keys to your new house. Have fun packing! Just kidding, that's the worst part. Hopefully, you’ll hire movers! :)

I want to hear from you! What did you think about this post? Comment below, or email me directly!

Krista Kyte is a personal finance blogger and personal banker with over 17 years of experience in the financial industry. Krista is passionate about helping our members understand their financial situations. She writes tips that will help consumers reach and maintain financial security, and start living the life they’ve always wanted.