Road to Home Ownership
Let's take a trip down the road to home ownership, stopping at every turn and viewing all the wonderful things you need to know about buying a home for those who choose to acquire by means of obtaining a mortgage. This can be a very frustrating and daunting task but certainly doesn't have to be. Nothing should take away from the excitement and joy of buying a home for you or your family, not even the process itself. As we journey down this path you will be well equipped with the information you will need to know before embarking on this exciting endeavor of buying a home. We will attempt to outline a step by step process of all the things you will need to know and want to be aware of in order to make your home acquisition as pleasant and stress free as possible. Before we go any further we must address 2 critical key pieces that will be needed in order to obtain a mortgage to buy your dream home which is going to be a SOURCE OF INCOME AND DOCUMENTATION for that income.
Source of Income may include income that you receive from your job or business, 1099 or W2 income, social security income, child support, alimony, pension, even disability. All of these sources of income can used provided that the borrower has received it for typically the last 2 years, it remain consistent or permanent, and documentation can be provided to the lender to prove or substantiate the income, which brings us to our second critical piece. For more information click here to contact a consultant.
Documentation may include and is not limited to pay stubs, 2 years of 1099's, W2's and or personal tax returns, monthly bank statements, child support orders and payment schedules, SSI award letters, and disability award letters just to name a few. This is but a small and reasonable request as the first thing that anyone would want to know before lending money is the other party's financial ability to pay back the loan. This is not to discourage the first time home buyer, as most of these items can be easily obtained online or from your tax preparer or human resources department, but it must be understood that the mortgage process is indeed a process, and this documentation provides much needed proof of the borrowers financial ability to pay back the loan without overextending themselves. It is the buyer's responsibility to have these two areas in order before even attempting to move any further.
There are obviously other things that could delay or hinder your quest to become a homeowner, most of which we will address shortly. The good news as long as you have the two most critical pieces in place which is a source and of income and documentation you are already more than halfway there, as there are steps that you can take and services available to correct or remove these hindrances that could prevent you from becoming a homeowner. These services include student loan consolidation for defaulted student loans that may hurt your chances of being approved, credit counseling services that advise and assist you with improving your credit report, debt management services to help negotiate and settle derogatory items that may prevent you from getting approved for your dream home and more. So, buckle up and hold on tight while we take our first right down Credit Street.
7 Steps to Home Ownership
1) The very first thing that you must consider is whether or not your credit is good enough to qualify for a home. Lenders look for certain credit requirements before they will lend you money to acquire a home. These requirements will vary from lender to lender, but we will address the most common ones as required by FHA, Conventional and VA loan programs. For more information click here to contact a credit consultant. The top credit requirements are as follows:
- 620 mid credit score for a Conventional loan, as low as 580 for FHA, and 620 for a VA loan
- No bankruptcy in past two years for FHA & VA, 4 years for Conventional
- No unsatisfied judgments or tax liens as these can become a lien against the property
- No foreclosure in last 2 years for FHA loan, 7 years for Conventional and 2 years for VA
- No excessive late payments on major accounts such as car or other personal loans
- No excessive unpaid collection accounts
- 3.5% down payment required for FHA, 5% down for Conventional, and $0 for VA
2) Once it is determined that you at least meet the minimum credit criteria, the next thing you want to do is contact a lender of your choice to get a "Pre-Approval Letter." This letter is proof that a lender has checked your credit, looked into your finances and confirmed that you have the necessary income and down payment to purchase a home, and upon their investigations or findings validate that you are indeed able to purchase a home through their lending institution for a specified amount of money. A pre-approval letter is then issued for a certain amount of money and now the borrower can begin their quest for their dream home.
3) The third thing you will want to do is contact a licensed Real Estate Agent and give him your pre-approval letter so you can start to see houses in the desired areas you prefer, with the features and amenities that you desire, within the price range given to you on the pre-approval letter issued to you by the lender. It is imperative that without a pre-approval letter most real estate agents will not show you any homes. It also important to note that it will be to the borrower's advantage to use a licensed real estate agent to help navigate your home buying process and also avoid a lot of the frustrations that can come with buying a home, as the real estate agent is compensated by the seller and there is absolutely no cost to the borrower for the professional representation. Once you have communicated what you are looking for to your real estate agent they will then send you homes that fit that criteria so you don't spend a lot of time viewing a ton of homes that you are not ultimately interested in which can cause a little frustration with your home buying endeavor.
4) Once you have found a home that you love the next step will be for you to make an offer on the home. Your agent will draw up the necessary documents to present your offer to the agent that has the home listed such as a purchase agreement and certain other disclosures that will be required by the lender to complete your mortgage process. You will need to give your real estate agent an "Earnest Money Deposit" also referred to as an EMD in order to accompany your offer if you haven't already given your agent one. Although it is not required by law to have an earnest money deposit in order to make an offer, the reality is it legitimizes your offer and shows the agent and seller that you are serious about buying their home. The most important thing to note is that your earnest money deposit is 100% refundable in the event your offer is not accepted. There are many times where multiple offers are submitted at one time for the same property, so you want to make sure that your offer doesn't give the impression as a "soft" offer because of the lack of an earnest money deposit. There are also times when an earnest money deposit isn't expected like in the instance of a VA loan where the borrower is a veteran and receives 100% financing. For more information on earnest money deposits contact please contact a consultant.
5) Once the offer has been accepted you are ready to go the next level. The next thing that you will want to do is get a private inspection for the home you are intending to purchase to find out any problems that the home may have such as potential plumbing problems, electrical issues, condition of the roof, potential problems with the foundation that are visible to the inspector, water leaks, issue in the attic and basement such as possible leaks and mold, etc. This way you will know exactly what you are getting into as well what items you will need to address in the future if you choose to proceed with the purchase. More importantly, if something is revealed through the inspection process that is more than you desire to take on with your first home purchase, this will be the only chance to back out of the deal and be refunded your security deposit without any repercussions and you can continue to look for more homes that will better fit your needs. If you are dissatisfied with the results of the inspection you can either withdraw you offer and search for another home or you can renegotiate the offer based on the results of the inspection. For example, if the inspection report reveals that there is a leak coming from the roof in the attic then you can request that this item be fixed by the seller in order to proceed with the purchase of the home. The seller can agree to fix the problem or set of problems that you have requested and you can now proceed with the deal, or they can either refuse to make the repairs making the deal null and void and you can continue your home search. 
6) Assuming the inspection goes well everything is now shifted into the hand of the lender. You will now begin to fulfill your remaining lender requirements in order to complete the loan process. For more on lending requirements please visit our "The Mortgage Process" page. Once you sign and acknowledge everything that lender requires, an appraisal will be ordered by them to establish the value for the property to make sure that it is at least worth the purchase price, so you don't overpay for your home. If the appraisal comes back for more than the purchase price then that's great news because you will have equity in your home. If the appraisal comes back less than the purchase price, the deal will have to be renegotiated between you and the seller to come to a common ground on a new purchase price based on the appraised value of the home. In most cases a deal can usually be negotiated if the appraisal comes back a little shy of the asking price unless there are situations preventing the seller from doing so such as if the house had a mortgage balance that was more than what the home appraised for. If a new purchase price can't be negotiated between both party's the deal become null and void. 
7) If the appraisal comes back with enough value to support the purchase price then it's just a matter of fulfilling your remaining lender obligations until you are cleared to close on your home. The last step in the home buying process is your final walk though. You will want to do this to make sure the property is in the same condition as it was when you first saw it, and the items that were included in the purchase of the home such as stove, refrigerator, light fixtures, etc. are still indeed present in the home. While there are yet many details to buying your dream home, these 7 steps are the meat and potatoes of what you need to know to make your purchase an easier and much more enjoyable experience. For more information contact Integrity 1st Financial Services today and ask about our Guaranteed Approval Home Loan Program!