Searching for and buying a home is an exciting time. However, securing financing and getting to the closing process can be a challenge. There are so many moving parts when it comes to home financing that can be overwhelming and confusing.
Being prepared for the home purchase process can make it more seamless and less stressful. Everything from setting expectations to keeping communication open can make financing your home purchase a breeze. And you’ll feel relieved when you’re ready to move into your new home. Check out these tips for financing your property purchase.
Set a Realistic Budget and Stick to It
Before you even begin to browse property listings and envision yourself in homes, set a realistic budget. This should be based not only on your income but things like your other debts and lifestyle should be considered. You also need to think about the market in your area and the typical property values.
A simple way to calculate your target payment would be to multiply your monthly gross income by 28%. You also want to look at other debts like car payments and student loans. Combined with your future mortgage payment, your total monthly debt shouldn’t exceed 35% of your pre-tax monthly income.
Having a good idea of what you can afford can help you avoid a lot of frustration when applying for financing. Many financial institutions will use the same calculations when considering your application. So, knowing how much to apply for and what you can afford will give you the best chances of getting approved.
Prepare to Get Pre-Approved
Getting pre-approved for your mortgage can help you shop in confidence. However, there are a few things that you should do to prepare for this vital first step. First, you’ll want to pull your credit report and check your FICO score. Check for anything erroneously reporting and pay off any debt you can to boost your score.
Then, meet with a mortgage officer to start the preapproval process. If you are comfortable with completing the process online, there are many self-service options available too. However, many people feel more comfortable having a contact that can help them with their application and answer any questions, especially if they are first-time buyers.
This is also a good time to look at the different loan options that might be available to you. Depending on your situation, you may qualify for things like VA or USDA financing. There are also mortgages for first-time buyers and those with little to no down payment.
Consider the Entire Payment
When you are planning your mortgage financing, it’s a must to consider your entire mortgage payment when budgeting. You don’t want to arrive at closing and see a huge payment amount that you can’t afford. If you are adding escrow, you’ll want to keep an eye on the payment as it’s calculated throughout the financing process.
Your mortgage payment is made up of principal and interest. This is the amount that you owe on the property as well as the interest you own for your loan. However, there are other costs that come with owning a home. Many lenders will make handling these costs more convenient by providing you with an escrow account that you contribute to monthly and they pay your property expenses from.
The first component of your escrow is your property taxes. Be mindful when you are shopping for homes and securing financing to keep an eye on the taxes for each property. This is especially true if you are shopping in multiple areas with varying tax rates. Your property taxes could mean the difference between being able to afford your payment or not.
The other thing that your escrow covers is your property insurance. Talk to your insurance agent to get an idea of what the premium would be on the types of properties that you are looking for. Make sure to check with your lender on what type of coverage that they require from you to secure your loan.
Keep Communication Open
It’s important to keep communication open with your financial institution during the entire process. When you are looking for a loan officer, prioritize someone that is an awesome communicator. However, you also have to do your part to make the process run smoothly.
Make sure you are provided with multiple ways to contact your loan officer. Then, mutually establish which will work best and how frequently they will update you on your loan’s status. Be patient and remember that you are likely not the only loan they are trying to push through.
There will likely be additional information and documentation that your loan officer requests for the underwriting team. Be quick about providing them with accurate information. If you drag your feet on responding, you are only slowing down the entire process and could delay your closing date.
Be Prepared for Closing
Once your loan is approved, you’ll have an appointment for closing on your mortgage. This is an exciting day. But not being ready for it could cause it to be delayed or even for your entire loan to fall through.
Make sure you are prepared for your closing appointment. Bring all of the documentation you need like your driver’s license. Your loan officer will provide you with a list of things needed to close your loan.
Arrive on time and be ready for a lengthy process. There will feel like there are countless pages to sign and date. But make sure you work with the title agent as they explain the process and what the documentation all means. Save a copy of your closing documents and scan them into a secure drive. That way, you can refer back to them to verify any financial details later.
Streamlining the Home Loan Process
Buying a home is a major milestone. Searching for the perfect property and arranging moving your belongings can be two very overwhelming feats. Make your financing process as simple and streamlined as possible so you can focus on finding and enjoying your new home.
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