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help_logoGetting Satrted on Mortgage Loan

For most of us, buying your first home is a dream come true. However, it can also be a very lengthy and nervy process. This guide will help you get prepared.


Decide If the Time Is Right

How do you know if you're ready? Making the leap to become a homeowner is a big decision. For some, renting may be the right choice. Because the "down payment" is most often limited to first and last month deposit, renting can be viewed as cheaper and more flexible in the short-term. Monthly rent payments are also generally "all in" and usually cover all property taxes, homeowners' association fees and maintenance costs. Plus, renting can offer flexibility should circumstances unexpectedly change.

For others however, buying is the right move to make. They've reached the point where they feel confident about staying in one place for a while and are established in their jobs with a relaible income. Their debt obligations - such as car loans, student loans and credit card payments - are manageable, and they're interested in exploring how the traditional benefits of homeownership, like favorable tax treatment and equity appreciation, can enhance their long term financial prospects. If that sounds like you, this guide will help you assess your current situation and better prepare you for the home-buying process.

Renting vs. Buying

Before you buy your first home, there are important things you need to know. Consider which option is right for you.

  • How much can you afford?
    Depending on the amount you have saved for a down payment, your mortgage payment should typically be no more than 28% of your monthly income, and your total debt should not be more than 36%. Use our loan calculator to find out what price range might be good for you.

  • Save for extra costs
    You'll need to have some money set aside for extra costs beyond your monthly mortgage payment. These costs include your down payment and closing costs. A down payment of 20% or more helps you avoid PMI (Private Mortgage Insurance) and lowers your monthly payment. And closing costs are typically 3% - 5% of the total home cost.

Weighing the Costs and Benefits

Home ownership brings a lot of added responsibilities and drawbacks but it also has its advantages.

  • Monthly mortgage
  • Your down payment - as low as 20% of the sale price
  • Closing costs - typically 3% to 5% of the loan
  • Taxes & insurance
  • Utilities
  • Repairs & maintenance
  • Homeowner association dues or assessments.

While these costs will vary from home to home, you'll want to know what they are before making a final purchase offer.

  • Your home may appreciate in value over time
  • You can increase your net worth by building equity through monthly principal reduction payments
  • Your home is your own - you can do whatever you like with it to reflect your lifestyle
  • You may save money at tax time by deducting mortgage interest and property taxes
  • A home offers stability, especially as your children grow up. It's a place where you can live the life you want, and where you can create the memories of a lifetime.

Getting Pre-Approved

Getting pre-approved by a mortgage lender shows real estate agents and sellers that you are a serious and qualified buyer. And being "qualified" has its benefits. In fact, being pre-approved indicates that you are a serious buyer and may even put you ahead of other applicants once you make an offer

Pre-approval also has additional perks worth noting. For instance, it helps you determine how much property you can afford and how much money you can borrow. That way, your time won't be wasted looking at out-of-reach properties.

Part of the pre-approval process includes filling out a loan application. To establish your employment history and financial capabilities, you must provide the lender with the following income documentation:
  • Pay stubs for 2-3 months
  • W-2 forms for the past 2 years
  • Most recent 3 months' bank statements
  • All credit account and debt information
After the mortgage loan officer receives these documents, he or she will then pull your credit report, assess your financial capabilities, and inform you of how much money you can borrow towards your home.

Finding the Right Home

Once you're pre-approved, you can start looking at houses. Now is the time to contact a reputable real estate agent who can show you good homes you can afford.

It's important to find a real estate agent who will:
  • Help provide background information on properties of interest to you
  • Guide you through the buying process
  • Make it easier to work with the seller
You might also consider hiring a real estate attorney to:
  • Be your advocate during negotiations with the seller
  • Review contracts and research liens and encumbrances
  • Make sure there are no legal surprises ahead
Get a Home Appraisal & Title Search
Found a home you like? Once the seller accepts your offer, you may strongly consider hiring a certified home inspector who can verify there are no structural problems, code violations or other undisclosed concerns. When your contract is final, your lender will have the property appraised by an independent, third-party appraiser who will confirm the fair market value of the home.
In addition, a title search will typically be conducted to:
  • Discover any record claims on the property
  • Make sure you can get a clear title to your new home

Closing the Sale

You're ready to finalize the sale. During the closing, you'll meet with all parties involved in the sale to make it official by signing documents, receiving the deed and paying your closing costs, which may include:
  • Attorney, broker, credit report and/or lender fees
  • Title search and insurance
  • Appraisal and inspection fees
  • Points - a predetermined fee similar to prepaid interest paid to the lender to receive a particular interest rate. 1 point equals 1% of the loan amount
  • Other costs depending on your particular loan
Property insurance:
Also called homeowner's insurance, property insurance protects the homeowner from losses to the property, as well as potential liability from events that occur on the property and elsewhere. Lenders require homeowner's insurance coverage to protect the collateral that secures their loan. Some homeowner's insurance policies do not cover catastrophic events such as tornadoes, hurricanes or floods. These kinds of events generally require a separate insurance policy. Sometimes additional insurance may be required for your loan.

Property Taxes and Homeowner's Insurance:
A typical monthly mortgage payment consists of amounts for loan principal, interest, taxes and homeowner's insurance. Taxes and insurance are usually paid from an escrow, or impound account.