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Understanding the Mortgage Process When Buying A Home

Thinking of purchasing a home? Not sure what steps to take or how to prepare? We know how tedious and difficult this process can be, and would like to make it as easy as possible for you!

It can be extremely overwhelming if you don’t fully understand the jargon and process of buying a home and getting a mortgage, so where do you start? We know this is a huge decision, so hopefully this information answers some of your questions and helps you better prepare for the home buying process!

Know Your Credit and Finances

The first, and perhaps most important step of the process is knowing the ins and outs of your credit and finances: How much debt do you have? Can you afford a down payment? What is your credit score? How much house can you afford? Being financially prepared for the home buying process is essential, and there are many steps you can take to ensure that you are ready.

Many potential buyers don’t have a down payment laying around, so how can you save that much money? Well, it is not an easy process but pays dividends in the end!

  • Start by determining how much you need and when you need it. Putting an exact number as a savings goal helps keep you on track, rather than just trying to save “enough”.
  • Set a deadline based off when you would like to purchase. This sets concrete goals for you to achieve, and makes it feel much less daunting.

Once you know how much you need and when you need it, it’s time to start saving!

  • Create a budget for your household, or scrutinize your current budget and see where you can save more.
  • Eating out less, renting movies instead of going to the theater, and being conscious about utilities are all simple steps that you can take to save a little more money.
  • Some people like to create a separate bank account for their down payment savings, with a portion of each paycheck being added into it.
    • Some banks may even offer special accounts with higher returns for first time home buyers, so be sure to do some research before you start saving.

*Remember: Every little bit really counts!

Find a Lender and Get Pre-Approved

Just like you want the best home for your needs, you also need to find the best mortgage lender for your needs. Again, this comes down to research! After you’ve got your credit in line and your savings at a good spot, it’s time to choose a lender so they can begin the pre-approval process and guide you through the best loan to align with your goals of homeownership!

There are several ways to find lenders that may suit your needs:

  • If you have a Realtor, ask them if they have any suggestions. Many Realtors will have Lenders that they work with, and can help you through the process.
  • Consider working with a broker to help you find a Lender. Many people go this route, making it easier on themselves. But, some people prefer doing it by themselves and doing their own research!

Getting pre-approved has multiple benefits:

  • Getting pre-approved will let you know how much money a lender is comfortable loaning you, so you understand how much house you can afford.
  • Being pre-approved will also give you a leg up when you start looking at houses, as it will show sellers that you are able to make a solid offer up to a certain price.
  • Your Lender and Realtor will work closely together, assessing what homes and loans are the best match for your needs and budget!

*Note: mortgage calculators are a good tool, but usually don’t include other fees such as taxes, insurance, HOA fees, etc!

The Application Process and What to Expect Next

Once you have decided on a Lender, it’s time to submit your application! If you have decided to use the same lender that pre-approved you, you’ll need less information to get the ball rolling. However, don’t let this be a determining factor!

Some important questions you should consider:

  • What is the annual percentage rate (APR)?
  • What term works best for you (10 years, 20 years, 30 years)?
  • Is it an adjustable or fixed rate loan?

Knowing the difference between adjustable and fixed rate mortgages is very important, yet pretty simple:

  • Fixed-Rate Mortgages are just that: interest rates that stay constant during the entire repayment period.
  • Adjustable-Rate Mortgages (ARMs), also known as Variable-Rate Mortgages, allow the interest rate to be periodically adjusted based on a predetermined index. Generally, ARMs will start lower than a fixed-rate, but can increase over the life of the loan. This means that ARMs may be better for shorter term loans, while a fixed-rate may be better for longer terms.

Knowing the answers to these questions, as well as already knowing what will work best for you (remember: research!), will put you in a much less stressful situation!

Within 3 days of your application, your lender should give you a loan estimate, which includes:

  • How much the loan will cost
  • The associated fees and closing costs
  • The interest rate (possibly with information on obtaining a rate lock, if applicable).

Your Lender should keep their eye on interest rates for you after you receive this loan estimate! If rates start going up, you may want to lock your rate quickly. If they are dropping, you can consider waiting.

*Remember: Your Realtor and your Lender are experts and will help give you sound advice every step of the way to ensure you are educated and comfortable with your home buying experience!

We hope that this guide will prove very useful for you during the mortgage process. If you have any questions about the process that we did not cover, or would just like to chat about your home buying goals, give us a call at 303.847.1868 or schedule your free home buying consultation online!

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