Today, most people that buy a home will be using a mortgage. This article is to help you understand more about buying a home and getting a mortgage.
One of the more important parts of buying a home is getting a mortgage. A mortgage is a loan that a bank or mortgage lender gives someone so they can buy a home.
How Much Mortgage Can I Afford
When a home buyer asks me how much they can afford, I’m not the right person to answer this question! I can tell you what homes are selling for in the Anderson SC area.
I can’t tell you how much you can afford or how much mortgage you can qualify for. That’s why you MUST talk to a mortgage lender BEFORE you start looking at homes!
My general advice is you should look at how much you are paying now to determine how much mortgage you can afford.
Just because you bought a home does NOT mean you can suddenly afford to pay more! You need to include insurance, taxes and maintenance when determining your home buying budget.
Select a monthly housing payment that is very comfortable for your budget. What mortgage amount has a payment that does not exceed your safe and comfortable budget?
This is why talking to a mortgage lender is one of the first steps of home buying. Determining your budget before looking at homes is one of the most important steps in buying a home!
Where to Get a Mortgage?
The first step to getting a home loan is to find a mortgage lender or bank. I am surprised that many people skip this critical step of the home buying process.
It’s totally the home buyer’s decision about which mortgage lender they use. Whether you choose to use a big bank, your local credit union or even an online mortgage lender, it is your choice!
You don’t have to go along with the lender that your Realtor recommends. Most reputable Realtors will only suggest lenders that they know from experience do a good job.
When it’s time to shop for a mortgage, a good place to start is with your bank or credit union. Or you can do some research online for mortgage lenders. Another option is asking friends, family, or co-workers who to talk to about getting a mortgage.
Using a person that you can talk to face to face has been the best option for the majority of buyers I have worked with. You can search for mortgage lenders in your City and State to find some people to talk to in your area.
You may be wondering if you should use a mortgage broker or a bank. There are advantages and disadvantages to each.
A bank uses their own lending criteria and provides mortgages by using their own funds. Banks may have stricter criteria but they can offer lower rates. Banks are harder to communicate with and they will not usually be available on weekends.
A mortgage broker is a middleman between home buyers and lenders. Mortgage brokers work with a variety of lenders to get the best home loan for their clients. A broker’s fees may be higher than a bank but they are better at communication and can be faster.
When you shop for a mortgage, you need to go over your choices with several mortgage lenders. Don’t look at just their rates but request a full “good faith” estimate where they make a list of each charge.
Here are some questions you should ask potential mortgage lenders:
- What types of mortgages do you offer?
- What fees do I pay at closing?
- What fees do I pay upfront?
- Can these fees be included or added to the mortgage?
- How long will it take for my mortgage to get approved?
- Where are your loans processed and underwritten?
- How many mortgages like this have you personally closed?
Documents Required To Get A Mortgage
The required paperwork for a home loan can vary depending on the buyer, the lender and the type of mortgage. In general, the required documents to get a mortgage are similar.
When formally applying for a home loan, there are some documents required by all lenders. A copy of your social security card, recent pay stubs, W-2s for the past two years are typically required by lenders.
Self-employed home buyers may have to submit even more documentation.
Some of the typical documents that a lender must have includes:
- Drivers license
- Bank statements
- Asset statements
- Fully executed purchase contract
- Copy of an earnest money deposit check
It’s crucial that you understand that there could be additional documents required later. Paperwork that’s normally requested after the loan application is completed may include:
- Updated pay stubs
- Updated bank statements
- Verification of employment
- Gift letter for down payment (if applicable)
A common mistake that home buyers make is not getting Pre-Approved. A mortgage pre-approval should be secured ahead of looking at homes!
A Pre-Approval letter is a written commitment for a buyer from a mortgage lender. It is not a guarantee! A mortgage pre-approval letter requires the same documents as a formal mortgage application.
You should get Pre-Approved for 2 reasons. It can help you in a multiple offer situation and it helps you to determine the correct price range to search in.
What Type of Mortgage Is Best
Many home buyers ask what type of mortgage is best. There are a variety of types of mortgages and what is best depends on the home buyer.
It is crucial for you to determine what kind of mortgage is better for you. You need to decide which mortgage is best before you start looking at homes.
Some types of mortgages have unique rules about property location, type or condition. You must know about this BEFORE you start looking at homes!
Here are some of the different mortgages that are available for home buyers:
FHA (Federal Housing Administration) mortgages are popular because of their low down payment. FHA mortgages make it possible to buy a home with only a 3.5% down payment.
A FHA mortgage allows a buyer to get up to 6% of the homes purchase price as a seller’s concession. This can be used for the buyers pre-paid items and closing costs.
It isn’t just the low down payment that makes FHA mortgage popular. FHA mortgages allow lower credit scores as well!
A conventional mortgage requires higher credit scores and more down payment. One of the advantages of a conventional mortgage is the option to get rid of mortgage insurance.
Some conventional mortgages will allow condition issues that a FHA mortgage will not. This is great for homes that are bank owned or need some work.
Some sellers see a buyer using a conventional mortgage as a stronger or more qualified buyer. The stricter qualifying criteria for conventional mortgages make this a possibility.
VA mortgages are also known as Veteran Administration mortgages. They are are a great home mortgage option for Veterans.
VA mortgages allow financing 100% of the homes appraised value. Also, the buyer can use seller concessions to assist with paying some of the home buying costs.
USDA loans are zero-down-payment mortgages for rural home buyers. Many areas of Anderson County are eligible for this type of mortgage.
USDA loans are issued through the USDA Rural Development Guaranteed Housing Loan Program by the United States Department of Agriculture. It is one of the government’s least known mortgages and it is NOT only for farms or agricultural properties.
There are income limits and other rules that vary based on location. Still, this can be a great choice for some home buyers.
Will the Interest Rate Change on Your Mortgage
Whether or not your rate will change depends on if you have a fixed-rate or adjustable rate mortgage. Fixed-rate mortgages have an interest rate that will not change over the life of the loan.
ARMs or adjustable rate mortgages can result in a payment that also changes. Adjustable rate mortgages usually have a set amount of time when the interest rate is fixed.
After the fixed interest rate period is over, the rate can change. Your monthly mortgage payment could increase dramatically with an ARM.
Mortgage points are fees paid directly to the lender at closing for a reduced interest rate. Mortgage points allow you to “buy down” the interest rate.
Each point is equal to 1% of the total amount mortgaged. For example, on a $100,000 home, one point is equal to $1,000. When lenders advertise mortgage rates, they usually advertise a rate that is based on the purchase of points.
How Much Money Do You Need to Buy a Home
Lots of people think they need a bunch of money to buy a home. Depending on the type of mortgage you select, how much you need may be lower than you think.
That being said, you WILL need some money to pay some of the expenses of buying a home. Besides the down payment, buyers also need to consider the closing costs.
The costs of buying a home include:
- home inspection
- pro-rated taxes
- deed stamps
- underwriting fees
- down payment
- transfer fees
- homeowners insurance
Like I said before, how much down payment varies from one type of mortgage to another. And the closing costs can vary as well.
The costs and fees to buy a home must be thought about when you determine how much money you need. However, it is possible to buy a home with little or no money down. Your Buyers Agent and mortgage professional can explain your options.
Your mortgage lender should give you a summary of the lender costs. Your Realtor can help you estimate how you much will need for the miscellaneous stuff such as the inspections.
How Long Will It Take to Get a Mortgage
How long it requires to get a home loan varies between various lenders. When doing your research for a lender, it’s important to know how long the lender takes to a mortgage closed. A good mortgage lender is able to get a mortgage closed faster than other lenders.
Home buyers need to understand why a mortgage can be delayed. It’s crucial that you stay in contact with the lender!
One of the most common reasons is that the buyers do not get additional documents to the lender in a timely manner. Make sure you give any required documents to the lender ASAP!
What Is an Appraisal and Why Is it Necessary
A bank appraisal is an unbiased professional opinion of a home’s value. The lender will require a bank appraisal if a home buyer is using a mortgage to buy a home. An appraisal is also normally required if a homeowner is refinancing.
The appraiser will determine a home’s value in several ways. The most common method is the comparable property approach.
This is when an appraiser will look for at least 3 recent sales of comparable homes that have sold recently. The appraiser can make adjustments between the subject property and the comparable properties for any differences.
Problems with the bank appraisal can stop a home sale. Waiting for the appraisal can cause everyone involved concern.
Sometimes the home value comes in lower than the sale price. Or the appraiser may say that repairs must be completed before the mortgage is approved.
The Take Away
After reading this article, you know about the basics of buying a home and getting a mortgage. Just like there are no 2 homes that are identical, there are not 2 home sales that are identical.
Many different situations may occur that leave home buyers wondering what to do. Listen to your mortgage professional and Realtor to avoid costly mistakes!
Mortgage and home buying questions are often answered with a phone call to your Realtor or mortgage lender. If you have any questions about buying a home in the Anderson SC area, please Contact Me!