Home Buying Process
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1. Secure Financing
Before buying a home, you will need to gather the following information required by the lender to qualify for a mortgage.
Income and Employment
- Are you employed?
- Is your employment history steady?
- What’s your current income?
- How much money do you have in savings?
Down Payment
- How much money are you able to put down on a home?
- Down payment of 20% or more of the purchase price generally provides you with immediate equity in a new home.
2. Find a lender to get preapproved for a loan
While preapproval is not a mortgage commitment or guarantee, it will provide guidance on what you can afford to spend. Having a preapproval letter to show to the seller demonstrates that you are a serious buyer. When you are ready to buy, it will shorten the time it takes your lender to complete the mortgage application process.
Getting the best deal on loan terms, interest rate, and fees are important. Remember, you are investing not just in a home but also in the mortgage loan that will finance your home. Consulting with several lenders can help you get the best deal possible. If you need assistance in finding lenders, feel free to let me know.
Be sure your lender explains the preapproval process clearly. During the preapproval process, the lender will review your financial information, including salary and how much debt you owe on your credit cards, student loans, car payments, and other debts. They’ll review your credit report showing how promptly you paid your bills in the past. They’ll also review your ability to pay property taxes and other expenses of homeownership.
Make sure your lender explains all loan fees, including, the up-front costs of originating, processing, and closing the loan, as well as, costs associated with escrows for taxes and insurance (see below) and other costs of owning a home, such as homeowner association dues. This will help educate you on some of the additional expenses related to buying a home.
3. Setting up an Escrow Account
Most mortgage companies require an escrow account for mortgages with less than a 20 percent down payment or those with a lower loan-to-value ratio, unless the borrower is willing to pay a higher interest rate. An escrow account helps you:
- Manage your budget with monthly tax and insurance payments instead of an annual lump sum payment.
- Gain peace of mind knowing your payments will be made, on time, on your behalf.
- Meet your lenders requirements by ensuring that your home is protected with paid-up insurance coverage and taxes.
What is an escrow account? It’s defined as a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.
Your monthly mortgage payment includes an amount for property taxes, insurance, amount you owe for principal and interest. Your mortgage company will place the amount of your monthly mortgage payment that is for taxes and insurance in an escrow account. The funds can only be used to pay taxes and insurance on your behalf.
Each year, your mortgage lender sends you a statement showing the activity for the prior 12 months- amounts collected from you, placed in escrow, and paid on your behalf. It will show any adjustments that may be needed based on changes in your tax and insurance costs. Ask your lender for a full explanation and an estimate of the escrow payment on your mortgage.
