Mortgages On Main is glad that you have decided to consider the important event of buying your own home. We know this is a very exciting time, and being well prepared will help you make better decisions. Take this opportunity to learn more about every step in the homebuying process, and let M.O.M. show you how to graduate to a successful first home purchase.
Lesson 1: Planning
Am I really ready to buy?
Buying a home offers many advantages, one of the most significant being that it allows you to build equity (ownership) when you pay your mortgage each month. A common myth is that monthly mortgage payments are more expensive than rent. But, in many cases, mortgage payments can be even less than rent. When considering homeownership for the first time, you need to decide whether buying makes financial and practical sense for you right now or if you are better off renting. Consider both the advantages and disadvantages to renting as well as buying for your particular situation.
How much “house” can I afford?
Home ownership is within many consumers’ reach. And the first step toward finding the right home is to quickly compute your purchasing power and determine how much can you afford to pay each month. This saves you time by allowing you to focus on homes in your price range.
In addition, you should consider both the up-front and ongoing costs associated with purchasing a home in the planning stage:
- Down-payment: Typically ranges from 3.5-20% of the cost of the house. The more you can put down, the greater equity you will have in your home and the lower your monthly payment will be. For down-payments less than 20% you may also need to pay mortgage insurance.
- Closing Costs: Typically range from 3-6% of the loan amount depending on your area.
- On-going Costs: Your housing costs can include the following:
Monthly mortgage payment
Mortgage Insurance, if applicable
Flood Insurance, if applicable
Lesson 2: Finding Your First Home
Let’s Go Shopping!
You know that you want to buy a home and how much you can afford. Now you have to get out there and find one! But, before hitting the streets, you will need to make a few key decisions.
What type of home do you want?
Options include single-family homes, condominiums, co-ops and townhouses, depending on your price range and your need for space and property.
Do you prefer a newly built home or a resale home?
You may want the warranties and efficient construction of a newly built home, as well as your ability to customize it for the first time. On the other hand, you may find a good deal on a resale home, which may need a little elbow grease. The choice is up to you.
What are your wants and needs in a house?
How many bedrooms? Garage? Basement? What kind of schools are in the area? By checking off the specific features of each home you visit, you’ll find it easier to compare your choices when it’s time to make your final decision.
Will you use a real estate agent, or shop on your own?
Many homebuyers choose to work with a real estate agent or broker to help them find a home. Since finding a home, negotiating the contract and closing the deal is such an important transaction, an experienced agent can provide guidance and help to avoid potential pitfalls.
An agent should have a vast knowledge of the real estate market, price trends and neighborhood conditions. The agent will help you shop for your home, tour properties and be your negotiator if bargaining over price is necessary.
If you decide to use a real estate agent, you should take great care in selecting one to meet your needs. You may want to ask family, friends and co-workers for referrals to agents that they recommend.
Pre-Qualification – An Important Step
Before you go looking for a home, you may want to consider getting pre-qualified to reassure yourself that you will be financially able to get a mortgage. Getting pre-qualified can give you a significant advantage while you’re shopping for a home. If you are working with a real estate agent, it lets them know you are a serious buyer.
Making an Offer
When you become more certain about the type of house and neighborhood you want, you may want to make an offer. Before submitting your offer, consider the following:
- The asking price versus the market value of the house.
- A comparative price analysis of neighboring homes.
- The home’s condition and potential renovations or repairs
- Your price range
- Negotiable items with the seller such as closing costs, repair work, closing dates, etc.
While bargaining, keep in mind some signs of an overpriced house. With the correct negotiating you may be able to get a lower price:
- On the market more than four months. If no buyers are interested, the house may cost too much.
- Series of cost reductions. Indicates that the seller has already cut the price, and may be willing to go lower.
- Your comparative price analysis is drastically different from the selling price. Don’t pay more than your neighbor for the same amount of house.
Lesson 3: Getting a Mortgage
A mortgage is a loan for which your home serves as the collateral. A basic monthly mortgage payment consists of the principal amount being borrowed, interest, taxes and insurance.
There are many different types of mortgages. Which one is right for you? When reviewing your options, you should consider your current financial picture, how your finances might change in the future, how long you intend to remain in the home, and how comfortable you are with fluctuating mortgage payments.
What Kinds of Home Mortgages Does M.O.M. Offer?
1.Fixed Rate: Security and Stability
Fixed-rate mortgages remain the most popular type. With these loans, the interest rate is fixed for the life of the mortgage, so your monthly payments never change.
2.Adjustable Rate Mortgages: Flexibility and Control
Adjustable-rate mortgages (ARMs) generally start out with an interest rate lower than a fixed-rate loan. This saves you money early on, and may help you qualify for a more expensive home. However, your rate is tied to a market index. As the index goes up or down, your payments will also change at each scheduled adjustment period. There are “rate caps” to limit the amount your mortgage can go up or down.
3.Special Mortgage Programs:
M.O.M. offers a variety of home financing options for customers with special considerations. These may include government programs; FHA, VA or USDA also known as rural housing for qualified borrowers and properties.
You’ve identified your price range and have learned about the mortgage options that may be right for you. Now it’s time to gather all the information and supporting documentation you’ll need to apply for a mortgage. Getting ready ahead of time will help the process move along quickly and smoothly.
Arrange your paperwork
Here are some of the documents you may need to prepare for the home financing process:
- Your social security number (or proof of permanent residency)
- Pay stubs for the last 2 months
- W-2 forms for the past two years.
- Bank statements for the past 2 months.
- 2 years of Federal tax returns.
- A signed contract of sale (if you’ve already chosen your new home)
- Information on current creditors-car loan, student loan, credit cards, etc.
Review a copy of your credit report
Your credit report will be ordered by M.O.M. as part of your application process; however, if you review your credit report and address any errors before you apply, you can avoid potential delays during processing. Make sure your credit report accurately reflects your current credit situation.
Remember, when assessing your financial picture, be as honest and thorough as possible. That’s the best way to secure the mortgage that’s right for you. There are mortgages for just about every buyer and situation.
You should get a Home Inspection prior to closing. A pre-purchase home inspection, performed by a professional, is a visual examination of the readily-accessible areas of a home to provide an accurate evaluation of the home’s condition at the inspection. This evaluation is presented to the buyer in a comprehensive report so buyers are fully informed of the home’s condition prior to purchase. While a home inspection is not required by M.O.M. , it is something you should consider.
When should I apply for a mortgage?
Keep in mind, even if you do not have a specific property address, you can still apply for your mortgage. M.O.M. can issue a credit-only pre-approval subject to receipt of a satisfactory purchase contract and appraisal and a verification of the income, debt and asset information you provide.
How Can I Apply with Mortgages On Main?
- Answer some basic questions and we’ll have a Mortgage Consultant contact you at your convenience. You can complete our online mortgage application at your own pace and when it is convenient for you.
- Make one easy phone call to Alexandria 320-763-0666, Sauk Centre 320-352-3999, St Joseph 320-271-4666 Mortgage Consultant will take your information over the telephone, and work with you so that you have everything you need to close your mortgage.
- You can work face-to-face with a local expert. Visit one of our 3 locations: Alexandria, Sauk Centre or St. Joseph.
Once you submit your application, a M.O.M. Mortgage Consultant will provide personal service to move the process along. He or she will answer your questions about the different types of mortgages available and current rates. You’ll need to provide your Mortgage Consultant with information on your income, credit history, debts and liquid assets. If you’ve already gathered this documentation, things should go smoothly.
What happens After I Apply?
Once you apply online, your application will typically proceed as follows:
- A Mortgage Consultant will review your information and contact you directly to answer your questions. He or she will also request from you any required documents that may be needed to begin processing the application.
- Next, your Mortgage Consultant will place orders for a property appraisal, a survey of property boundaries, a flood determination, as well as a title search and title insurance.
- The Underwriter will review all your information and decide whether to approve or deny the loan. The Underwriter will not have direct contact with you.
- Finally, the Closer will assemble the closing package, and ensure that all fees and other closing payments are accurately documented. In most cases, he or she will establish an escrow account for payment of necessary insurance and real estate taxes. You will be contacted to schedule a date and time for the closing.
Lesson 4: Closing the Loan
Congratulations! You’re about to become a homeowner. The “closing” is when the finalized loan documents are signed, and the mortgage funds are paid out. Once your loan is approved and cleared for closing, you and the seller (s) agree upon a mutually convenient date to meet and officially transfer ownership of the home to you.
The closing meeting is typically attended by the buyer (s), seller (s)/building developer, attorneys, real estate agent (s), a representative of the lender and a closing agent.
Here are some things you can do ahead of time to ensure a successful closing:
- Fulfill any conditions specified at the time of your loan approval.
- Obtain homeowner’s insurance. This required insurance protects you against loss or damage due to theft, fire, or certain weather-related hazards. In some areas, it may also be necessary to obtain flood insurance.
- Conduct a final walk-through of the home to ensure any agreed upon repairs have been completed by the seller.
- Review the final estimates of your closing costs.
- Prepare a certified check – not a personal check – to cover your down payment and closing costs. Make sure you can meet the conditions of your mortgage commitment.
At the closing, you’ll receive and review some very important documents. This is not the time to be shy! If you have questions about the paperwork, just ask. And if you spot an error, say so – and don’t sign the document until the issue is resolved.
Here are some documents you’ll receive or review at your closing:
Closing Disclosure- This is an itemization of all funds and costs paid by the buyer and seller either at or prior to closing. If required to receive 3 or more days prior to closing.
Deed of Trust or Mortgage – This document states the lender receives a lien on your property as security for your loan.
The Note – The note is your binding legal agreement to make payments to the lender according to the terms of your mortgage.
The Keys – The symbol of your new home ownership.
Lesson 5: Summary
We hope, this crash course has given you a better idea about what to expect during your first purchase. Let’s briefly review some key points:
- Clarify your reasons to buy vs. rent. Determine how much house you can afford to narrow and define your home search.
- Check your credit history and save as much as you can for down-payment and closing costs.
- Choose the right loan for you.
- Gather the necessary documentation and paperwork ahead of time. It will save you a lot of stress and running around.
- Get a professional home inspection and secure homeowner’s insurance before closing.