When you are thinking about buying a home there are some things you need to know before you get started. I used to own a mortgage company and I’m also a realtor so I have a few tips for you. Both of my licenses are inactive at the moment but I keep up to date on my continuing education classes. I can activate my licenses at any time. I owned a mortgage company for about 15 years and was actively selling and listing homes for over ten years.
Before you get started looking for a home, you need to get your affairs in order. I know that house you just saw around the corner is darling and you want it. Today. Well, you need to be prepared before you start looking for a home. Before you start looking online or cruising neighborhoods for the perfect home, you need a plan.
When You Buy A Home
- Save for a down payment/closing costs (or ask the seller to pay the closing costs-when the offer is submitted)
- Get pre-approved for a loan
- Find a real estate agent
- Start looking for a home
- Submit an offer on a home (make a copy of the earnest money check), your loan officer will need it
- Real estate agent will order inspection
- Loan officer will order appraisal (required to determine value) and termite inspection if needed
- Close on your home
Home Loans Available
Here are few types of loans, your loan officer will explain the pros and cons to each. Your loan officer will get your VA Certificate of Eligibility if you qualify for a VA loan.
- FHA as of today requires a 3-1/2 percent down payment, this loan has PMI (private mortgage insurance)
- VA government insured loans requires zero down, this loan has a VA funding fee but no PMI
- Conventional loans are the most popular with 5, 10, 15 and 20% or more down payment (under 20% down will have PMI)
- ARMS-adjustable rate mortgages, this means the rate is adjustable, the rate will go up typically
- Rural Housing is 100% financing and has PMI
- Loans available can be 10, 15, 30 and 40-year loans
Good Credit for Home
This is when you need to be prepared to have good credit when you apply for a home loan. Your FICO credit score is critical because it will determine your interest rate. The credit scores you have access to are different than the ones we use as loan officers. We pull three credit bureaus, not just one like the credit bureaus we have access to check on the Internet.
Please do not apply for unsecured credit, car loans, furniture stores or have your credit pulled until you know the loan officer YOU really want to use. If you have applied for credit in the last 90 days the lender will wonder if you are out buying “stuff.” Right before you close on your loan they pull credit AGAIN and check to make sure your ratios are acceptable to the lender.
The lender will also call your employer to make sure you are still employed the day the loan is funded. In other words, don’t go shopping for that big TV, furniture, car, or get 10% off at the checkout counter at your local store if you open a credit card to save 20%. No, no, no. If you want a home you must be careful with credit inquiries. Please do not quit your job, yes I have seen this happen. One of my loan officers had a buyer quit his job a week before he was supposed to close on his mortgage loan. Of course, that loan didn’t close.
Please pay your rent on time, the loan officer will send out a rent verification letter to your landlord. You may not have any credit, but this is a great way to show you pay your rent on time, therefore you have great credit. If you have a car loan that is a better loan than unsecured debt. The reason being the loan is a “closed-ended” loan. It will eventually be paid off. If the car is within so many months of being paid off, the lender may not count the debt because it will go away.
If you are wondering about student loans, yes they will be counted depending how long they are deferred. Yes, loan rules will change so be aware. Your loan officer if she or he has the experience, they will know the changes.
Paperwork for Home Loan
Here are a few items you will need to take to your loan officer:
- Start gathering bank statements (three months-every page)
- IRA’s or 401K statements, stock statements (three months worth)
- Paystubs (30 days)
- W-2’s and 1099’s (2 years)
- Personal Tax Returns-every page (2 years)
- Business Tax Returns if applicable (2 years)
- Overtime is typically averaged for two years
- Self-employment income will be averaged over two years
- Driver Licenses
- Social Security Cards
Expectations of Your Home
Please remember a few things, never buy the biggest most expensive home in the neighborhood you are looking at because it may not appreciate enough to help you buy your next home. If the prices are $200,000.00 to $300,000.00 typically the next wave of buyers will be looking at the lower priced homes and you’ll have an easier time selling when the time comes.
I suggest you and your partner, if you are buying a home together, write down your expectations you want with your new home before you go looking. For instance, 2 bedrooms, 3 bedrooms, how many bathrooms, yard size, carport, garage size, the distance of the commute to work, to name a few things. Ask the realtor if the home has an HOA, this will really impact your budget and parking that trailer on the side of your home. An HOA, homeowners association, will have a monthly fee depending on the common areas, whether they mow your lawn, replace shrubs, etc. You may have to have the color of your front door, entryway lights, home color, garage color approved by the HOA if you plan to make any changes after you move in.
If your home is in a flood zone, that will add a monthly fee if you can even get flood insurance. If you can see a creek, river or culvert near the home, it may be in a flood zone. Be wary of vacant property adjoining the home you are looking at because that may become a commercial building, shopping strip mall or apartments looking directly into your backyard. I always pointed that out to my buyers because you don’t know what is zoned for that plot of land today, and it could change next year.
If you walk into a home with purple walls (my favorite color), remember you can paint the walls, paint is pretty cheap, so don’t get too discouraged with some features you may want to change. On the other hand, look at the floorplan, the size of the rooms, the moldings. the ceilings (for cracks-settling), the cabinets, etc. since some repairs could be more expensive. Things like the lights can be replaced later as desired. Ask when the furnace/AC was serviced, I usually did that as a realtor. I look at the windows, the window screens and the roof (not with a ladder) the inspector will do that.
Check the bathroom for caulking around the tubs and showers, has it been maintained? I’m a clean freak so I look for clean homes. If the home is immaculate then the house has probably been maintained properly. Remember, once you buy, you no longer have a landlord to replace the dishwasher, water heater, etc. As a realtor, I always checked the date on the water heater, hoping it showed the date it was installed.
Ask how old the furnace and the AC are, they may be the original ones when the home was built. Remember, an inspector will check some of this stuff, but it can still break down a month later. As a realtor, I always bought a home warranty for my buyers. Trust me it was used twice, once on Christmas Eve when the furnace went out and another buyer when the AC went out. Those were the most expensive ones that were replaced, whew, it saved my clients $4,000-$5,000 each.
Choosing a Realtor and Home Mortgage Loan Officer
Oh my gosh, these are the most important people you will use to help you find your dream home. I know you may have a cousin who has a best friend with a twin sister that does real estate every once in a while. STOP. I can hear you say, but I need to help her, I get it. But this is the biggest purchase you will make for your family. You need someone who knows the area, has extensive expertise and is looking out for you, not their pocketbook.
They may not know a commercial building is going in on that lot right behind the house you are looking to buy. An experienced realtor with integrity will be looking for a home’s flaws or positive features. When I owned my mortgage company before I took the classes to be a realtor, I knew the good realtors and the not so good ones. You want a realtor that is looking out for your best interest.
Typically a really good realtor knows the best loan officers. They may not be at a bank. They may be a mortgage broker like I was or a direct lender. Check references and ratings. Reputable title companies know the best realtors and loan officers. Trust me, if you have a moving van loaded, that loan better close on time.
Home Moving Expenses
Sometimes realtors provide moving trucks to help their buyers. You can hire a moving company, but it may be more be expensive than you planned on. Get a bid in writing if that is your only option, and check references. Just expect several hundred dollars to rent a truck if you are moving clear across town. Moving a few items in a personal truck is expensive and annoying to people helping you. You can buy used boxes with used paper for packing online or at moving companies. We bought and sold our boxes online before and after we moved once.
Here is a post I wrote on maintaining a home. Maintain Your House by Linda
Changing the Home Locks
Please have your home locks changed once you move into your home. I always gave my buyers a $300.00 gift card to a reputable locksmith so they could have new keys made or the locks replaced. It’s all about safety.
Please remember, buying a home is the biggest and most important purchase your family will make. Take your time and enjoy that home with your family. It’s all about the memories.
My favorite things:
Copyright picture: AdobeStock_64479058 by Andy Dean