Let me start by saying congratulations! You've started to embark on one of the most exciting and life changing events - buying a house. This truly is one of the most revered achievements for a person and it comes with pride of ownership, sustainability and stability. However, jumping in blindly can lead to frustration, hardship and confusion. I want to make it as easy as possible. This is a series of steps to buying your first home. Don't get frustrated or discouraged and you may already know many of these. But take the time to scan through steps that you may not be aware of so you feel comfortable with the process and confident in your purchase.
Financing
How much home can you afford.
Unless you're purchasing the home with cash you'll need a home loan. Very few people can buy with cash but it's not impossible. Investors, repeat home buyers, retirees, or anyone that has saved several hundred thousand dollars can certainly purchase the property with cash. Having the cash in hand makes the negotiation process easier and the closing process much quicker.
Read more: 5 keys about buying your first home
But if you're like most of us, you'll need to apply for a home loan in order to afford a property.
You'll need to figure out exactly how much home you can afford. You might assume that you can afford a certain amount but without a mentor qualifying you and your budget, examining debts, income, liabilities and assets, it's hard to give an exact number. There are many mortgage and affordability calculators online but because they simply scratch the surface of how much income you have versus the amount of mortgage you can afford each month, they may offer inaccurate results.
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What you'll need in order to apply.
When it comes time to apply for a mortgage loan you want to find a lender you trust and feel comfortable with. There are several different ways to obtain a home loan; a bank, credit union, mortgage officer or personal loan. Many people choose to begin their search with their own personal bank or credit union. Banks and credit unions will have their own interest rates, terms and fees. The downside to going with the bank or credit union is that these are their only options.
A mortgage broker or mortgage officer, also called a loan officer, has access to hundreds of banks, credit unions and programs that may fit your budget, your lifestyle and your situation much better. The downside to using a mortgage officer is that it may cost a little bit more up front and in closing costs, points and fees but you will be saving money in the long run by getting a mortgage or home loan that is better suited for your budget. You could save on interest rates, points, fees, and terms by going with a mortgage officer or loan officer versus a bank.
When it comes time to apply for the loan you'll need several documents in order for final approval:
· Pay stubs for the last 2 to 3 months
· Bank statements for 2 to 3 months
· Tax returns for the last two years
· All information on assets and liabilities including IRAs, 401 accounts and savings account
· Information and accounts on credit cards, student loans and automobile or vehicle loans
· Identification such as your drivers license
· Any additional information that your lender may require.
Your lender should offer you a list of information they need in order to complete the home loan process. It's a simple checklist that you can follow and collect the documents needed in order to continue.
Pre-Approval Letter
Once you find a lender that you enjoy working with and have provided all of the necessary information you will be issued a pre-approval letter. (If your lender does not automatically provide this be sure to ask for one).
This letter will state that you've already done the necessary financial homework in order to purchase the property. Of course, every letter will be slightly different and as long as you have close communication with your lender you can even tailor the letter for the exact amount you're planning on offering on a property.
Stay Tuned for Part 2 - The Buyers Agent and Making an Offer
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