You made an offer they couldn’t refuse. Kudos to you and your dream home dream team! But don’t break out the champagne quite yet. You still have several steps to complete before you move in. First of which is obtaining a home inspection. Although it’s not required, it is strongly recommended and may be a contingency on your purchase agreement.
Typically, it is the buyer’s responsibility to pay for an independent home inspection. Your mortgage lender or real estate agent may be able to recommend a qualified professional. Or you can search your area for members of the American Society of Home Inspectors (ASHI).
Your inspector will examine the property to determine the condition of the home’s structural and mechanical systems, including heating and air conditioning; interior electrical and plumbing; interior walls, ceilings, floors, and stairs; insulation; ventilation; foundation, basement, attic, and roof; exterior wall coverings, trim, gutters, and downspouts; windows and doors; surface grading and drainage.
Insist that each item is covered in a detailed, written report, and that you are given a copy when the inspection is complete. If possible, join the inspector on the property. It usually takes a few hours to complete the inspection, and it will give you the opportunity to ask questions about the home’s condition and estimated costs for any needed repairs.
On average, home inspections cost between $300 and $500 depending on the property’s location, age, and size. Although it’s an extra expense up front, it will give you confidence in the home you’re buying. And you may be able to negotiate with the seller to pay for repairs.
When it comes to home financing, every buyer and every situation is unique. Fortunately, there are a variety of loan programs available to meet a range of specific needs. So, which loan is right for you? Your lender can help you figure it out.
Fixed Rate: These loans provide the same interest rate throughout the life of the loan, making it a good choice if you want stable payments and plan to live in your home long-term.
Adjustable Rate Mortgage (ARM): With ARMs, the interest rate will fluctuate over time. It can go up or down, which will affect your monthly payment. An ARM can be a good option if you only plan to stay in your home for a few years.
Conventional vs Government-Sponsored Loans: which is right for you?
With a conventional loan, the lender assumes the risk for loaning you money. Conventional loans have more stringent credit requirements and higher down payments. Conforming loans adhere to loan limits set by the Federal Housing Finance Agency. Jumbo loans exceed the limits on conforming loans. Interest rates are usually higher and may have more strict credit standards and underwriting requirements.
With government-sponsored loans, the government backs the loan and assumes the risk. They typically have lower credit and down payment requirements, making it easier for many buyers to obtain a mortgage.
FHA: Federal Housing Administration (FHA) loans enable you to purchase a home with as little at 3.5% down. Buyers are required to pay a mortgage insurance premium (MIP) in addition to their monthly loan payment.
VA: Backed by the U.S. Department of Veterans Affairs, VA loans require no down payment and no mortgage insurance. They are available to eligible veterans, active duty military, reservists, National Guard members, and surviving spouses. Learn more about VA Loans and how they work.
USDA: Backed by the U.S. Department of Agriculture, these loans are available for homes in eligible rural areas. USDA loans do not require a down payment, but they do require mortgage insurance.
Although the Offer to Purchase document was meticulously prepared by you, your real estate agent or attorney, it does not guarantee you a loan. Once your offer is accepted, you’ll need to officially apply for a mortgage. Your lender will need several documents in processing your application. Be sure to have your paperwork on hand when you fill it out:
- Tax returns
- W2s and/or 1099s
- Recent bank statements
- Recent paystubs
- Residence history
- List of debts, such as car loans, credit cards, or student loans
- List of your assets, including investment and retirement accounts
Within three days of submitting your application, your lender must provide you with a Loan Estimate (LE), a form outlining the details of the loan you’ve applied for. It provides your lender’s best estimate of closing costs, mortgage and title insurance, and recording fees. An important part of home buying is ensuring that you are ready for all the fees and such that come with your purchase. If you decide to proceed with the loan, your application will go into processing. The processor will work with your Mortgage Loan Originator to collect all the documentation needed for the loan. An appraisal will be ordered to ensure that the home is worth the amount of the loan for which you have applied. The appraiser is a licensed, third-party professional trained to evaluate the market value of homes. They will consider the home’s condition, age, size, and other home sales in the neighborhood.
The next step is underwriting. The completed application is turned over to an underwriter who will review your employment and credit history, the property appraisal, and ensure your mortgage meets current loan product guidelines. Don’t be alarmed if the underwriter asks for more documentation from you. They need it to make an informed and intelligent decision on whether or not you qualify for the loan.
If the underwriter approves your application, you will receive a loan commitment letter confirming your approval. This document outlines the loan details, including amount being borrowed, the interest rate, and the term or repayment period.
Once your loan is cleared to close, it can be tempting to start shopping for new items for your new home. But be patient. Any extra spending or financial changes now could jeopardize your loan. So, until you’ve officially closed on your home, avoid the following:
- Do not apply for a credit card, car loan, or financing for furniture or appliances
- Do not make major purchases
- Do not liquidate assets
- Do not make large deposits
- Do not change jobs