Buying a Home 101: Understanding the Mortgage Process
Buying a home is one of the biggest financial decisions most people will ever make. Each month, most homeowners spend between 20 and 40 percent of their income on paying their mortgage. It’s a big investment, and something that you have one shot to get right, which means it can be stressful to most buyers trying to do it on their own.
The good news is… we’re here to help. Getting a mortgage and buying a home is easier when you have a trusted lender to guide you through each stage of the mortgage lending and homebuying process.
At Andrews Federal we have a team of home lending experts who can guide you from understanding credit scores, to analyzing loan options and what you can afford, through each step of the paperwork required to secure your home loan.
Step 1: Understand What You Can Afford
The first step of buying and financing a home is understanding your financial picture. You have to understand what’s affordable for you and your household, once you factor in your other financial obligations.
To get started, review your financial picture, including:
Income
Outstanding debts
Savings and funds available for closing costs and down payments
Other home-related costs, including, HOA fees, property taxes and insurance
Monthly budget
Many financial experts recommend keeping total housing costs at or below 28 percent of your gross monthly income. This may also fluctuate depending on what else you have allocated in your monthly budget. If you have a large car payment or are paying for students to get through college, you may have enough income on paper but may not want to put as much money toward monthly mortgage payments.
Step 2: Understand Credit Before Applying
Your credit score plays a major role in the mortgage process and can impact the house you’re able to get because of the interest rate you qualify for.
If you have a higher credit score, you may qualify for a better interest rate, which will make your overall loan cost and monthly payments lower. Even small improvements in your credit score can make a difference in the loan rate you receive.
Before you apply for a loan, take a look at your credit score and see where you stand (use this blog post as a guide to understanding your score).
If your credit is outstanding, talk to your loan officer about the type of loan that will suit your needs and be most financially advantageous to you. If your credit needs improvement, start working on that right away, and homeownership may still be within reach. Many buyers successfully qualify for a mortgage loan after paying down debt and/or taking time to build payment history.
Step 3: Get Pre-Approved
A pre-approval gives you a clearer estimate of how much you may be able to borrow and shows sellers you’re serious about finding a home. When you apply for a pre-approval, your lender will typically review:
Income and employment
Credit history
Assets and savings
Debt obligations
Tax documents and pay stubs
Once you’ve completed your pre-approval application, the lending experts at your financial institution will give you a clearer understanding of which types of loans you qualify for, what your monthly payments might look like, and how much money you might need for a down payment.
When you have this preapproval in hand, you can shop more confidently, knowing what type of home you can afford and how it may fit into your budget.
Step 4: Explore the Right Mortgage Loan Options
There are several different types of mortgage loans, and certain ones may be a better fit for you and your financial situation. These are the most common mortgage options:
Conventional Loans
A conventional loan is a traditional mortgage loan that is a good fit for borrowers with strong credit and stable income.
Conventional loans can be:
Fixed-Rate: Keeps the same interest rate throughout the life of the loan, which can make payments more predictable.
Adjustable-Rate Mortgages (ARMs): Rates adjust over time. Many ARMs offer a lower introductory rate, then adjust depending on market factors.
FHA Loans
FHA loans can offer lower down payment requirements and more flexible credit guidelines for qualified buyers.
VA Loans
VA loans are available to eligible military service members, veterans, and certain spouses. If you qualify for a VA loan, you may be able to secure a loan with no down payment requirements and a competitive interest rate.
The right choice depends on your financial goals, timeline, and comfort level. A lender can help explain the pros and cons of each option so you can make an informed decision.
Step 5: See If You’re Eligible for Homebuyer Assistance
First-time homebuyer assistance programs can help with some of the upfront costs that make homeownership seem out of reach. These grants and funding programs can help to cover closing costs or to meet down payment requirements.
Depending on your situation, you may qualify for these grants as a first-time homebuyer, or if you haven’t purchased a home in the past three years. There may also be programs available for “hometown heroes” who work in the medical field, in education, or as first responders.
Working with our mortgage team can help you access and unlock some of these funding sources, and can help bring homeownership more within reach.
Step 6: Find Your Home
Shopping for the perfect home is the most enjoyable part of the buying process. You get to review options that might fit your needs and to find those special features that would make the home feel like your own.
When you’re shopping, use your preapproval as your guide. It can be tempting to try to stretch your budget a little farther to get that home that’s just a little nicer, or bigger, or that has a pool.
It’s also important to use those numbers from your preapproval and from your budget to stay disciplined during the process. As you tour homes, consider factors beyond appearance that will have a measurable impact on your quality of life, including:
Commute times
School districts
Neighborhood amenities
Property taxes
Future resale value
Maintenance needs
Once you’ve settled on the perfect home, you can work with your real estate agent to make an offer and get a contract signed. Then you can work with your lender to complete the underwriting and loan finalization process.
Step 7: Mortgage Underwriting
In the underwriting stage, your lender completes a thorough review of the property you’ve selected and the financial documents you provided during the loan application process.
Key parts of underwriting often include:
Home Appraisal: An appraisal estimates your property’s market value to ensure the loan amount aligns with the home’s worth.
Home Inspection: Home inspections help identify potential issues that may need repair or affect the overall value of the price. It’s important to complete an inspection of the property before closing. You may be able to use information received there to negotiate with the sellers on the home’s value, or to have a good understanding of issues you may want to fix upon taking ownership of the property.
Document Verification: Lenders may request updated financial documents, employment verification, or explanations for certain transactions. For example, depending on how long it’s been since your application was submitted, they may request updated pay stubs or explanations for changes in income, etc. This part of the process can feel paperwork-heavy as there may be a lot of back-and-forth between you and the underwriting team. However, being responsive and communicating well can make the process go more smoothly and ensure you complete everything and close on time.
Step 8: Closing on Your Home
Closing is the final step before receiving the keys to your new home.
Before closing day, buyers typically receive a Closing Disclosure outlining:
Loan terms
Interest rate
Monthly payment
Closing costs
Cash needed to close
Review these documents carefully and make sure everything is correct, so that you are prepared to sign with confidence. Your lending team is here to answer any questions you may have in advance of the official closing.
On closing day, you’ll sign the final paperwork and your lender will fund the house purchase. Congratulations, and take the keys - you’re officially a homeowner!
Homebuying Doesn’t Have to Feel Overwhelming
The mortgage process may seem complicated, but your lending team is here to make it as simple as possible. We host regular webinars for those considering buying a home, and we also have expert guidance available to you every step of the way.
Buying a home is a huge milestone, so whether you’re just exploring options or ready to make the move, our Andrews Federal mortgage team is ready to help you navigate with clarity and confidence, and make your dream home a reality.
