Searching for a house? Thrilling! PAYING for a house? Scary, right?! Not necessarily! If you have a lender you trust, navigating the mortgage process can be smooth and bolster your decision to invest in a home. In this guest article by real estate agent Elizabeth Faulkner and mortgage lender Andrew Evans, you’ll learn about the mortgage process and types of loans available to homeowners.
All Things Mortgage
So, you’ve decided to buy a home! Fantastic! No matter what stage of life you are in, most home buyers have several things in common. Whether you’re fresh out of school and planning to purchase your first home or downsizing after 30+ years in the home you raised your kids in, you probably plan to take out a mortgage to make the big purchase. Though possibly not the most exciting part of the home buying process (my apologies lender friends), doing your homework on the lending side of real estate is important. So important that most real estate agents very quickly ask a new buyer client if they have spoken with a lender yet. What’s more, your realtor very likely has a lender on speed dial and can help you kick start the lending process. Because, after all, you wouldn’t go shopping without your wallet. Why would you go house hunting without knowing what you can afford to buy and, even better, your prequalification letter in hand?
A Little About the Mortgage Process
I’ve seen it a million times. Homebuyers don’t want to make that initial call to a lender because they think it will take a long time. Or they assume they will spend their upcoming weekend gathering three years of W2s and rent statements and utility bills. Not the case! That initial call to a lender is very preliminary, takes about 15 minutes, and is one of the most important steps to take before you head out the door to look for a house! With just a little information from you, your lender can identify the best loan type for you, plus give you a good idea of where your spending cap should be. Seems like super relevant information to have huh!
Once you have tackled that initial (NOT super scary) conversation with a lender and have your prequalification letter in hand (or at least know what you can spend) it’s time to get the real party started! Now you’re prepared to go find a house! When you find the home of your dreams, it is time to get that lender back on the phone and get moving on the mortgage. Being “under contract” is exciting but it also means you’re officially on the clock. The short window between the ratification of the contract and closing day is when all the magic happens. While you and your agent are working together on home inspections, your lender will be hard at work to ensure your loan is ready to close when the big day arrives!
What Type of Loan is Best for Me?
Four of the most frequent types of home loans my clients tend to use are conventional loans and several government-insured home loans, specifically VA loans, FHA loans, and USDA loans.
A conventional loan may be just what you’re looking for if you have great credit and at least a 5% down payment saved. Also, in this market a home buyer will most likely need to pay their own closing costs. This means that, for a conventional loan, a home buyer will need to have enough cash to cover closing costs and a minimum of a 5% down payment. The main benefit of a conventional loan is lower closing costs, excellent interest rates, lower monthly PMI and less paperwork than some of the other loan types. As a side note, a gift from a family member is acceptable for the down payment and the closing costs as long as the home being purchased will be for a primary residence or second home. Gifts are not allowed when buying investment property (i.e. rental property).
This loan is arguably one of the best loans on the planet, however, you can only get this loan if you have served in the military long enough to receive your VA eligibility status. This loan requires no down payment, minor credit issues are fine and interest rates are excellent. But due to the current market a home buyer will still, most likely, need to pay their own closing costs. So, if a home buyer is thinking about a VA loan, they should be have enough money to pay their own closing costs. A gift from a family member is acceptable for the closing costs.
If you want to buy a home and you have lower credit scores, a higher debt to income ratio or some derogatory credit the best loan for you will almost always be an FHA loan. With an FHA loan you will get an excellent interest rate and underwriting is a bit more forgiving with credit issues. A gift from a family member is acceptable for the down payment and the closing costs.
This loan requires no down payment, which is music to some buyer’s ears! A gift from a family member is acceptable for the closing costs. With a USDA loan, there are two limitations. One is an income limit and the other is an area limitation. USDA is an abbreviation for United States Department of Agriculture. The area limitation is that the subject property being purchased must be in a rural area as determined by USDA. The best way to determine if you qualify is to contact your local mortgage lender. A local mortgage lender can simplify this tricky loan for you. A gift from a family member is acceptable for the closing costs
Whew, you made it through all the mortgage information. Good job! What? That wasn’t as bad as you thought? Other than “told ya” what else can I say?!?
Now that you have a wealth of knowledge on the mortgage process, the loan types to consider and your team of experts in your corner it is finally time to go find the home of your dreams.
Ready to learn more about securing the right home loan for you and your family? Contact real estate agent Elizabeth Faulkner or mortgage lender Andrew Evans. You can also read more from Elizabeth Faulkner on Kidding Around.
Kidding Around’s Bethany also had a recent Live Facebook conversation with Elizabeth Faulkner and Andrew Evans about the mortgage process.