What Are Steps To Buy And Qualify For A Mortgage
This Article Is About Steps To Buying A House And Qualifying For A Mortgage
Buying a home is one’s biggest investment for most folks.
- Homeownership has many benefits
- There are many benefits to buying versus renting a home
- Homeowners have tax benefits where renters do not
- Mortgage interest is tax-deductible for homeowners
- Homeowners can build equity in their homes when their homes appreciate and as they pay down their mortgage loan balance
- A home is one of the few investments one can enjoy and use
- However, there are negatives to owning a home
- Renters do not have to worry about maintenance
- All they need to do is contact their landlords if anything breaks
- All maintenance is covered with the rent paid
- Homeowners have responsibilities with taking care of the property
- Homeowners are responsible for their own maintenance
- Anything in the house breaks, the homeowner needs to fix it
- Some repairs are very costly
- For example, replacing a roof or replacing the HVAC unit may cost up to $10,000 or more dollars
First Steps To Buying A House
Once you have decided you are going to buy a home, the first Steps To Buying A House is qualifying for a mortgage.
- Remember one thing
- The most important thing to consider is not how much you qualify for but how much house can I afford
- Lenders do not take account of your personal expenses such as debts that do not report on the credit bureaus
- Everyone has a different lifestyle
- Mortgage underwriters only use debts that report on credit bureaus when calculating the borrower’s debt to income ratios
Remember to consider how much house can I afford versus how much of a house can I qualify for.
How Much House Can You Afford Versus Qualify
The following debts are not taken into consideration by underwriters:
- Utilities such as electric, gas, water, cable, internet, phone, other monthly household bills
- Childcare and/or elderly care expenses
- Auto, medical, other insurance
- Repair reserves
- Maintenance costs
- Other personal expenses
- Gas and travel expenses (tolls)
Review your personal finances. You do not want to spend most of your household income in paying for your mortgage and not have much left over for your personal expenses.
How Long Do You Plan On Living In Your Home?
Renters have the luxury of moving often versus homeowners.
- Buying a home requires a homeowner to live in the home for at least a few years
- It takes time and planning in selling a home
- Also, if you buy a house and plan on selling it in six months to a year, you will most likely lose money
- Homes do appreciate but not that quickly
- Also, home sellers need to pay a 6% realtor commission
- However, when the home appreciates in three to five years, homes do appreciate and homeowners will most likely make a profit from the equity they have built
Those who do not plan on staying in the home for at least three or more years should not purchase and rather rent.
Steps To Buying A House And Qualifying For A Mortgage
One of the most important Steps To Buying A House is qualifying and getting pre-approved for a mortgage.
- Make sure that you are fully pre-approved by a loan officer prior to entering into a home purchase contract
- Everyone has different credit and income
- Some borrowers have perfect credit while others may have low credit scores and bad credit
- Prior bad credit such as bankruptcy, foreclosure, late payments, collections, charged-off accounts does not disqualify borrowers
- Lenders are looking for borrowers who have re-established their credit and had paid their bills timely in the past 12 months
- Not all lenders have the same mortgage lending requirements
- Many lenders have lender overlays
- Overlays are additional mortgage guidelines set by individual lenders besides the minimum agency guidelines
- For example, HUD requires a 580 credit score to qualify for a 3.5% down payment home purchase FHA Loan
- However, most lenders will require a 620 FICO
- The higher credit score requirement is called a lender overlay
For homebuyers with bad credit, shop for a direct lender with no overlays such as Gustan Cho Associates.
Shopping For A Home
After getting pre-approved and armed with a pre-approval letter, homebuyers can start shopping for a home.
- Interview realtors and choose a real estate agent who knows the area
- Make sure you get along with the realtor
- Check out their online reviews
- What type of property is best for you and your family?
- A condo, townhome, or single-family home
- Location is key. Make sure you research the school systems, commute to work, traffic conditions during rush hour traffic
- Amenities in the area
- Questions asked should be how far is it to the expressway?
- Where is the nearest shopping centers?
- How far is the fire department in case of an emergency?
- How far is the nearest hospital?
- What are the property taxes compared to neighboring areas?
- What are the crime statistics in the area?
- How are the neighbors?
- Nearest restaurants and stores
What Experts Say About Owning Versus Renting
Owning a home has many benefits versus renting.
- There are many cases where owning a house is less expensive than renting
- However, with the pros, there are always cons
- Renters have the luxury of contacting their landlords if maintenance is required or something breaks down
- However, in lieu of landlords fixing broken items and/or doing maintenance, renters are paying the landlord’s mortgage, helping the landlord build equity, and giving the landlord monthly cash-flow
- Homeowners are responsible for maintenance and repairs
- Property taxes and insurance are the responsibilities of the homeowner
However, the homeowners are building equity and after the mortgage term is up, the home is theirs.
Main Benefits In Becoming A Homeowners Versus Being A Renter
There are countless benefits of being a homeowner versus being a renter. Pet lovers can own a dog and/or cat without asking the landlord or putting an additional deposit. A landlord cannot ask you to leave and not renew your lease. You can decorate your home any way you want without permission. Homeowners get to deduct mortgage interest on their income tax returns. After the mortgage term is up, homeowners own their home. The only payments they need to make are property taxes and homeowners’ insurance. A home is most people’s biggest investment in their life.