Buying a home is one of the biggest investments many people will make in their lifetime. Participating in open houses, browsing the Internet and admiring the houses available on the way to work is the most fun part. Next comes a series of steps that homebuyers should follow to make the mortgage process as smooth as possible.
Analysts expecting mortgage rates will increase in the coming months, some buyers may consider making the leap to home ownership sooner than expected. Fortunately, getting organized, having a clear view of your financial situation and taking advantage of the many resources available can help these potential buyers navigate the complex mortgage process.
Establish a budget
Sometimes loan offers inform borrowers that they are entitled to a large monthly payment. While this may be true on paper, buyers should beware of being on the max end of their monthly budget. Only the buyer knows what they can afford, so it’s important to look at the numbers and make sure the monthly payment is reasonable.
To help determine a comfortable monthly payment, calculate everyday expenses such as groceries, car payments, credit cards and installment loans, as well as entertainment and emergency expenses. Then add the new mortgage payment, including property taxes, utility bills, and insurance. Local utility companies can often provide estimates to help with the budgeting process.
Down payment options
Apart from the monthly payment, buyers should be prepared for both a down payment and closing costs. People often underestimate what is needed for closing, so it’s important to understand what’s involved. Many lenders will not accept undocumented “cash held in a safe” or “mattress money” and must see a borrower’s funds held in a bank account for 60 days.
For those who don’t have enough savings for the required down payment, local and state-funded grants are available for qualified buyers to help with the purchase. Often these subsidies are forgivable over time. Buyers should consult their lender for more information on what is available to help them, including specialized programs for first-time home buyers. Tompkins’ Community One program, for example, can allow for a 0% down payment, no private mortgage insurance (PMI), and non-traditional credit for those without an established credit history. These specialty programs often give buyers the flexibility they need when a large down payment just isn’t an option.
Work with seasoned professionals
Throughout the home buying process, buyers need experienced professionals by their side. An inexperienced real estate agent, loan officer, lawyer, or home inspector can make the process difficult at best.
Community banks often offer technologies to facilitate the application for a mortgage, but also personalized assistance throughout the process. This more individualized approach helps build long-term relationships as buyers take additional steps in their financial journey.
Read, ask questions and re-read
The mortgage process involves a lot of paperwork. Although it can be tedious, buyers should read contracts and engagement letters very carefully and ask questions about anything they don’t understand. These important documents contain information regarding the deadlines and the elements necessary for the buyer. Meeting these obligations will help keep the transaction on track for closing.
A simple mistake buyers often make is to take out new credit during the mortgage process. Many people are often tempted to open a new line of credit to purchase furniture and other household items even before closing on a home. This type of behavior could impact credit rating and debt-to-income ratio, jeopardizing the entire purchase.
Shopping and buying a home is exciting, but it can feel overwhelming. Working with reputable professionals can help break the process down into manageable steps, while giving borrowers the tools they need to put down roots in their community.
Stacy Merrill is vice president and director of residential lending, Central New York, at Tompkins Community Bank.