What happens when buying a house?
Our “First-Time Homebuyers” series continues this week with another entry from Dave Chmiel of Ruoff Home Mortgage. Last time I talked about getting pre-approved for a mortgage. This time I’d like to let you know what happens when buying a house! So, you got pre-approved, found the right realtor to work with who found you your dream home. You made your offer and it was accepted by the sellers, you are now on your way to home ownership! So, what happens now? At this point your lender will need a copy of the completed purchase agreement. The purchase agreement will have most of the information needed to set up your official mortgage application, like sale price, seller paid closing costs and closing date to name a few. Once the application is completed, it is now time to sign! Make sure that you get a good review of the loan estimate before you start signing. The loan estimate shows you the type of loan you are applying for, the monthly payment, the estimated cash that you will need to close and that is just the first page! Page two will itemize the costs and page three is loaded with information too! Don’t be intimidated by the stack of documents that you will be signing, they all have a purpose and most are disclosures designed for consumer protection. Now that the loan documents are signed, your lender will submit these into the “pipeline” where a case opener and processor will get everything for the underwriter. Once everything is in order, the underwriter will review the application for approval. During this time you will need to shop for your homeowners insurance, you will more than likely get an inspection done on your new home and your lender will order the appraisal. In about a week, give or take a couple of days, the underwriter will issue and approval with conditions. It is hard to turn in a complete application the first time, so conditions are the last few items that the underwriter needs to approve your loan. You will work with you lender to collect these and once these are all rounded up, it’s back to underwriter for everyone’s favorite words, “clear to close”! Once the “clear to close” is issued, you will schedule your closing and work will begin on the final Closing Disclosure. The Closing Disclosure looks a little bit like the loan estimate that you saw in the beginning with more detail. Also, the loan estimate was “best guesses” on somethings, the closing disclosure will be the actual costs. Once you view the closing disclosure, there is...
Getting Your Financial House in Order After Purchasing a Home
Part four of our “First-Time Homebuyers Series” continues today with another post from John Foxworthy. So you’ve found the perfect home, got an accepted offer, and made it to closing. Here are a few steps you can take to make sure your dream home doesn’t turn into a financial nightmare. Build your liquid cash reserves We usually recommend keeping three to six months of your salary as a cash reserve. This reserve can be used to keep you afloat in the event that your income is interrupted. If you should lose a job or need to take a medical leave, this fund will be there to pay your mortgage, auto and home insurance, and utilities. It can also be used for emergencies like a car repair or an unexpected medical expense. Set money aside for future home repairs This fund should be kept separate from your liquid cash reserve, which is designed for income replacement. As the homeowner, you will be responsible for any expenses associated with the home so it makes sense to have a fund in place. At some point, a major repair like a furnace, water heater, or a roof will be needed. You should set up an automatic transfer every pay period to a separate “home repairs” account in order to start building up some cash. Adjust your budget Purchasing a home is one of the biggest financial transitions that a person will make in their lives. It goes without saying that you will probably need to make a significant adjustment to your budget. If you did your homework to make sure you were purchasing a home that was within your means, you shouldn’t need to change your lifestyle too much. However, it is a great time to look at your spending patterns and see where you can be more efficient and effective with your income and saving plans. You can use a financial software program like Mint.com or Quicken to do it yourself, or it might make sense to talk to a financial professional who can help you with a more customized cash flow plan. Stick with an independent firm that offers fee-based financial planning and coaching. Do your protection planning Whether we like it or not, sometimes things don’t go as planned. Accidents happen, people get hurt or sick and can’t work, and sometimes they even die prematurely. Before owning a home, these risks were important, but they become more important now that you have a significant liability associated with your mortgage. Fortunately, there are tools that allow us to mitigate the risk of premature death or disability. Life insurance...
Finding the Perfect Home with a Realtor
If you’ve been following along with the First-Time Homebuyer Series, you have now heard from a financial advisor and a mortgage specialist. Now, that you have your financing ready, it is time to find a realtor! 1. The first thing I always tell clients whether they are buying their first home or their tenth home, is to always ask a professional. It never hurts to ask around to friends, family members and check reviews online to make sure the person or team you are working with is working in your best interest. A good real estate professional will advise you throughout the process, take a step by step approach, point out the good and the bad and negotiate the best deal for you. Make sure to find a trusted real estate professional with the heart of a teacher, not the heart of a salesman. Some realtors are only looking for a transaction and others are looking to build a relationship. Keep in mind, for you the buyer, the realtor will not cost you anything! The commission for the listing agent and the buyer agent are paid by the seller at closing. 2. Now that we have that out of the way, let’s get the home search started. We like to get started by meeting the client and determining what they are looking for in a home. This may include the number of bedrooms, bathrooms, size of home, price range and especially the location. More often than not, we actually start to narrow down what the client is looking for after seeing a few homes. Typically, there are wants and needs, so it really helps to distinguish the difference. If you say “this home is perfect BUT”, then you know the home is not perfect. Make sure you don’t settle on something that you are not going to be happy with because this is a huge purchase/investment. Once we get a better idea, we can start looking. 3. Your realtor most likely set up an automated search using your criteria to find homes that fit what you are looking for. With technology today, you will most likely also look on your own using sites such as Realtor.com, Zillow, Trulia or Homes.com. Sometimes, there is a little bit of a delay from when the information hits these sites from the MLS (Multiple Listing Service), so some of the information may be incorrect. In the current real estate environment, the supply of homes is very low and there are a lot of buyers currently looking. With that being said, if the homes are priced correctly they have been selling quickly, so make...
Mortgage Pre-approvals for First-Time Homebuyers
Our “First-Time Homebuyers” series continues this week with an entry from Dave Chmiel of Ruoff Home Mortgage. It is never too early to start the mortgage pre-approval process! Many first time homebuyers are excited to get out and to start looking at houses but can end up disappointed that they may not qualify to purchase their dream home. Consulting with a mortgage professional before you start you home search is the best place to start. The mortgage process can be intimidating and overwhelming but a step that all must take when purchasing a home. A good mortgage professional will take the time to educate the buyer, evaluate their ability to buy and hopefully end up with a mortgage product that best suits the clients needs. The first step in the mortgage pre-approval process is to check credit reports. We look at all three reporting agencies and use the middle score to qualify. Credit score is very important as this will affect interest rates and what loan program we use. In the event that we do not have a qualifying credit score, we can look for some solutions to help. So, we have a qualifying credit score, now we need to determine what loan program will help the buyer achieve their goal. There are conventional loans in addition to FHA, USDA and VA. Some of these have minimum down payment requirements, household income limits or location restrictions. There are also programs that can help with down payment. A loan program has been chosen, now we will see how much house a buyer can qualify for. This is done by determining eligible income. This can be tricky if the buyer works on a commission or is self-employed. Time on the job can factor in on what is eligible and not. The buyer’s debt to income (DTI) ratio is what we look at. DTI is calculated by adding all liabilities to the proposed mortgage payment and dividing by the income. Finally, the final step is checking assets. A buyer will need down payment and to cover any closing costs not covered by seller concessions. We will need to look at bank statements. Other options for down payment can be a 401K withdrawal or a gift from a family member. There are proper steps to take when using one of these options so check with you mortgage professional before doing anything. Here is what we need to complete the mortgage pre-approval process: Pay stubs-most recent and covering 30 days, so if you are paid weekly, we will need five. Federal tax returns and all W2s/1099s associated with these...
Five Smart Money Moves for First-Time Homebuyers
This is the first in a series of posts for first-time homebuyers from Living Fort Wayne. So you’ve decided to take the plunge into the world of homeownership. Congrats! Purchasing a home is likely one of the biggest financial investments you will make in your lifetime, and it makes sense to do a little homework to make the process easier. In my 13 years as a financial planner, I have worked with many clients to help them transition from renting to owning their home. Here are five things to do before you start looking at houses. 1 – Check your credit Your credit score will be one of the most important factors when you want to qualify for a mortgage loan. It not only affects your ability to get the loan, but your score has an effect on the overall cost as well. In other words, the better your score, the lower your interest rate. To get a sense of where you stand, you can go to annualcreditreport.com to get a free copy of your credit report from all three of the major credit bureaus (Experian, Equifax, and TransUnion). Check for errors and file a dispute if there are any items on the report that are inaccurate. Just because you pay your bills on time does not mean you will have a great credit score. Other factors like the amount of debt you have relative to your available credit limits and the age of your oldest open credit line will factor into your score as well. Either way, you will need to have a score above 720 in order to get the best rates. If you have any negative items, don’t worry! You may still be able to qualify, but at a slightly higher interest rate. Check with a mortgage officer to get the details. They should be able to pull your actual credit score and let you know if there are any glaring issues that will prevent you from getting a mortgage. You can also check for apps like Credit Karma that give you an estimate of your credit score, but be wary of entering sensitive information anywhere online and never enter your credit card info. You should be able to get a score without paying for it, but there is no shortage of online vendors that will try to charge you or sign you up for some type of credit monitoring service in order to get your credit score. 2 – Evaluate your cash flow Before you get on the hook for tens or maybe hundreds of thousands of dollars, you should evaluate your income and liabilities...