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BUDGETING FOR BUYERS
Buying is quite possibly the single largest purchase an individual or family will make in their lifetime. Needless to say, being able to save money on your house will go a long way. So here's a few steps you can take to assure a smooth and cost-efficient journey to home ownership.
Helpful Articles for Buyers on a Budget
1Get a Copy of Your Credit Report
Industry experts say that more than 70% of all credit reports contain errors, and errors could lower your scores and hurt your chances of getting a mortgage loan, or of getting the best rate on a mortgage loan.
So get your credit report and read it carefully. If you do find errors, contact the credit bureau and get them corrected. Correction takes a little time, so do this before you begin your search for a home. Don't wait until your mortgage lender accesses your report.
2Choose a Real Estate Agent and Sign a Buyer Representation Agreement
This will assure that you have an advisor who is dedicated to serving your best interests. You may have heard that hiring a buyer's agent means paying a fee - and at some agencies that's true.
Here at Connective Realty, LLC we do not charge a fee to represent you as a buyer. We are paid from the seller's funds at closing. The only difference between representation and non-representation lies in the level of service and confidentiality we are able to provide to you.
In addition to helping you find the right home, your buyer's agent can introduce you to lenders who are reputable and who will allow you to become pre-approved for a loan before you have a house under contract.
Having your financing already in place is a powerful negotiating tool. Some sellers will refuse to consider offers unless the buyer has a letter of pre-approval, while others will automatically choose the buyer with pre-approval over a buyer who must make his or her offer contingent upon financing.
Pre-approval is also important as you begin searching for homes, because the type of loan you qualify for will dictate which houses you can purchase. For instance, if you have less than 20% of a home's purchase price to use for a down payment, you'll need VA or FHA financing. If this is the case, your Connective Realty, LLC agent will limit your search to homes that are likely to meet the strict guidelines set forth by VA and FHA. (Learn more about down payment requirements.)
3Meeting with Lenders
We at Connective Realty, LLC do advise that you interview two or three lenders before making a choice, because different lenders have different programs and different fees.
Your first meeting with a lender should be to become pre-qualified. This is different from being pre-approved, because the lender won't gather all the paperwork to fully document what you're saying about your income and expenses.
That means you need to be detailed in what you tell him or her about your income and expenses. So that you can provide accurate information, your Connective Realty, LLC agent can help you determine which income will be counted when you proceed to the pre-approval. For instance, bonuses are rarely included because they are not a consistent, reliable form of income.
If you've obtained a recent copy of your credit report, take it with you when you meet with the lenders. Local lenders may be willing to use your copy rather than ask you to pay for a new report.
At this point you are gathering information about the lenders and about the loan packages they offer. You should be looking for overall costs, both in loan fees and in interest over time. Your Connective Realty, LLC agent will be glad to help you compare and contrast the different packages.
In addition to looking at the financial packages offered, pay attention to how you feel about the mortgage lender. Choose someone who is friendly, who openly and willingly answers your questions, and with whom you feel comfortable. You'll be working closely with this person during the loan process, so avoid anyone who makes you feel uncomfortable.
Once you've chosen the lender and the loan package, it's time to get pre-approved, so get ready to provide paperwork!
4Providing you Lender with the Appropriate Documentation
Your mortgage lender is going to ask for more documentation than lenders asked for just a few years ago, so be prepared.
First, you'll need proof of income. If employed, you'll need your last two month's pay stubs. If retired, you'll need an award letter from Social Security and/or any other retirement fund. If your income is from investments, you'll need to provide documentation. If self-employed, you'll need to provide the name of your tax accountant, along with your last two year's income tax reports.
Mortgage lenders are no longer allowed to take the contact information you provide for your employer and accountant - they have to independently verify that those people exist by finding them in the telephone directory or on line. Then they are required to contact them for verification.
Next, you'll have to show your expenses. Most of these will show up on your credit report, but you may need to verify items such as child support payments.
You'll also need to verify the funds you'll be using for a down payment. Take along the last two months' bank statements for all of your accounts, plus statements regarding retirement accounts, stocks, etc.
Lenders are notorious for needing "one more thing" so be prepared to promptly deliver any additional documents they request - and don't take it personally! They do this to everyone!
Your lender will base the house payment you qualify for on total debt to income ratio of around 50%, including your new house payment. (This could vary depending upon your income.) They'll also want to keep your total housing cost at or below 38% of your monthly pre-tax income. Total housing cost includes the principal and interest on your loan, a monthly amount for taxes and insurance, and your mortgage insurance premium, if any.
5Use Your Lender's Information to Make Smart Decisions
As a smart consumer, you shouldn't use a mortgage lender's figures to tell you the size of the house payment you can comfortably afford. After all, he or she has no idea what optional expenses are necessary to your enjoyment of life.
If you push your house payment to the maximum allowable, it might mean giving up some things that are important to you - like dining out once a week, attending ball games or concerts, or taking a ski trip every winter. In addition, you should set aside a sum each month for repairs and maintenance, since even new homes do eventually need some upkeep.
So take what your lender says as the maximum, then do your own budgeting to see if that figure fits or if you should scale it down a bit. Your Connective Realty, LLC agent will help you determine the price range you should be looking in based on the monthly payment you choose.
6The Good Faith Estimate (GFE)
You've probably have heard that the new GFE (Good Faith Estimate) is a wonderful tool to help you compare rates and fees between lenders. You've also heard that once a lender has given you an estimate stating the loan fees, he or she must stand by that estimate for 10 days to allow you to shop with other lenders and compare costs.
This is true. But there is a drawback. You can't get the GFE until you apply for the loan, and many lenders are now charging application fees that range in price from $150 to $400.
So it's a good idea to ask your Connective Realty, LLC agent for the names of mortgage lenders who have served their buyers well in the past and who can hopefully be relied upon to stand by their good faith estimates even prior to issuing the formal GFE.
Once you have chosen a lender and made application, you will receive a copy of the GFE, stating that lender's fees and giving estimates of other fees such as the title insurance, appraisal, survey, etc. Under the law, the lender may not increase his or her fees, and those estimated fees may not increase by more than 10%.
7Once You're Pre-Approved, the Fun Begins!
Now we can begin the search for your perfect home. Using the buyer's checklist that you filled out, your Connective Realty, LLC agent will sort through the homes listed in the Bryan / College Station Multiple Listing Service and choose those that most closely match your ideal home. Then we'll go over the list with you and choose homes to view.
If we don't find your home the first time out, we'll go on to others, and at the same time we'll keep a close eye on all the new listings coming on the market. We promise not to let you miss out on your dream home for lack of knowing it was available.
When you find the house you want, we'll help you determine your offer and present it to the seller or the seller's agent. Then, we'll negotiate on your behalf to get you the best price and terms possible.
Once your offer is accepted, we'll assist you and your mortgage lender in making sure that the entire transaction flows smoothly.
And finally, we'll share in your joy as you move in to your new home.
Here's that list in short form:
- Get your credit report and fix any errors
- Hire an agent. It doesn't cost you anything to hire a Connective Realty, LLC agent
- Meet with several lenders with your agent
- Get pre-qualified
- Choose one lender to work with
- Get pre-approved
- Determine how much you can comfortably afford to pay each month on a mortgage
- Complete the buyers' checklist and give a copy to your agent
- Search for a house
- Choose a house and determine offer
- Negotiate, agree, and close
- Move in to your new home!