When it comes to the real estate market, spring was traditionally the hottest time for buying and selling. Transactions would increase due to warmer weather, school vacation schedules, and full-display amenities such as pools, gardens, and landscaping. With record-low inventories, city dwellers moving to the suburbs, loosening novel coronavirus (COVID-19) restrictions, and competitive mortgage rates, the year-round market is busier than ever.
Online real estate investing resource Million Acres cites brokerage Redfin as pegging the average home sale at a mere 18 days. Of these, 58 percent are under contract within two weeks.
With these added considerations, potential buyers must be even more diligent when choosing the best mortgage, calculating a budget and down payment percentages, and other financial considerations.
Below we’ll outline best practices on financing your dream home, such as budget, qualifications and requirements, mortgage approvals, securing an offer, and more.
How Much Can I Afford?
Borrowers should first examine their finances, budget, credit scores, and other factors. While purchasing a home facilitates pride in ownership and stability, you don’t want lapsed mortgage payments leading to potential foreclosure.
Contour Mortgage recommends the following best practices:
- List Your Must-Haves. Think about what is most important for your living situation, such as location, amenities, school districts, access to public transportation and highways, and workplace proximity.
- Crunch the Numbers. Calculate your current budget based on yearly household income, monthly bills, and debt-to-income (DTI) ratios. This will determine how much of a mortgage you can afford, as well as other household expenses.
- Does It Make Sense to Buy? If the pros outweigh the cons, then home ownership might be the right decision. For additional insight, read our blog “Renting vs. Buying: Which Is Right for You?”
- Are You Ready to Settle Down? Unlike renting, owning a home is a more permanent situation. You might want to rethink your decision if you travel frequently, or aren’t looking for a long-term solution.
Qualifications & Requirements
Once you’ve set your budget and affordability threshold, it’s also recommended to check both your credit history and score. This will help ascertain your down payment amount, mortgage interest rate, DTI, and other terms.
Most credit card companies provide customers this information at no charge. You can also request a free report from any of three credit reporting agencies: Equifax, Experian and TransUnion.
To ensure all your documents and requirements are in order, consult this checklist to expedite your pre-approval application:
- Employment History
- Credit Score
- Last 60 Days’ Bank Statements
- Prior Two Years of Income Tax Returns & W2 Statements
- Recent Pay Stubs
- Social Security Card
- Divorce Agreement (If Applicable Regarding Additional Financial Obligations)
- Other Necessary Documents
Choosing Your Mortgage
With financials, credit, and other important documents in place, you’re ready to start researching and choosing a mortgage. Start by consulting a reputable lender, such as Contour Mortgage, for help with various government-backed, conventional, and home equity loans. Our team of mortgage experts understand not only the different types of available financing options, but also how it will impact your long- and short-term financials. Mortgage lenders will also help navigate associated fees, terms, and conditions, and investigate first-time buyer programs, grants, and other incentives.
Navigating the Approval Process
While a pre-approval is necessary, it’s merely the first step of a mortgage application. This provides proof of funds and eligibility to sellers and realtors based on the borrower’s income, assets, credit, and other factors.
Due to the volatile market, a pre-approval is only part of the process. Most lenders recommend the extra step of a mortgage commitment letter. This signifies you’re a serious buyer with a strong willingness to purchase. Valid for 30 days, it states the lender will grant the loan per final conditions and requirements at closing.
Our team of mortgage experts understand not only the different types of available financing options, but also how it will impact your long- and short-term financials.
Secure Your Offer
Especially in competitive markets with lower inventory, many sellers are receiving multiple offers above the listing price. Consult with your reputable realtor and mortgage lender to see if this tactic is financially feasible. It’s better to walk away from a listing that’s beyond your means and price range.
Closing Costs & Other Factors
After your mortgage lender has deemed your loan clear to close, both parties can set a date to transfer ownership. Your lender will also provide a closing disclosure itemizing each fee, such as monthly mortgage payment, loan type and term, interest and annual percentage (APR) rate, and other closing costs.
It’s important to review your closing disclosure details with both your lender and realtor for any surprises or errors. Remember to note your first mortgage payment due date, and how it should be received. If you’re bundling homeowners’ insurance and taxes into the payment, you’ll likely remit directly to your lender.
Once you’ve closed on the home and received your keys, store or file your closing documents in a safe spot, such as a security deposit box or file cabinet. It’s also prudent to periodically review these prior to making any large-scale home improvements or changes.
Understanding the financing options suitable for you and your family are the first steps in navigating the mortgage process. It’s best to consult with a reputable lender, such as Contour Mortgage, for help with requirements, qualifications, and approvals.
Contact Contour Mortgage to learn more about all of our mortgage products, and how we can help you achieve your dream home.