Housing is one of the biggest expenses in the monthly budgets of most American families. With so much of our income devoted to keeping a...
The First-Time Home Buyer’s Guide to Getting a Loan
If you’re like most people, a house is the most expensive thing you’ll ever buy. And unless you’re sitting on a sizable nest egg, you’ll likely need to borrow money to do it. Applying for and securing a home loan (also known as a mortgage) can seem a bit overwhelming, but we’re here to break down each part of the process. When you’re ready to dive into the real estate market, start here.
Familiarize yourself with the terms.
The main thing you’ll be looking for in a mortgage is the interest rate. Having a lower rate (even if it’s just a fraction of a percentage point) can save you thousands of dollars over the life of the mortgage. Keep in mind: the better your credit, the better your rate. Generally, a credit score of 720 or higher will get you the best rate.
Mortgage points (also known as discount points) are another component to a home loan. In some cases, you can pay a fee to the bank to lower the interest rate. In general, it costs about 1% of your mortgage to buy one point. So, if your mortgage is $100,000, one point would cost $1,000.
20% is the traditional down payment when it comes to buying a home, but often you can put down less. Keep in mind that if your down payment is less than 20%, your bank may require you to add private mortgage insurance (PMI) to your monthly payment.
You’ve probably heard of closing costs, but what exactly are they? Closing costs usually include a loan origination fee from the bank, attorney fees, title search and insurances, a few months of property taxes, and an upfront year of homeowner’s insurance. Some of these costs are negotiable or can be partially paid by the seller — it all depends on your unique situation.
Determine how much house can you afford.
As you research homes and lenders, have a ballpark of how much you can spend. Use our mortgage calculator to help you figure it out, and know that the general rule of thumb is that your mortgage payment should not exceed 36% of your gross monthly income. Another way to estimate your budget is to keep the home’s price at less than 2.5 times your annual income.
Contact loan officers at local banks and credit unions.
Once you’re ready to start the house hunt, it’s time to find a lender. Do your homework to find the best interest rate. You can meet with loan officers at different local banks or credit unions to get the process started, or you might consider a mortgage broker who can take your application and shop it around to a bunch of different banks.
After you submit an application, you’ll receive a 3-page loan estimate (LE), which should outline your estimated rate, monthly payment, and closing costs.
Every lender differs in their requirements, but in general, you’ll want to have the following paperwork ready to submit with your mortgage application.
- Social Security numbers and birthdates for all borrowers
- Copy of driver’s license for all borrowers
- 2-year residence history
- 2-year employment history
- Copies of pay stubs for the past 2-6 months
- Copies of W-2 forms for last two years (or tax returns if you’re self-employed)
- Bank statements and investment statements for the past 2-6 months
Your lender may allow you to submit these items electronically.
Consider the options.
Most traditional loans have either a fixed interest rate or an adjustable interest rate. Fixed interest rates are generally seen as more stable, while adjustable rate mortgages can be more flexible, especially if you plan to move or refinance in a few years. You’ll also have the option of a 15-year or 30-year loan.
Once you’ve made your decision, you’ll generally receive a pre-approval from your lender, which you’ll need to make an offer on your dream home once you find it.
Make your offer and sign on the (many) dotted lines.
Once you’ve made your offer, the bank will appraise the house — basically, they want to make sure it’s worth the amount you’re paying. If the house’s appraisal is on track, the loan application will be officially approved. After the loan has been approved, you’ll proceed with a title search (to make sure they are no liens on the property), purchase homeowners insurance, and do a final walkthrough. Once this is complete, you’ll schedule a closing, sometimes called a settlement meeting, which is the final step in purchasing and financing a home. If all goes well, you’ll sign a lot of paperwork and leave with keys in hand!
Still have questions about the home buying process? As the leading home builder in Oklahoma City, we’ve helped countless homeowners through this process. Get in touch with us, and we can help you, too!Tags: homebuilder okc, new construction okc, new homes for sale okc