Save for Down Payment
First and foremost, you need to make sure you have funds saved for a down payment. The minimum on a conventional loan is 3%. An FHA loan is available with a down payment of 3.5%. Keep in mind, the larger the down payment, the more equity you’ll have, and the lower your monthly mortgage payments will be. By paying more up front, you’ll save on interest and be less likely to have to pay private mortgage insurance. Along with your down payment, you’ll have to save money for closing costs (fees associated with processing and securing your loan).
Find Best Mortgage Rate
Sometimes the closing process takes weeks or even months, a period in which rates can fluctuate. After you sign the home purchase agreement and have secured your loan, ask your lender to lock in your rate. The service sometimes comes with a fee, but it might pay for itself if rates rise.
Find Mortgage Lender
Finding the right loan and lender is crucial to your home buying success. It’s up to you to determine which lender is best for your particular needs, and it’s always a good idea to have an understanding of the loan process before you talk to a lender. Know how your debt-to-income ratio works, and why it’s important. Learn about discount points, and decide if you really need them.
When you’re ready to make a purchase offer on a home, both your real estate agent and the seller will want to see a pre-approval letter. This document proves you’ll likely be able to make the purchase and, therefore, can be taken seriously. In a competitive housing market, sellers prefer a pre-approved buyer to a buyer who might be unable to close the deal. A pre-approval on a mortgage lasts 60 to 90 days depending on the lender.
Submit the Mortgage Application
What’s your monthly payment comfort level? Just because lenders allow a monthly payment up to 43% of your income (or higher, in some cases) doesn’t mean you should spend that much. Complete a mortgage estimator to see what fits your budget, and stick to that number. Don’t forget to look at your entire budget, including expenses that lenders don’t consider in their evaluation such as healthcare, childcare, education, utilities and groceries.
Close on Your Home
Getting familiar with the standard closing documents ahead of time can make the closing process less nerve-wracking. By this point, you should also know what you’ll owe when you sit down to sign the loan paperwork so you won’t be caught off guard by closing costs — some of which may be negotiable.