What to do when preparing for a home purchase
Buying a home is both exciting and scary, and it can be difficult to know where to begin. These tips on what to know will help to navigate the process and provide a better understanding for your home buying experience.
Preparation is Key to Purchasing a Home
Home Browsing
By looking at different homes, you can identify which features are most important to you, like number of bedrooms, yard size, or proximity to amenities. It also provides an understanding of the price range for similar properties in your desired area. However, without a Pre-Approval, you will not be able to make an offer, and the delay may cost you your potential dream home.
Saving for a Down Payment
Different loan programs have different down payment requirements, ranging from zero down, to 3% down and greater. If your goal is to avoid private mortgage insurance (PMI), you’ll want to aim for at least 20% of the home’s price.
Improving Your Credit
Lenders use your credit score to determine how likely you are to repay your mortgage. Your credit score will also dictate the interest rate range you will be offered as part of your approval. The better the score, the more favorable interest rates will be. But wait, there’s more! Since credit scores are such a big factor in your qualification, we’ve put some effort in helping you improve your credit scores.
Establishing a Pre-Purchase Plan
Scheduling a consultation with HouseKatMLO will provide you with the tools to create your Pre-Purchase Plan. This will include reviewing the loan options available to you, exploring any First Time Home Buyer programs and grants, determining a budget, what your home goals and needs are, and mapping out a clear path to achieve that goal. The next step is the easiest.
What to Avoid in Preparation to Purchase a Home
Avoid Paying Off Debt
Do NOT pay off debts until talking to your mortgage consultant. Having less debt prior to your scheduled first mortgage payment sounds ideal, but there is a right way and a wrong way to go about it.
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Avoid Liquidating Assets Early
Do NOT move money. This means, do not cash in on investments, stocks, or borrow from 401k accounts. The transfer and movement of assets can impact your purchase by causing unnecessary delays or requiring additional documentation.
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Buy Now and Save
Do NOT make major purchases such as furniture, appliances, or vehicles. These purchases can impact your debt-to-income ratio or drain your cash reserves. Even if you come across a great financing deal, such as, zero interest and no payments for a period of time. A lender is still require to account for these purchases as if they were due today.
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Leveling up your bank accounts
Do NOT make large cash deposits into your accounts. Funds that cannot be sourced (we have no documented proof of it’s origin) can not be used for purchasing. These scenarios include family gifts of cash, or the sale of a personal asset. Deposits need to be accounted for in a specific way to be used for the purchase of a home.
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Switching Lanes on the Career Highway
Do NOT quit your job or make arbitrary changes. It’s common for individuals to change employers or even occupations, but we want to be sure this change doesn’t impact your qualification.
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Seasoning
Seasoning is a subject that comes up frequently. It means a period of time has passed enabling us to account a financial event into our purchase strategy. They are things, such as:
Employment Seasoning
(24 months)
By looking at different homes, you can identify which features are most important to you, like number of bedrooms, yard size, or proximity to amenities. It also provides an understanding of the price range for similar properties in your desired area. However, without a Pre-Approval, you will not be able to make an offer, and the delay may cost you your potential dream home.
Down payment seasoning
(60 days+)
When you apply for a mortgage loan, lenders will typically request to see your most recent two months’ bank statements. Lenders generally require that the funds used for a down payment have been in your bank account for a certain period, typically “seasoned” for at least 60 days. This ensures the money being used for your down payment is legitimately yours and not borrowed temporarily. If your lender sees a sudden influx of cash that doesn’t look like it came from your regular income, expect them to ask you about it.
Bankruptcy
(24-48 months)
Bankruptcies and foreclosures don’t exempt you from getting a mortgage, but they could make things a bit more challenging. After bankruptcy or foreclosure, lenders require a seasoning period before you can qualify for a new mortgage. Different lenders have different seasoning period requirements. As a rule, you will need to wait at least one to two years after a bankruptcy discharge or four years following a foreclosure.
Refinancing
(12 months)
After purchasing a home, a seasoning period is often required before you can refinance. Some homeowners have the option to refinance into a lower-rate loan immediately, with no waiting period. Others may need to wait six months, still others may need to wait 12 months. Seasoning can also come into play if you are refinancing to eliminate PMI (private mortgage insurance). In addition to needing at least 20% equity, there’s often a seasoning requirement of two years before you can refinance out of PMI.