Frequently asked questions from home buyers.
How do I determine how much home I can afford?
Qualifying for a mortgage payment is based on debt ratio, total monthly obligations divided by gross monthly income. Bills like car loans, student loans, credit cards, child support, and so on factor into this calculation. In general, your total debt ratio should be somewhere under 45% -- although many loan types are approvable to 50% debt ratio and beyond. Debt ratio doesn't tell the whole story, though -- there are also expenses that vary based on property type and age such as utilities, maintenance, and future replacement of major systems. These have to be considered as you're budgeting for the monthly payments as well. Finally, you should consider your future income and expenses. Is your income increasing or stable? Do you have college expenses coming up down the line? When you get prequalified, we will help you answer these questions and figure out what payment makes sense for you and which loan program will allow you to get as much home as you can that also fits your budget.
What is the difference between getting prequalified and preapproved?
A prequalification is a review of your credit, assets, and income by a loan originator. Your loan originator will collect information from you via an online application, over the phone, or via a face to face meeting. They'll then run your credit report, calculate a debt ratio, and prepare estimates for different loan scenarios that you appear qualified for. The originator will collect your supporting documents and based on their expertise determine if issuing a prequalification letter is appropriate based on your situation. A preapproval is a complete review of the loan file by not only the originator but also an underwriter, with additional verifications, notes, and other documents added to the basic paystubs, bank statements, and so on. Your loan originator may determine that a preapproval is more appropriate in some cases, such as when there are variations in income, multiple income sources, or challenging credit situations.
What documents do I need to get prequalified?
Standard documentation for getting prequalified to purchase a home includes most recent 30 days paystubs, most recent 60 days bank statements, and most recent 2 years tax returns / W-2s / 1099s. Once your loan originator learns more about your situation, they may request other documentation to support certain aspects of the loan file.
How much money do I need to buy a home?
Different loan types have different down payment minimums. For conventional mortgages, the typical minimum is 5% of the purchase price, with relief from monthly mortgage insurance coming at 20% down. With an FHA loan, the down payment can be as low as 3.5%. HUD 184 loans can be had for 2.25% down as a minimum. VA loans can be obtained with no down payment whatsoever. There are also down payment assistance programs and grants that help certain borrowers when funding is available. In addition to the down payment, you also need to consider closing costs and other items like prepaid taxes and homeowner's insurance that add to your funds required at closing. Your best bet is to make contact with one of our loan originators, learn which options best fit your personal situation, and get estimates so you will know what to expect.
How long is my prequalification good for?
Your loan documents like the credit report are good for 90 days in most cases. That roundly answers the question. However, you really are prequalified for as long as your situation doesn't change or the loan program you're using doesn't change. If you maintain the same or better credit scores, same overall debt level, and same or greater income your prequalification is more or less indefinite -- we'll just update the documentation as we go.
What sort of inspections should I consider when buying a home?
A standard home inspection is generally not required, but it's a good idea to have a professional home inspection look at your potential home regardless. You will learn about any structural issues, safety problems, defects in any of plumbing / heating / electric systems, and how the systems in the home operate. An as-built survey of the property is also a good idea, even when not required for the loan. This document draws the property improvements and any easements out on the lot and confirms that the home meets relevant zoning requirements. You should also consider having the well and/or septic tested if on site systems are a feature of your prospective home -- again even when not required. Water quality, well flow, and septic adequacy are good things to understand about your new home up front.
How long does it take to close on a home loan?
Typical closing timeframe for a home purchase loan is 30-60 days. Sometimes loans can close in as little as a few weeks, and in cases of new construction loan (where the property is being built) sometimes take six months to close. The time period is also defined by the purchase contract, where buyer and seller agree on the closing date -- the contract typically dictates when your loan closes.
What happens at closing?
Your loan typically will close at a title company with an escrow officer. You will review and sign your loan documents, and pay any additional down payment / closing costs / other applicable closing funds via cashier's check or bank wire that you've arranged with the title company ahead of time. Once you and the seller have signed documents, the title company will record the sale at the state recorder's office -- typically the following day. The property is now yours!