- About Us
January 27, 2016
Q: The home buying season will soon be upon us and there are many prospective buyers out there who are considering purchasing a home. What are some of the factors they need to consider to get them better prepared for the home buying process?
A: Determine if you are comfortable with buying, and create a budget. Determine how much income that you earn in a month versus what your current expenses are. Remember that the payment you are comfortable with is more important than what payment you qualify for.
Next, figure out how much money you need to have saved up. You may need an earnest money deposit, which is a deposit from the buyer to the seller to show good faith in the purchase transaction. Home inspections and appraisals cost around $400 each, and then there’s the down payment. The minimum down payment is determined by the lender. Certain lenders, such as HFCU, can allow gifts from family and other sources for the down payment. There are also down payment assistance programs available, such as the Homeownership Opportunities Program offered by the Federal Home Loan Bank of Indianapolis. Qualified applicants can receive up to 10,000 in down payment assistance.
The last expenses will be your closing costs, but in some instances, closing costs can be part of the home purchase negotiations. The seller may pay for the buyer’s closing costs out of the sale proceeds. Discuss this with your realtor or whoever is representing you in the transaction. Make sure to keep additional funds in savings for reserves. It is important to have an emergency fund for unexpected house repairs, maintenance or even a job loss. With home ownership, it is better to expect the unexpected.
Q: Choosing a lender to finance your home is a big decision to make. What are some of the things that home buyers need to take into consideration when choosing a lender to finance their home purchase?
A: When choosing a mortgage lender, determine what matters the most to you. Some things to consider are interest rate, payment, loan program, costs, and the ease of the loan process. Do you prefer a local service? Will they sell off your loan? Trust is also a big factor.
Observe the way the lender responds to you when you first contact them. Where they prompt to respond to your contact request? Are they friendly and courteous? Are they willing to educate you about different options? Do they set upfront expectations about the timeframe of your loan? Were they transparent about the interest rate and any fees? These are all questions you’ll want to ask through the home buying process.
Q: Once you have decided on a lender, isn’t there is an important next step to take before you even begin to go out looking at homes and making offers?
A: Yes, you should contact your lender and get “pre-approved.” A pre-approval is a commitment from the lender that the buyer would qualify for a particular loan amount based on credit and income information. Pre-approval letters on average are good for 60 to 90 days. Getting pre-approved can be simple, and many lenders, such as HFCU, allow the capability to be pre-approved online. A pre-approval is important in the home buying process because it will ensure that you only look at houses within your price range. Also, a pre-approval strengthens your offer. Without a pre-approval, your potential offer may not be taken as seriously as a competing offer, therefore causing you to lose out on the potential home that you want.
Some realtors or buyer representatives require a pre-approval up front. Make sure to obtain a “true pre-approval.” Provide your lender in advance copies of income documentation such as a recent pay stub, two years of your most recent W2’s and tax returns and bank statements from the last two months. This will ensure that there are no unforeseen circumstances that would prohibit you from mortgage loan approval. It will also speed up the mortgage loan process from when you get an accepted offer.
What if you can’t get pre-approved? Correct any errors on your credit report. Pay any debts that are behind or that are in collection, potentially raising your credit score. Decrease your overall debt to improving how much you can afford. You can also increase the amount of your down payment.
Q: Okay, so you’ve chosen your lender and you’ve been “pre-approved”, what’s next?
A: Go find your new home. When choosing a neighborhood, remember you are not only are you buying a home, you are buying into a community. Consider your lifestyle and interests. Where do you work? What will be your commute? What do you like to do to relax? Do you prefer peace and quiet? Do you prefer a close proximity to parks, restaurants, shopping, or any other places of leisure? Do you prefer a particular school district? When you prioritize your preferences, you will find that your list of neighborhoods will narrow down to a few choices.
Once you narrow down your choices, do further research on the neighborhoods. Use online resources to determine items such as the average value of a home for the neighborhood, or recent sales prices. Walk around the neighborhood. Ask around about items such as local amenities, traffic patterns and crime occurrences. Reach out to city hall or the county assessor to find out property taxes.
Consider the economic stability of the area. Are businesses opening or closing? Are there boarded up buildings, or are they thriving? Also, make sure to be prepared to compromise in the home buying process. Some neighborhoods that have everything that you want may not be in your price range. Figure out what you will compromise on and what you won’t.
Ruth Jenkins, President & CEO