When you are ready to purchase your first home, a common mistake first time homebuyers encounter is applying for a loan while undergoing a change in employment. One might think, “Oh, I just got a promotion! It’s time to buy that house I always wanted”. Unfortunately, many lenders prefer to see stability and at least two years of consistency.
According to Credit.com “When determining your ability to pay (and therefore determining how much house you can afford), a lender will calculate your average income based on your pay from the past 24 months. It’s pretty straightforward if you’ve had the same job and same income and pay structure, but if any of those things changed in the past two years — or will change soon, you may face challenges when trying to get a mortgage.”
Credit.com offers some excellent insight on how lenders view your employment status.
step by step PREPARATION tips
1. FIND A BANK: Connect with a lender/bank to determine your pre-approval amount. You can basically tell the lender how much you are comfortable spending per month and they can back that out to a purchase price. You will also tell them how much you have for a down payment. If you’re a first time home buyer with a low debt to income ratio and solid credit, you’re likely a good candidate for an FHA loan which only requires 3.5% down (about $16K for something like 11 Boss). FHA loans do carry something called PMI (Private Mortgage Insurance) which can be an additional $2-300/month on top of interest, taxes and homeowner’s insurance and you essentially pay this since you’re only putting down such a small amount for a deposit. If you bump up to a Conventional Loan, you’d be putting down more like 10-15%, you won’t need to pay that PMI. These are the things you can hash out with your bank.
2. FIND A PROPERTY: Next we find a property that you like and make an offer. I can provide you with an up- to- date comparative market analysis of what homes have been selling for here in Newport to make sure you’re not overpaying.
3. SECURE AN ATTORNEY: I can recommend several local real estate attorneys to represent you. You would be able to lean on them for legal advice and they would work on your behalf to clear the property’s title and ensure that the home you’re about to purchase doesn’t have any existing liens or title issues. Myself, your lender and your attorney will ultimately be your “team” and will work closely together to get the deal done.
4. INSPECTION PERIOD: Once your offer is accepted, you have that 10 day (exclusive of weekends and holidays) inspection period we spoke about yesterday to bring in an inspector to go through the home to find any defects/issues. A home inspection costs around $400 which you would pay for out of pocket. If we find anything you’re not comfortable with we can a) ask seller to repair, b) ask for a credit or renegotiate the price or c) withdraw our offer.
5. LOAN COMMITMENT: Next is our loan commitment deadline. The purchase would be contingent on you receiving the loan/mortgage. There would be a specific date that we would need to deliver this loan commitment. Prior to this date, your lender will need you to provide them with a lot of financial information including but not limited to pay stubs, tax returns and bank statements. You will also likely need to pay for a property appraisal which is I believe around $300-400. Once we are through the inspection date and the loan commitment date, we are fully committed to the purchase and simply wait for the closing date.
6. HOMEOWNER’S INSURANCE: Once we’re through inspections, I would recommend that you shop around to homeowners insurance companies to secure a policy. A lot of the companies will offer a nice discount if you “bundle” your auto insurance with your homeowner’s insurance. Once you finalize your insurance plan, you would send this information to your lender and they would add this amount to be included in your monthly mortgage payment.
7. UTILITY TRANSFER: Once we have a clear to close, I would remind you to call the utility companies to have everything transferred into your name
8. CLOSING: The final and most exciting piece of the transaction is the closing! This is where you sign off on your loan, the deed and get the keys. Then….you’re officially a homeowner!