With rental prices increasing every year, we’ve recently had many first-time buyers looking to convert their monthly payments into personal equity. Buying a home has many steps and with this blog we aim to provide practical information and user friendly resources for the lending process. Below, Jim Colucci and his team at Guaranteed Rate answer questions most every buyer has at some point. A great read for those of us contemplating purchasing, but limited time to research.
I think I want to buy a house, but how do I know if I am financially ready?
This comes down to running the numbers. Here is a link to our buy vs rent calculator. It’s an excellent tool to give you an estimate of how much your monthly expenses would be as a homeowner vs renting. It also calculates how much money you would be saving long-term by purchasing.
Current buyers are also benefiting from record low interest rates and avoiding annual rental increases that have gone up steadily in the past few years. Other advantages are potential tax benefits, building your own equity and the freedom to increase property value from renovations or décor changes.
I’ve decided to stop renting and purchase. What documents will I need to secure a loan and how far in advance should I gather them?
You will need 2 month’s pay stubs, 2 month’s asset statements, 2 years of federal tax returns and the HR contact person for your employer. Further documents will likely be required throughout the loan process, but this is a great start. Because the documents need to be current, you should gather them right when starting the application process. A good first step is using our Digital Mortgage application to obtain your free credit scores, pick your loan program and receive a loan estimate. From there we will contact you, answer any questions and make sure you are picking the loan that is best for you.
My friend told me I shouldn’t make any big financial changes when trying to obtain a loan. What are some of the things I should do to ensure a stress-free process?
Good credit is critical to procure the best interest rate and terms on a mortgage, so do continue to pay all bills on time. One late payment can compromise approval when trying to obtain a loan. Also, continue to use your credit like you presently do. A change in pattern could cause concern and lower your score.
The things to not do are a bit more plentiful. Here is a quick rundown of the major ones to avoid:
Apply for new credit/co-sign for a loan – Every time your credit is pulled you will lose points from your credit score. This also applies for co-signing for a loan or credit card.
Max out credit cards/Consolidate your debt – While you might get a lower interest rate, consolidating onto one or two cards will likely push you above 30% of your available limit. Keeping the balance below 30% of your available limit on credit cards is essential.
Close active credit card accounts – Closing credit card accounts negatively impacts your credit. Keep those open even if they aren’t being utilized.
Payoff collections – This can be done through escrow when closing.
Withdrawal or deposit large amounts of money – Avoid this whenever possible and consult with your lender.
Change jobs – Don’t change jobs. Even if the new job brings in more income it could negatively affect your loan process. Consult your lender should this arise.
Make major purchases – This correlates with many of the above. Don’t: open new lines of credit, max out your current credit card or withdraw large amounts of money. Wait to purchase new furniture until after you have the keys to your new home.
What are closing costs and will I know how much that amount is before signing a contract to purchase?
Closing costs are everything from attorney fees to transfer tax. We go over each item with our clients, but also provide a wealth of information on our website to help our clients that are more comfortable researching solo in the beginning. As the closing of your homes nears will we be able to give you exact figures and let you know the amount you will need to bring to the closing.
Once I have signed a contract on a home how long will it take to close?
We estimate our loan process at 30-45 days. Of course, there are some transactions that might differ due to extraneous circumstances.
For more information on making the transitioning from a renter to a homeowner, please feel free to contact Danielle @ firstname.lastname@example.org or 312-391-5655.
For all your lending questions or to review more valuable data about the loan process, Jim Colucci & his team at Guaranteed Rate are happy to provide any additional. Contact Jim @ email@example.com or 708-302-4000.