Buying a Home
The process of financing a new home can often throw people for a loop, but don’t worry: our experts at NewFed are here to help! The first thing you should do – even before you start looking at homes and attending open houses – is to get pre-qualified for a mortgage. This will give you an idea of the loan amount you are eligible for. The second step is to get pre-approved. During this process, our NewFed professionals will examine your overall finances and credit history. If you are found to be a suitable borrower, we will send you a conditional commitment detailing the maximum home loan amount that we can provide.
This is a personal choice for buyers. It might be in your best interest to hire a real estate agent if you don’t want to handle the paperwork, negotiations, and property inspections on your own.
The average down payment for home buyers in the U.S. is 3 to 6 percent. Keep in mind that if your situation qualifies for a VA or USDA loan, you are not required to submit a down payment.
Most lenders will charge between 2 to 4 percent of the loan amount as a loan origination fee (the compensation for processing a loan application). With a conventional loan, the origination fees are typically lower, but they require more money down. The NewFed team will help you determine what you can expect to pay toward loan origination.
It can be difficult to determine a property’s actual worth, but a good way to get an idea is to check the prices of similar homes in the area.
It generally takes from 30 to 45 days to close on a home.
Applying for a Mortgage
The first thing we recommend you do is pre-qualify with our team at NewFed. That way, you’ll have an idea of how much you’re eligible to borrow. Once you submit your application, we will need to verify the information that you’ve provided, such as your last two years of income tax returns, bank statements, pay stubs, and any other documents pertaining to your assets. Once our team has verified all of that, we’ll send you a conditional letter with an offer to lend you a specific amount.
A fee will be requested in the application process so that we can access and review your credit history.
Your credit history is an important factor since it is used as a gauge as to whether you are likely to repay your debts. Your credit score is based on a numerical system ranging from 300 (poor) to 850 (excellent).
Making payments on time each month and reducing the total amount you’ve borrowed will gradually raise your credit score, while spending closer to your maximum available credit or making late payments (or missing them entirely) will decrease it. You can view your credit score from any of the major credit reporting companies: Equifax, TransUnion, and Experian. It is important to review your credit report once a year to make sure the data is accurate, as incorrect or outdated information can hurt your score and negatively impact your mortgage qualification. Before you apply, obtain a copy of your credit report and make sure that the information on it is accurate. If you find a discrepancy in your credit report, make sure you can prove it’s an error and then contact that creditor to correct the issue.
In short, they’ll focus on the four Cs: capacity, credit history, capital, and collateral.
- Capacity refers to your ability to repay debts. The NewFed team will examine your employment history, mainly how long you’ve worked at your current company and how much you earn. This helps us determine if you can make the required payments.
- Credit history is used to predict whether you’ve consistently paid your debts over the years. The better your credit, the more trustworthy you appear to lenders.
- Capital is the amount of cash you have available for a down payment.
- Collateral is your backup asset(s), such as other property you own or an investment account, that a lender could seize should you fail to repay your loan.
Mortgage insurance protects the lender if the borrower fails to make payments. It’s required on certain loan types as well as when the buyer has put down less than 20 percent. The protection it provides to the lender allows them more leeway in approving buyers who don’t have a significant amount to put down but are otherwise qualified to borrow.
The Mortgage Process
An escrow account is set up by a third party to hold funds for the payment of home-related expense such as real estate taxes, homeowner’s insurance, and private mortgage insurance. A portion of each month’s mortgage payment will be held in escrow to make sure the funds are available when payments are due.
An appraisal is an impartial professional party’s valuation of a particular property based on factors like size, condition, and comparison to similar properties that have recently sold in the area. An appraiser will inspect the exterior and sometimes the interior of the property to get an idea of its condition.
After the inspection, the appraiser will compare the condition of the home with the comparable properties (called “comps” for short) in the area. The appraiser will then size up the major components of the property according to industry guidelines and come up with an estimated value. Appraisers may also estimate replacement costs of the property. This is determined by valuing an empty plot of real estate and estimating the cost it would take to build a home of a similar size and construction. The appraiser reduces this cost by an age factor to compensate for things like depreciation and deterioration.
A home inspection is highly recommended as . While appraisers make note of obvious construction problems, a home inspector has more construction experience and will spend more time and perform a more meticulous evaluation of the whole property. The home inspector’s findings can be used in negotiations if there’s an issue that must be corrected. For example, the potential buyer can bid lower or ask for money back from the seller at closing to cover the costs of those essential repairs, or they can request that the seller correct the issue before closing as a requirement of the purchase and sales agreement.