Buying a home is one of the biggest financial decisions you will ever make. From the excitement of finding the perfect property to the complexities of securing a mortgage, the process can be exhilarating and overwhelming. Understanding the key factors involved and partnering with a reliable mortgage lender can make all the difference.
At RoundPoint, we help homebuyers and homeowners every day. We are thrilled to share our expertise to simplify the homebuying process. Continue reading to discover some of the most important things to consider when purchasing a home.
Getting Started
How do I get started? What do I need to think about when beginning the homebuying process?
When you start your home search, it is easy to become inundated by all the options available to you. Ultimately, you will need to identify not only what is attractive to you in terms of property features, but also what is practical for you, your lifestyle, and your finances.
- Know your budget (and stick to it!): Before you can officially launch your home search, it is extremely important to assess your financial situation. Review your monthly income, current debts, credit score, and available savings to develop a clear picture of your finances. Use our helpful Mortgage Calculator, or consult one of our knowledgeable Loan Officers, to estimate what you can afford!
- Consider your mortgage options: There are pros and cons associated with each type of mortgage, especially once you take your personal finances and goals into account.
- Fixed-rate mortgages: Enjoy the security of a stable interest rate throughout the life of your loan.
- Adjustable-rate mortgages: See how future market fluctuations could benefit your monthly mortgage payment.
- Jumbo loans: Does your dream home come with a higher price tag? Jumbo loans are designed for higher value properties.
- FHA loans: Don’t let less-than-perfect credit hold you back! Take advantage of lower down payment options.
- Identify your desired location: A beautiful home in the wrong location can potentially become a costly mistake. Contemplate important factors related to your home like:
- School districts,
- Commute time (to your job, amenities, favorite leisure activities, etc.),
- Property taxes,
- Resale value,
- Future development plans.
- Don’t forget about ongoing and unexpected costs: Homeownership involves much more than the sales price. Factor in costs like property taxes, homeowners insurance, homeowners association (HOA) fees, and maintenance and repairs.
- Think about your future: Choosing the right property and mortgage loan should align with your long-term financial goals and general needs. Not only should you ensure you are set up for financial success, but make sure you are satisfied with the number of bedrooms and bathrooms, as well as living and storage spaces, to truly make a house feel like your home.
- Find the right professional partnerships: Shop around to compare mortgage lenders and realtors to find the best fit for you!
Being prepared will help you make a confident and informed decision. RoundPoint looks forward to guiding you through every step of this exciting journey and taking the stress out of the homebuying process!
Escrow
What is escrow?
If you are interested in purchasing a home, you will hear the term “escrow” quite a bit. Escrow benefits buyers and lenders by securing important funds and ensuring certain expenses are paid in a timely manner.
Once your home purchase is complete, your mortgage servicer may establish an escrow account. This account is used for property-related expenses like property taxes and homeowners insurance. A portion of your monthly mortgage payment includes the associated costs for these expenses.
We understand buying a home is a huge decision! Read on to learn more about escrow or contact our Loan Officers for knowledgeable discussions and professional support.
Is escrow required?
Although escrow accounts are not mandatory on all mortgage loans, many loans do include them or are required to have them, meaning your monthly payment will include the associated costs. Escrow accounts may be required based on the following criteria:
- Loan type: Escrow is required for certain mortgage loan types (e.g., FHA loans).
- Down payment: For down payments less than 20%, there is a possibility escrow may be required. Be prepared to discuss this with your lender and understand your payment impact or if you would be eligible for an escrow waiver.
- Mortgage lender: Lenders can require escrow accounts based on important financial factors like your credit history or the loan-to-value ratio (LTV).
It may seem daunting to have these expenses added to your monthly payment, however, an escrow account breaks large lump sums into much smaller, manageable payments. With an escrow account, your mortgage lender pays your property taxes and homeowners insurance as they become due, meaning you never have to worry about missed or late payments!
Earnest Money
What is earnest money?
Today’s housing market is extremely competitive, so it is imperative homebuyers take a strong stance once they find their perfect home. When purchasing a home, earnest money (or a good faith deposit) acts as a security deposit to demonstrate to the seller that you are a serious buyer and are sincerely committed to purchasing the home.
The amount of this deposit is typically between 1% and 3% of the purchase price and is usually paid when the purchase contract is signed. It is held in escrow by a third party (often a lawyer) to ensure the money is protected as the process continues. On the day of closing, the earnest money deposit is normally applied to your down payment or closing costs. In the event the purchase falls through, the deposit may be refunded to you per the terms of the purchase contract.
Earnest money plays a valuable role by establishing trust between the involved parties early in the homebuying process. Let RoundPoint help you understand how earnest money fits into this process and your larger financial goals. We look forward to making sure you feel comfortable and confident with your deposit amount and the terms of your purchase contract!
Pre-Qualification vs. Pre-Approval
What happens during the pre-qualification process?
An important first step in the early stages of the homebuying process is pre-qualification. Pre-qualification is the initial evaluation completed by a mortgage lender that provides you with a general estimate of how much you could potentially borrow to purchase a home. The pre-qualification process is quick and easy, often yielding results in minutes!
- Complete a form: A pre-qualification form can be completed either online or in person. At a minimum, you will be asked to provide:
- Personal information like your name, address, and Social Security number (SSN),
- Employment history and income details,
- Estimated monthly expenses,
- Details about current debts, and
- Credit history.
- Your credit may be checked: The lender may conduct a soft credit inquiry to uncover more information about your credit score and history. A soft credit inquiry does not affect your rating.
- Receive a pre-qualification letter: The lender will send you a letter outlining the estimated loan amount you qualify for based on the information you provided.
Getting pre-qualified provides fantastic insight into what kind of home you may be able to afford and review what is available in your price range, allowing you more time to understand and adjust your budget before fully committing to an offer. RoundPoint is so excited to begin this process with you from the very first step! Call our Loan Officers to quickly and confidentially pre-qualify. If you aren’t ready to commit to a formal pre-qualification yet, answering a few quick questions on our website will help our Loan Officers proactively prepare potential options for you.
What happens during the pre-approval process?
A pre-approval for a mortgage loan is a formal evaluation completed by a mortgage lender that determines how much money you can borrow to purchase a home. Pre-approval doesn’t mean your final loan approval is guaranteed, but it does demonstrate to sellers and real estate agents that you are a serious buyer with financing in place. Let’s dive into the pre-approval process steps:
- Complete an application: A mortgage application can be completed either online or in person. At a minimum, you will be asked to provide:
- Personal information like your name, address, and Social Security number (SSN),
- Employment history and income details,
- Current debts,
- Current assets, and
- Your estimated down payment amount.
- Your credit is checked: The lender will perform a hard credit inquiry to review your credit score and history to evaluate your credit worthiness and determine the mortgage loan types you may qualify for.
- Submit financial documents for review: The lender will ask you to submit the following documents to verify your income, assets, and employment stability:
- Pay stubs,
- W-2s or 1099s,
- At least two years of federal tax returns,
- Bank statements,
- Asset and investment account information, and
- Proof of additional income (e.g., bonuses, alimony, etc.).
- Debt-to-income ratio (DTI) is established: Using the gathered information and documentation, the lender calculates your debt-to-income ratio (DTI) by dividing your monthly debt payments by your gross monthly income. Your DTI is a crucial factor in determining your borrowing power.
- Receive a pre-approval letter: Barring any issues, the lender will send you a pre-approval letter, typically valid for 60-90 days, that outlines:
- Approved loan amount,
- Estimated interest rate,
- Loan type (e.g., conventional, FHA, etc.), and
- Loan term (e.g., 30 years).
- Begin your house hunt!
What is the difference between pre-qualification and pre-approval?
Pre-qualification and pre-approval are significant steps to be taken during the beginning of your mortgage loan and homebuying adventure. Although the terms sound very similar and are sometimes used interchangeably, they serve very different purposes.
- Information provided: Pre-qualification is based solely on self-reported information while pre-approval requires the submission of supporting documentation.
- Credit checks: Pre-qualification may require a soft credit inquiry which does not impact your credit score. Pre-approval requires a hard credit inquiry which does impact your rating and may drop your credit score by a few points.
- Preparation, review, and response times: Since you need to submit documentation for a pre-approval, it may take you a longer amount of time to gather the relevant documents, submit them, and have the lender verify them compared to a pre-qualification that does not require document submission. This also means you can typically receive a pre-qualification response faster than a pre-approval response.
- Where you are in the process: A pre-qualification is best for those who want to understand the homebuying options. It is considered a preliminary assessment to begin planning and budgeting, providing you with a general idea of what you may qualify for and what to expect in terms of down payment and closing costs, as well as your monthly mortgage payment amount. In the event you are denied a pre-qualification, you have proactively identified any financial hurdles and can take the necessary steps to improve the situation before attempting to purchase a home.
A pre-approval is obtained when you are seriously looking for a home and are prepared to make an offer. In many instances, you are required to have pre-approval before you can make an offer on a house (a pre-qualification is insufficient at this point because it does not formally verify your finances).
Whether you have just started to consider purchasing a home or are ready to make an offer, RoundPoint is here to guide and support you every step of the way. Not sure where to start? Complete a quick questionnaire and one of our Loan Officers will reach out to discuss your potential options!
Finding The Right Realtor
How do I find the right realtor?
In addition to finding the right mortgage lender, it is essential to find the right realtor as well. This creates an amazing team of professionals that can make purchasing a home less stressful and more affordable. Here are a few tips for finding the best realtor for you:
- Research and compare: Identify realtors and real estate firms in your area. Most realtors are very transparent about their areas of expertise, partnerships, etc., which will help you identify the top candidates based on your personal needs. From there, examine each realtor’s recent homebuyer reviews and sales history to determine if their strengths align with your priorities. Ask your friends, family, and colleagues if they have any recommendations.
- Area knowledge: Find realtors that are local and familiar with the various neighborhoods in your community. If you have already narrowed your search down to a specific neighborhood, locate a realtor who specializes in that area and, ideally, has some recent transaction experience there.
- Experience: An experienced realtor thoroughly understands the nuances of home prices and market fluctuations, as well as important property features and red flags. They will be able to help you identify costly property issues, successfully negotiate the best price and terms, and ensure you understand relevant disclosures and contingencies.
- Reliable network: The right realtor often has a network of trusted and reliable professionals they partner with, from appraisers and home inspectors to contractors and mortgage lenders. Your realtor will be able to direct you to reputable, efficient companies that make your homebuying (and homeowning) process smoother.
Although you can tell a lot about a realtor online at the onset of your search, nothing beats a one-on-one conversation with them. Be honest about your expectations (for your future home and for your relationship with your realtor), communication preferences, and finances.
Much like finding the right mortgage loan and lender, choosing the right realtor is a very personal decision and can give you a competitive edge when buying a home. RoundPoint is always available to encourage and guide you during this process – do not hesitate to contact us with any questions!
Affordability
How much can I afford?
Before you begin browsing available home listings or scheduling tours, it is critical to determine how much house you can truly afford. Failure to assess your finances prior to starting your homebuying journey may lead to disappointment or even financial strain. Establishing your mortgage affordability helps you set realistic expectations, streamline your home search, and prevent financial stress and overextension.
- Review your finances: There are many steps you can take on your own to determine how much mortgage you can afford. Calculating your debt-to-income ratio (DTI), considering how much of a down payment you would like and can afford to put down, and factoring in additional housing costs like property taxes, homeowners insurance, etc. Using our Mortgage Calculator is a great way to get a personalized estimate in minutes.
- Pre-qualification: Complete a mortgage pre-qualification form to receive an estimated loan amount based on your self-reported financials. Fill out our simple form to start the process today!
- Pre-approval: Complete a formal mortgage pre-approval application with you desired lender. They will run your credit and verify your financial documentation to provide you with a letter outlining your pre-approved loan amount and other key loan details.
Interested in some additional guidance as you get started? Our experienced Loan Officers understand each buyer’s financial situation is unique and would love to explore your options with you.