The Financing Process

Here’s an easy way to understand the financial steps you’ll need to take to guide you towards your new home.

• Calculate your budget
• Apply for a mortgage/paperwork/loan application
• Obtain Pre-Approval from Lender to determine amount of mortgage you are eligible for
• Determine budget for Home Purchase Price based on mortgage and down payment
• Talk to your lender about the major do’s and don’ts
• Search begins – (Use the mobile app to start your search with family and friends)
• You find the house you want
• You make an offer
• Upon acceptance of your offer, lender begins processing application
• Lender provides estimated closing and related costs
• Lending institution requests an appraisal of home, a credit report and verification of employment and assets
• Estimate of your loan costs in form of initial Truth in Lending Disclosure Statement
• Lender evaluates the application and approves the loan
• Lender disburses funds to closing agent
• Sign closing documents and loan is funded
• Appropriate documents recorded at local recorder’s office.
• The home is sold, and it is yours.

Now that you have a clear understanding of the entire process, let’s look closely at each step.

How Much Can You Afford?

Before you can begin to search for a new home, you need to determine your budget and estimate how much you can afford. One of the most important factors in figuring out your financial budget is getting pre-approved for a mortgage.  Pre-approval uses basic information as well as electronic credit reporting to determine whether a lender will loan you money.  If you are pre-approved for a mortgage, the lender has given you a commitment to support your new purchase.

Once you have been pre-approved, you need to decide which type of mortgage to get.  This decision is usually based on the interest rate of the loan and how much time you are given to pay the lender back.

When you apply for a mortgage, you will need to provide information regarding your income, expenses and obligations.  To save time, have the following items available for each borrower:

• Two most recent pay stubs
• W-2s for the last two years
• Federal tax returns for the last two years
• Last two months’ bank statements
• Long-term debt information (credit cards, child support, auto loans, installment debt, etc.)
• It may be helpful to meet with your accountant as you prepare for the process.

Calculating Your Budget

To estimate your budget, add up your total financial worth and then subtract all the costs included in the purchase.  Here are some of the expenses you will carry. 

Down Payment

Most homeowners contribute a down payment on his or her new property.  The down payment is a percentage of the purchase price that the buyer pays in full before closing.  The larger the down payment, the smaller your mortgage will be.

Costs

There are quite a few costs when you’re buying a new property and it’s important to factor them into your budget.  Here are some examples:

• Monthly Costs: The calculation of your entire monthly costs including the mortgage, insurance, taxes, utilities, homeowner association dues, etc.
• Points: Borrowers have the opportunity to reduce the interest rate on their mortgage by paying points at the beginning of the loan. One point is one percent of the new loan.

Final Budget

Now you’re ready to calculate your final budget.  Remember to include all of your available monies, monthly salary, additional income, and then subtract the down payment, monthly mortgage payment, closing costs, moving costs, and any additional expenditures you might accrue.  When you have arrived at your estimated budget, you are ready to begin the search for your new house.