Purchasing a home is one of the largest investments many people will make in their lifetime. Hitting open houses, browsing the internet, and admiring available homes on one’s commute to work is the fun part. What comes next are a series of steps buyers should take to help the mortgage process go as smoothly as possible.
With analysts expecting mortgage rates to rise in the coming months, some buyers may look to make the jump to homeownership more quickly than expected. Fortunately, getting organized, having a clear view of one’s financial picture, and taking advantage of the many resources available can help these potential homebuyers navigate the complex mortgage process.
Establish a budget
Sometimes, loan offers advise borrowers that they qualify for a significant monthly payment. While this may be true on paper, buyers should be wary of being on the maximum end of their monthly budget. Only the buyer knows what they can afford, so it is important to take a look at the numbers and make sure making that monthly payment is within reason.
To help determine a comfortable monthly payment, calculate everyday expenses such as groceries, car payments, credit cards and installment loans, along with entertainment and emergency costs. Then add the new mortgage payment, including property taxes, utility bills and insurance. Local utility companies can often provide estimates to help facilitate the budgeting process.
Down payment options
Outside of the monthly payment, buyers need to be prepared for both a down payment and closing costs. People often underestimate what is needed at closing, so it is important to understand what is involved. Many lenders will not accept undocumented “cash held in a safe” or “mattress money,” and need to see a borrower’s funds held in a bank account for 60 days.
For those that do not have enough saved for the required down payment, local and state-funded grants are available for qualified buyers to help with the purchase. Often, these grants are forgivable over time. Buyers should consult their lender for more information on what is available to help, including specialized first-time homebuyer programs. The Community One Program at Tompkins, for instance, can allow for a 0% down payment, no private mortgage insurance (PMI), and non-traditional credit for those who do not have an established credit file. These specialized programs will often give buyers the flexibility they need when a large down payment is simply not an option.
Work with seasoned professionals
Throughout the entire home buying process, buyers need experienced professionals on their side. An inexperienced real estate agent, loan officer, attorney, or home inspector can make the process challenging at best.
Community banks often offer technology to facilitate the mortgage application, but also provide personalized assistance throughout the process. This more individualized approach helps create long-term relationships as buyers take additional steps in their financial journey.
Read, ask questions, and read again
The mortgage process involves a lot of paperwork. Although it can be cumbersome, buyers should read contracts and commitment letters very carefully and ask questions about anything they do not understand. These important documents contain information regarding timelines and items needed from the buyer. Fulfilling these obligations will help keep the transaction on track for closing.
A simple mistake that buyers often make is taking out new credit during the mortgage process. Many people are often tempted to open a new credit line for furniture and other household items before even closing on a home. This type of behavior could impact one’s credit score and debt to income ratio, jeopardizing the entire purchase.
Shopping for and buying a home is exciting, but it can feel overwhelming. Working with reputable professionals can help break down the process into manageable stages, while offering borrowers the tools they need to put down roots in their community.
Stacy Merrill is the vice president and residential lending manager, Central New York, at Tompkins Community Bank.