In our last blog we compared and contrasted the stories of two couples, both with different career paths, budgets, wants, and needs in their home buying process. There are many crucial steps and important considerations specifically for new buyers and we’ve outlined some of those key points in a solutions roadmap geared at helping new or first-time homebuyers in their journey!
- Qualification process
One of the first steps for new buyers, or any buyer for that matter, is establishing proper income. Clarity on salary, whether hourly with guaranteed hours or full time, is what must be shown to lenders. Another option for those without guaranteed hours, or who have multiple streams of income, would be a salary calculated based on a two-year average. Now, if you’re buying with a partner, as we saw in our previous post, both incomes (as long as they qualify) are considered.
Debt load and payments are other determining factors for lenders. It may not seem obvious but various debts are calculated differently. For example, a line of credit (or any unsecured debt such as credit cards) requires you to pay a minimum amount per month. Lenders want to ensure that they not only get paid but that you are able to continue paying off your other debt. That said, lenders use 3% of the balance to calculate the payment they’d want to see. A line of credit with a balance of $10K might only require you to pay $70 per month (interest only) but lenders factor a payment of $300 per month. This difference in what you actually have to pay versus what lenders calculate can have a huge impact on your application.
Credit is the third factor we investigate in the qualifications journey. You (and your partner) should have the minimum credit score required (620-650 depending on lender, insurer, and deal) but there are opportunities where two people’s credit could be better than one. Credit averaging could be a possibility as well. Income, debt, and credit all combine for your debt-to-income ratios. These ratios are our primary qualification indicator to determine your budget.
- Working within your budget and resources
Once we’ve established your debt-to-income ratio, we then determine what that will afford you in terms of dollar value for your home. Your ratios affect your purchase price and what kind of flexibility may be needed on your end. You may qualify for way more than you’re comfortable spending. Alternatively, you may want to spend more than you’re qualified for or desire a location where your budget isn’t well suited. Perhaps the savings you have may not be enough for the deal you want.
All of these challenges are discussed, dealt with, and solutions are designed to help overcome and you get closer to your dream home. You may have to get a smaller home than you thought if you’re not flexible on leaving the nearest city core or you may be able to get into a larger home if you don’t mind living 45 minutes outside a downtown area and are able to commute. We work with you to find a custom-tailored solution that fits your lifestyle, wants, and needs.
- Closing time
Congrats, you’ve found your dream home within your budget and your offer has been accepted by the seller! Because most of the necessary paperwork was already taken care of (i.e. pay-stubs, letter of employment, down-payment verification, etc.), now we simply package it up with your new home and send it to the lender(s) for final approval. However, your pre-approval was missing one crucial aspect until now… the property. The lenders have approved you as a borrower but now have to approve you and your home as a package deal.
They’ll assess the property, in some cases require an appraisal, or perhaps ask for a copy of the inspection report. Your lender is essentially your business partner on your deal and must ensure due diligence is done on their investment. They want to know what exactly they’re investing in and with whom. Once that’s complete and both parties agree on the terms of the loan and purchase, the deal can be finalized and you receive your keys on your closing date. This part of the process is facilitated by your lawyer who acts on both you and your lender’s behalf to ensure your investment is solid and completed properly. Some of the final considerations handled by your lawyer could include home insurance verification, final closing costs calculation, condo certificates if necessary, and mortgage registration.
Pro tip: Your deal isn’t done until it’s done.
As long as there is enough time for your lawyer and lender to cover their ends of the deal, we can move your deal or change lenders at any point without penalty. Realize, though, that the lender can also change their mind. If your situation (credit, employment, misrepresentation of information originally submitted) changes negatively (in the lender’s eyes), they do not have to complete the deal. Being as forthcoming and as transparent as possible, all while holding off on any larger life changes will only help your deal reach the finish line and you move into your new home. That said, in some cases, there can be some flexibility. So keep the lines of communication with your broker open at all times.
Contact the Kyle Miller Mortgage Agent team so we can discuss your situation and help find solutions. If you’re new to home buying, there are lots of decisions to be made so let us ease the burden by helping you understand your best options!
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