Congratulations on your decision to move out of base housing (or end your lease on that rental unit) and buy your own home! Buying a home is an exciting experience, but it can also be overwhelming unless you’re armed with knowledge and information to help you through the process. Before you start looking for your dream home, you must first determine how much you are qualified to borrow and what price range you can afford. For that, you’ll need to find an experienced broker to guide you, step by step.
So how do you find a broker that’s right for you? Talk to everyone you know who owns their own home. Who did they go through? Would they recommend you calling them, as well? A great mortgage broker will always call you back and answer every question you have. This is the biggest purchase you will make in your life, so don’t think anything you ask is trivial or unimportant.
Once you find a broker you feel comfortable with, the mortgage process begins:
Pull credit. The mortgage broker will pull your credit to determine your credit scores and your overall credit history (do you pay your bills on time, have you had any collections, etc.) The higher your credit scores, the greater your chance of qualifying for a mortgage and the lower the interest rate you will be charged.
Pulling your credit scores also determines your debt-to-income ratio (DTI), which shows all your monthly debts. The mortgage broker will compare that to your gross income (before taxes are withdrawn) to calculate your DTI. In order to qualify, you’ll need a DTI at or below 40%, which includes the mortgage payment on your new home.
Order certificate of eligibility. If you want to obtain a VA loan, your broker will need to order the certificate of eligibility. This usually needs to be ordered via mail, so it should be one of the first things your broker does to ensure the certificate will arrive in time for closing.
Good faith estimate. Within three days of pulling your credit, your broker must provide you with an estimate of all fees and costs associated with the loan. This includes appraisal fees, origination fee (what the broker is charging you), any processing fees the bank charges, as well interest, home owner’s insurance and property tax, which is necessary to establish an escrow account. Make sure you review the good faith estimate very carefully. You are accepting, in good faith, to be charged reasonable fees to close the loan, not get raked over the coals.
Gather information. You will need to provide information to prove your employment history, salary, citizenship and assets in order to qualify for the loan. The bank wants to ensure you are gainfully employed and can make your mortgage payments each month so be prepared to provide the following:
- W2’s or tax returns for the last two years.
- LES or paystubs covering the last 30 days.
- Copy of your driver’s license.
- Bank statements, showing liquid assets (checking, savings, CDs, mutual funds, stocks, bonds, 401k, IRA) The more assets you can show, the better your chances of qualifying for the lowest interest rate available.
- Signed purchase contract.
Lock your interest rate. Once the broker has determined the price range you qualify for, you can then begin searching for your home. When you find a property and make an offer to purchase, the mortgage broker will lock you in to an interest rate, usually good for 30 days. This means that, for example, if you lock into a rate of 5% on a 30 year fixed loan on 1 June and then interest rates spike to 5.5% a week later, you are still guaranteed the 5% rate until 1 July. You will have to close on the property by the time the interest rate expires.
Have fun! If this is your first time buying a home, you will surely have a ton of questions. Write every one of them down and take notes while talking to your broker. Check out websites like www.Money.com and www.BankRate.com to see what interest rates look like for someone with your credit. Most importantly, have fun!
