ASSES YOUR FINANCIAL SITUATION
WHAT CAN YOU AFFORD?
The down payment is money you give the home seller. The remainder of the payment comes from your mortgage. Most loans today require a down payment of between 3.5% and 5.0%. Credit report, assets, income, and property value are all key factors that determine your ability to secure a home loan. Note, with a down payment of more than 20%, you may be eligible for additional loan programs as well as the elimination of the mortgage insurance known as PMI.
Most lenders require that your monthly payment range between
25–31% of your gross monthly income. Your mortgage payment to
the lender includes the following items:
Your total monthly PITI and all debts (credit card, car loans, etc.) should range between 33–38% of your gross monthly income.
You will be required to pay fees for loan processing and other closing costs. Typically, total closing costs will range between 3-6% of your mortgage loan.
Most monetary items will be paid at closing. However, there are certain costs, when purchasing a home, that may be paid “up-front.”
Appraisal Fee: If requiring a mortgage, lenders may ask for the appraisal fee before closing in order to secure your appraisal for loan approval. Fees average $600 but can vary based on your lender, appraiser, and/or home size.
Inspections: All inspections requested by the buyer will need to be paid at the time of the inspection. The average home inspection fee is $500 and can vary on the size and general condition of the home. Septic system, radon, wood-destroying pests, mold, and structural inspections will incur additional charges over and above the “basic” home inspection.
Homeowners Insurance: Most lenders and insurance companies will ask for one year’s homeowners insurance paid in full at the closing. Rates will vary depending on the value, location, and type of home.
Homeowners insurance premiums will vary based on your deductible, credit history, marital status, age and construction of home, roof condition, proximity to a fire station and bodies of water, insurance score, claims history, pets, etc. It’s a good idea to shop for the best price and coverage, and your agent can give you referrals.
In today’s competitive home-buying environment, sellers need to know you are financially able to buy. A pre-approval is a letter from an accredited lending source that indicates you are eligible for a loan up to a particular amount. This letter must accompany any offer you make and gives you an important head start in securing an actual loan commitment. The process is quick and easy and can be done online, over the phone, or in person.
WHY PRE-APPROVAL MATTERS
Proper Expectations: It gives you a payment range so you know exactly what you can afford to buy.
Improved Standing: A seller may be willing to consider concessions, such as a contribution to closing costs, if they know that your financing is secure. This may make your offer more competitive.
Better Choices: You can select the best loan package even before negotiating begins.
Loan pre-approval with a lender establishes a maximum price range that you can afford, a maximum loan amount, and a total monthly payment. It will also include the total amount of cash needed to close.
TALK TO YOUR AGENT ABOUT LOCAL LENDERS
Things to consider when choosing a lender:
- A lender’s competence dramatically affects the outcome of your homebuying experience.
- Beware of some internet lenders. Faceless loan sources can create problems and delays.
- The best results come when a local lender is chosen. Your agent can be a stronger advocate and keep the process moving smoothly if he or she can communicate with a local lender. In this competitive market with a proliferation of multiple offer situations, a pre-approval from a local lender better positions your offer against those using an online, unknown, or big-box lender. If the lender is local, ask if their processor and underwriters are in-house, too.
- Choose a lender who meets contract deadlines. When talking with potential lenders, ask what percentage of their loans close on time.
- There are several loan options and programs available that may suit your situation. Talking to a trusted lender is the best way to get the details on them as they can vary from month to month.
ITEMS YOU MAY NEED FOR PRE-APPROVAL
SELECT YOUR TRUSTED AGENT
With their experience and expertise, your agent at Real Estate Partners Chattanooga will take the complexity out of the homebuying process. The trust you develop in your agent will allow you to make the best decisions from pre-approval to the closing table.
BUYER REPRESENTATION AGREEMENT
Upon being approved for your mortgage loan, your agent should provide you with a Buyer Representation Agreement. This establishes the legal relationship, or designated agency, between you and your agent. Upon signature, your agent becomes legally and ethically obligated to serve your interests and act as an advocate on your behalf.