The marks on the door jamb that measured your kids’ height as they grew.
That one stair that always creaks.
The holidays, the birthdays, and the regular plain-old weekdays.
These are the moments that have turned your house into a home over the last couple of decades. But we all know that with time, comes change. Maybe you’re empty nesters now and want to downsize. Or, maybe it’s time to move to that little corner of the country you’ve always dreamed about; a sleepy New England coastal town or a ranch among the Rocky Mountains of Colorado. See, it doesn’t have to be a sad or fretful process leaving a longtime home. That’s because buying a new home is fun and exciting!
There are great benefits to buying a home later in life, too. So wherever your heart leads you, we wanted to post a refresher on the home buying process for those who haven’t bought a home in a while. Because just like life, the steps to buying a house have changed a bit over time. The great news is that the process, especially with ditech, has only gotten easier.
Below is a quick cheat sheet on how to buy a home if it's been a while.
What’s the Difference Between Prequalification and Preapproval?
Seems like they could be synonyms, right? Well, when it comes to the mortgage application process, there are big differences.
Prequalification: This is how much you may qualify to borrow from a lender. Your lender reviews your income, assets, debt, and credit score, and gives you an estimate of what your home loan could be. It’s not guaranteed, but it shows realtors and sellers that you are financially viable and serious about purchasing. Get prequalified first, then (here comes the fun part!) start to shop for homes in your market.
Preapproval: This is verification of the amount you qualify to borrow from a lender. It generally requires physical documentation of your income, assets, debt ratio, and credit score. An underwriter reviews your application, and if you’re eligible, you’re conditionally approved for a loan. In all cases, a preapproval holds more weight than a prequalification.
How to Find the Right Loan
Finding the right loan starts with knowing yourself. Take a personal inventory or your finances and goals. Your life is unique and your loan should be, too. Even if your best friend just got the most amazing rate in the history of home loans, it still might not be the right loan for you.
Next, do your research and learn the lingo. The home loan industry has a ton of jargon that the everyday person might not know. But that’s ok, you’ll learn quickly as long as you have the right lender.
Speaking of which…
Finding the Right Lender
First, remember that mortgage lenders are people too! Making a personal connection is important to finding the right loan. Get to know your lender a little bit. Do they have a family, pets, what part of the country do they live in? Chances are pretty good that they are homeowners too, and they know the emotions and possible stressors that come along with home finance. The right lender will listen to your needs and guide you through the mortgage loan process, being sure to answer every question with compassion and patience that you may have.
What Documents are Needed when I Submit my Application?
We know that this can feel a bit invasive; financial information is very private and isn’t something you share with someone who is pretty much a stranger (all the more reason to make a personal connection with your lender!). However, your lender needs this documentation to make a decision on the loan. In general, but not always, four types of documentation are required. Here are the common four:
- Income: Pay stubs, W-2’s and/or I-9’s, and tax returns
- Assets: Bank statements, IRAs, stocks, bonds, current real estate holdings
- Credit: You’ll provide access to your credit report, plus documents on your current auto, student, and mortgage loans. If you rent, you’ll need to provide rental history, and landlord information
- Property: An appraisal of the home you want to buy will be required by the lender to ensure you are not over-paying and that the house is worth the money being lent to you
Know the Trends and Markets
In recent years, homebuyers have enjoyed unprecedented low interest rates. Sounds great, right? For some, yes. But for others, no. You must remember that if interest rates are historically low, that means lots of buyers in the marketplace -- which means quickly rising home prices. It’s a good example of cause/effect.