Thinking About Buying a Home

Buying a house is exciting and a huge step forward for you and is one of the most rewarding. Whether it’s your first home, a second home or an investment property, you’re putting yourself in position to enjoy all sorts of personal and financial benefits.

Before you begin your journey, some preparation is in order. Planning for your home purchase is the key to an easier and more successful process. You can save time and minimize hassle if you understand the basics of the process, including the terminology and background.

Step One – Know what you can afford

Are you ready to own a home?

One of the first things you’ll need to do is decide how much home you can afford. Take an honest look at your current income and expenses so you understand how much you can afford to spend on a house. You’ll also need a rough idea of how much down payment you’ll have and what current interest rates are for different types of loans.

Check your credit report

Lenders will look at your credit report to determine what interest rate they’ll offer you. A higher score generally means you’re a lower credit risk and will qualify for a lower interest rate. Check your credit report for any inaccurate details before you start to shop for loans. If your credit score is low, you may want to take steps to improve it before taking on a mortgage.

How much will I need for a down payment?

Most mortgage companies require 20 percent of the purchase price as a down payment for financing, but there are loan programs that do not require 20% down payment, you may have to pay a higher interest rate. You’ll also need to set up an escrow account. An escrow account is an account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.

Step Two – Shop for a mortgage

The type of loan you qualify for will determine your monthly payment amounts, the length of the loan and other terms of mortgage.

A conventional loan is a type of mortgage loan that is customarily made by a bank, savings and loan association or financial institution that is without government underwriting (such as FHA or VA). Here the lender looks at your debt-to-income ratio, credit history and credit score to determine the terms of the loan. Conventional loans can be adjustable-rate mortgage (ARM) or fixed loan.

An FHA loan is a mortgage that is insured by the Federal Housing Administration. The credit requirements are less stringent than a conventional loan.

A VA loan is a mortgage guaranteed by the Department of Veterans Affairs. Generally, veterans, National Guard, reserve, and some surviving spouses can apply for VA loans. The major requirements are steady income and at least two years of military service. VA loans tend to be fixed loans.

Construction loans are usually short-term, variable-rate-loans priced at a spread to the prime rate or some other short-term interest rate. The contractor/builder and the lender establish a draw schedule based on stages of construction and interest is charged on the amount of money disbursed to date. Many homeowners use construction-to-permanent financing programs where the construction loan is converted to a mortgage loan after the certificate of occupancy is issued. The advantage is that you only need one application and one closing.

Pre-qualify for a mortgage

Generally, you must establish a few things to qualify for a mortgage loan; for example, adequate income to support the continuing loan obligations and credit worthiness to demonstrate persistence in meeting credit obligations.

The lender will consider your income to determine the amount of loan. Lenders look at your debt-to-income ratio to determine the amount of loan you will qualify for. In other words, the balances on your credit and other loans will reduce the amount of the mortgage loan you will qualify for. Your credit score determines the amount of interest and type of loan you can qualify for.

The down payment is equally important. This is the amount of money you must reduce the amount you need to borrow or increase the value of the house you can purchase. Some of your down payment can be applied to your loan to decrease your loan interest; this is called buying down points.

Pre-approval letters

Before you put an offer on a home, a seller will generally want to see a pre-approval letter. This letter tells the seller and their agent how much of a loan you qualify for, excluding the amount you have available for a down payment or must bring to the closing table. Most realtors like to see a pre-approval letter before they will agree to represent a buyer and begin showing them homes.

Based on your income, expenses, and credit, a lender will provide you with pre-approval letter for the loan amount and type of loan that they are willing to lend to you based on those factors.

Step Three – Find a home

Determine if you want to manage the purchase by yourself or hire someone to help you. If you hire someone to help, know that not all realtors are real estate agents.

A knowledgeable local real estate agent can be helpful because buying a home requires understanding the many rules and requirements that must be met locally by a buyer and seller. An agent can help you:

• Understand what price you must pay.
• Find affordable mortgage lenders.
• Get the home inspected.
• Get title insurance and surveys.
• Handle the requests of all the parties involved in the transaction.
• Respond to problems along the way.

Hiring an agent also will provide more exposure because most traditional real estate agents share their property listings in a database called the Multiple Listing Service. Agents also represent potential buyers they can share your listing with before it even goes on the market. Some agents advertise their services and listings which lead to more exposure to potential buyers.

Step Four – Make an offer

Once you find a home you want to buy, you’ll submit an offer to the seller. Typically, the offer is made in a standard form locally used by real estate agents and attorneys and is submitted by the buyer or the buyer’s agent to the seller or the seller agents for review and acceptance. If the seller accepts the offer, the contract becomes binding, subject to contingencies.

The seller can either accept or deny the offer or make a counteroffer stating the terms of the offer that need to change or be added to be acceptable.

The buyer can then accept or refuse the counteroffer or make a counteroffer to the new terms. The offer does not become a binding contract until both parties agree to the terms and sign the contract.

Step Five – Closing

Closing is the final step in the process. During closing, the deed of title is delivered to the buyer, the title is transferred, financing documents and title insurance policies are exchanged, and the agreed-on costs are paid. Some of the final documents, including the deed and mortgage or deed of trust, are signed by the appropriate parties, and then delivered to the county recorder to be recorded.

Closing costs

Local practice establishes which side seller or buyer is responsible for some or all the closing costs in a transaction. But generally, the buyer is required to pay those costs associated with its obligations in the transaction.

After all the paperwork is signed, you’ll receive the keys to your new home! Time to celebrate!

Lisa Sapolu
VP of Hawaii Lending / Loan Originator
NMLS916216
M 808.347.6171
E Lisa.Sapolu@myccmortgage.com

CrossCountry Mortgage | 3555 Harding Avenue, #100 Honolulu, HI 96816 | NMLS3029 NMLS1379257 Equal Housing Opportunity. All loans are subject to underwriting approval. Certain restrictions apply. Call for details. CrossCountry Mortgage, LLC. NMLS3029 (www.nmlsconsumeraccess.org)

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