Now that you know your credit qualifies you for a mortgage, and the maximum dollar amount you are qualified for, you can shop for homes based on the approval criteria. Not sure about your pre-approval? Check out our Guide to Home Buying – Step One to get started from the beginning.
When to use a “Buyer’s Agent”
If you are buying a home for the first time, it is recommended that you use a realtor to assist you in the home buying process. While realtors usually do represent individual sellers of homes, you can also obtain the services of a realtor as your “buyer’s agent”. A buyer’s agent will assist you in finding homes for sale that meet your criteria and pre-approval limits. They also typically contact seller’s agents to schedule showings of homes that you are interested in possibly purchasing. Your realtor will attend home showings with you, provide guidance to aid in your decision-making, and help you to submit your offer on the home that you want to purchase. You should steer away from simply contacting the buyer’s agent on your own to schedule a showing of a home. This is because the seller’s agent doesn’t represent you, and will do everything that he or she can do to convince you to buy the home you are looking at.
It is important to note your pre-approval cannot be voided unless there is a significant change in your financial circumstances (most commonly a loss of job or income), and/or credit score since you applied. Your approvals are typically good for sixty days and will be voided after they expire.
Understanding your Pre-Disclosure Documents
Federal law requires that you are provided with a set of paperwork known as, the “Real Estate Settlement Pre-Disclosures Act” (RESPA), within three days of submitting your application for a residential mortgage loan. This means, if you applied for a pre-approval BEFORE you have found a home, your Mortgage Loan Originator (MLO) is still required to send you these pre-disclosures within three days. The most important document in this set of paperwork is the “Good Faith Estimate” (GFE). The GFE provides you with an accurate estimation of all origination fees, including points charged, closing costs, and gives you an estimation of what your monthly payment will be for the specific amount you are looking to finance. If you submit an offer on a home that differs from your original GFE that you were provided, your broker or lender is required to re-send you an updated one prior to closing.
Can You Really Afford This Home?
Mortgage industry standards base your pre-approval amount on your gross monthly income before taxes. Many people find that the maximum amount they are approved for is more than they can really afford, since no one receives their actual gross pay. This means you should not automatically assume that you can afford a $200,000 home because that is what you were pre-approved for. You must pay close attention to your GFE and take as much time as you may need to determine whether or not you can really afford the monthly payment on your proposed mortgage amount.
Available Financing Programs and How They Work
Your broker or lender will guide you through the different financing programs available, but it never hurts to know how all of these programs work. A mortgage loan is typically funded by a lender and insured against loss by another entity. Some of the different insuring entities include Fannie Mae, Freddie Mac, FHA, VA, and USDA.
Providing re-assurance to private lenders is the primary function of all of the different insuring entities. The difference between them is that they each have different underwriting guidelines. For a loan to be insured by Fannie Mae, Freddie Mac, FHA, VA, and USDA, it must meet be underwritten by the guidelines established by that entity. Some of the most common insuring entity’s and their underwriting guidelines are:
FHA (Federal Housing Authority):
- Minimum 3.5% down payment
- Minimum 500 credit score
- Mortgage Insurance Premium (MIP) paid monthly with less than 20% down payment
VA (Veterans Administration – for current and former military ONLY):
- No minimum down payment
- Usually 620 credit score
- Private Mortgage Insurance paid monthly with less than 20% down payment
USDA (United States Department of Agriculture):
- Only allowed on qualified non-urban properties
- No minimum down payment
- Allow for closing costs to be financed into the loan amount (not paid out-of-pocket)
- Generally have less stringent minimum income guidelines
- No minimum credit score guideline, but applicants must have “reasonable” credit history
While going house-hunting can be exciting, it can also be a stressful and confusing process. Don’t stress; Mariner Finance is here to help! We have an expertly skilled mortgage team readily available to help you with all of your montage needs, including mortgage loans, home refinancing, and more. Simply call 866-382-5080 today to speak with one of our licensed loan officers, or click here to learn more!