Buying your first home can feel overwhelming because there are a lot of moving parts, unfamiliar terms, deadlines, and decisions. The good news is that the process becomes much easier once you understand what happens, when it happens, and what is expected of you.
This guide walks you through the entire home-buying process from the moment you first start thinking about buying a home, through mortgage approval and settlement, and even what happens after you receive the keys.
Before looking at homes, start by looking at your overall financial situation.
Ask yourself:
You do not need perfect credit or a 20% down payment to purchase a home. Many first-time buyers purchase with substantially less.
The important thing is understanding what your options are before beginning your home search.
One of the biggest mistakes first-time buyers make is starting to look at homes before getting properly pre-approved.
A mortgage pre-approval helps determine:
At Capital Funding Mortgage, the goal is not simply to tell you the maximum loan amount you can qualify for. It is also important to discuss what payment is comfortable for you.
There is a big difference between what you technically qualify for and what you may actually want to spend each month.
Your mortgage professional will generally ask you to provide documentation showing your income, assets, employment, credit history, and financial obligations.
Depending on your situation, documents may include:
Self-employed borrowers may need additional documentation such as business tax returns, profit-and-loss statements, or business bank statements.
Do not worry if your situation is unusual. The important thing is to explain your financial situation fully so the correct mortgage program can be identified.
Your credit score can affect both your ability to qualify and the interest rate available to you.
Your mortgage professional will review your credit report and look at:
Do not automatically pay off debts or close accounts before speaking with your mortgage professional.
Sometimes paying off a debt helps. In other situations, the money may be more useful toward your down payment, closing costs, or reserves.
The timing matters.
Your mortgage payment may contain several components.
These can include:
This total monthly housing expense is more important than simply looking at the purchase price.
For example, two homes with the same purchase price can have very different monthly payments because of differences in property taxes, insurance, HOA fees, or mortgage insurance.
Before shopping, know the approximate monthly payment range that feels comfortable to you.
A common misconception is that first-time buyers must put 20% down.
That is not necessarily true.
Depending upon the loan program and your qualifications, mortgages may be available with substantially smaller down payments.
Possible options can include:
A larger down payment can reduce the loan amount and monthly payment, but putting every dollar you have into the house is not always the best strategy.
It is usually wise to maintain some savings after closing.
Your down payment and your closing costs are two different things.
Closing costs may include items such as:
You will receive a Loan Estimate after applying for your mortgage that shows estimated loan terms and closing costs.
Your mortgage professional should review these numbers with you so you understand where your money is going.
Once your income, assets, credit, and financial information have been reviewed, you may receive a mortgage pre-approval.
The pre-approval tells you approximately how much financing you appear qualified to receive, subject to final underwriting and property approval.
Your pre-approval letter can then be submitted with an offer on a home.
A strong pre-approval can also make your offer more credible to the seller.
Once you are pre-approved, you can begin working with a real estate agent.
Your agent can help you:
Your mortgage professional and real estate agent perform different roles, but they should communicate throughout the transaction.
Now comes the part most buyers have been waiting for.
As you look at homes, remember to evaluate more than appearance.
Consider:
It is easy to fall in love with a house and overlook the financial side.
Before making an offer, ask your mortgage professional to calculate the estimated monthly payment for that specific property.
Once you find the right home, your real estate agent will help prepare an offer.
An offer typically includes:
The seller may accept your offer, reject it, or make a counteroffer.
Negotiations can go back and forth until both parties agree.
Once both sides sign the agreement of sale, you are officially under contract.
As soon as your agreement of sale is signed, send a copy to your mortgage professional.
The mortgage process now moves from pre-approval to a full loan application.
At this point, several things begin happening at the same time.
The lender may:
Respond quickly when documents are requested.
Delays in providing information can delay your mortgage approval.
After making your formal mortgage application, you will receive a Loan Estimate.
This document shows important information including:
Review it carefully.
Ask questions about anything you do not understand.
Do not simply focus on the interest rate. The total structure of the mortgage matters.
Mortgage rates can change daily and sometimes several times during the same day.
At some point before closing, you may decide to lock your interest rate.
A rate lock generally protects the agreed-upon rate for a specific period of time while the loan is being completed.
Your mortgage professional can explain:
Nobody can reliably predict exactly where mortgage rates will move.
The goal is to choose a loan structure that makes sense for your situation.
Your home inspection is different from the lender's appraisal.
The home inspector evaluates the physical condition of the property.
An inspection may identify issues involving:
Depending upon your contract, you may be able to negotiate repairs, request a seller credit, renegotiate the purchase price, or withdraw from the transaction if significant issues are discovered.
Your real estate agent and inspector will guide you through this part of the process.
The lender will usually require an appraisal.
The appraiser provides an independent opinion of the property's value.
The appraisal helps the lender determine whether the home's value supports the requested mortgage.
If the property appraises at or above the required value, the mortgage process generally continues.
If the appraisal is lower than the purchase price, several options may be considered depending upon the contract and loan program.
These could include:
Mortgage underwriting is one of the most important stages of the loan process.
An underwriter reviews your complete loan file.
The underwriter evaluates:
It is very common for an underwriter to request additional documentation.
This does not necessarily mean there is a problem.
Many mortgage approvals are issued with conditions that simply require updated or additional information.
This is extremely important.
From the time you are pre-approved until after settlement, avoid making major changes to your finances without first speaking with your mortgage professional.
Do not:
The lender may verify your credit, employment, and assets again shortly before closing.
A major financial change can affect your mortgage approval.
Before settlement, you will need homeowners insurance.
Your lender will generally require evidence that the insurance policy is active as of the closing date.
Shop around and compare:
Your insurance company will coordinate with the mortgage company regarding the required documentation.
Once all underwriting conditions have been satisfied, the lender can issue final approval.
You may hear terms such as:
This means the loan has satisfied the lender's underwriting requirements and is moving toward settlement.
There are still final steps to complete, but this is an important milestone.
Before settlement, you will receive a Closing Disclosure.
This document shows the final details of your mortgage and closing.
It includes:
Compare the Closing Disclosure with your earlier Loan Estimate.
Your mortgage professional and settlement company can explain any changes.
Shortly before settlement, you will normally complete a final walk-through of the property.
The purpose is to make sure:
If there is a problem, notify your real estate agent immediately.
The settlement company will tell you exactly how much money you need to bring to closing.
This money is often sent by wire transfer.
Always independently verify wire instructions directly with the title or settlement company using a known telephone number.
Wire fraud involving real estate transactions is a serious problem.
Never rely solely on emailed wire instructions without confirming them.
Settlement is the day ownership of the property is transferred to you.
You will review and sign a number of documents.
These commonly include:
The settlement company will also coordinate the transfer of funds and recording of the necessary documents.
Once the transaction is completed, you become the owner of the home.
And yes, this is usually when you finally receive the keys.
Your responsibilities do not end when you leave the settlement table.
There are several things you should do shortly after closing.
You do not know who may still have copies of the previous owner's keys.
Changing or rekeying exterior locks is a good precaution.
Make sure electricity, gas, water, internet, and other utilities are transferred into your name.
Keep copies of your:
These documents may be important in the future.
Your first mortgage payment is generally not due immediately after closing.
For example, if you close during one month, your first full payment may not be due until the beginning of the second following month.
Your exact first payment date will appear on your mortgage documents.
Make sure you understand:
Do not be surprised if the company you make your mortgage payments to changes after closing.
Mortgages are commonly transferred from one servicing company to another.
If this happens, you should receive written notices explaining:
This does not normally change your mortgage terms.
Your interest rate, loan balance, and repayment schedule remain governed by your original mortgage documents.
If your mortgage includes an escrow account, part of your monthly payment is collected for expenses such as:
The mortgage servicer holds these funds and pays the bills when they become due.
Your escrow payment can change over time if taxes or insurance premiums increase or decrease.
That means your total mortgage payment can change even if you have a fixed interest rate.
Even if your taxes and insurance are escrowed, review the bills when you receive them.
Make sure they are being handled properly.
If you receive a tax bill that you believe should be paid by your mortgage servicer, contact the servicer rather than assuming it has been paid.
When you rent, the landlord is generally responsible for repairs.
When you own the home, those responsibilities become yours.
Over time, you may need to repair or replace items such as:
Try to maintain an emergency savings account for home repairs.
Your mortgage should not necessarily be something you close and then forget about for 30 years.
Your financial situation and the mortgage market will change.
It can be helpful to periodically review your mortgage if:
A good mortgage professional should remain a resource even after settlement.
Buying your first home is a major financial decision, but you do not have to become a mortgage expert before getting started.
You need a team that will explain the process clearly, answer your questions, and help you understand your options before you make important decisions.
The home-buying process can be summarized simply:
Prepare financially → Get pre-approved → Find a home → Make an offer → Complete inspections → Apply for the mortgage → Complete underwriting → Receive final approval → Review closing documents → Attend settlement → Become a homeowner.
At Capital Funding Mortgage, we believe first-time buyers should understand exactly what is happening throughout the process rather than simply being told what documents to sign.
If you are thinking about purchasing your first home, even if you are months away from being ready, speaking with a mortgage professional early can help you identify the right steps to take now and avoid surprises later.
Call John Madden at 215 601 6724 for expert advise. Even if you are just thinking about buying a home in the future, I'd love to speak with you.
