I want to buy a house! Where do I start?

Buying a home is one of the most important financial decisions you will make. Understanding the home-buying process is crucial, as it can be complex and overwhelming without proper guidance. From assessing your finances to all the way to the closing process, each step requires careful consideration and planning. This blog aims to simplify that journey by providing a mortgage timeline and breaking down the process into manageable stages so you feel comfortable and well-informed. 

Whether you’re a first-time homebuyer or looking to refresh your knowledge, this guide will walk you through each step of the timeline, ensuring you feel confident and informed as you walk your path to homeownership. 

 

1. Preparation, Preparation, Preparation

This saying applies to mortgages too. Before you call an X2 Loan officer, it's important to lay a solid foundation by preparing your finances and understanding the costs of buying a home. This preparation can significantly influence your purchasing power and overall save you lots of time and energy.

 

Assessing Financial Health

First and foremost, assessing your financial health is crucial. Your credit score plays a huge role in determining your mortgage eligibility and interest rate, resulting in what everyone wants–a manageable monthly payment. A higher credit score typically results in better loan terms, so check your score early and take steps to improve it if necessary, such as paying down credit cards or other collections. 

Hint: Your bank usually can provide you with a credit score close to what the bureaus will say, or Credit Karma is an easy app to get a ballpark idea. 

After you know what your credit score is, it's important to start to budget and know what buying a house is generally going to cost you. Wondering how much you can afford monthly? Calculate how much you can afford by considering the mortgage payment, but don't forget to include the property taxes, Home Owners Insurance, HOA fees, and Mortgage Insurance. Then put those numbers next to your other budgets and see what breathing room you have for other bills. 

Hint: Zillow listings will give a good guess of how much these are for a specific property. If you scroll towards the bottom, you will see a graph with a ballpark total for these numbers.  

Your loan officer will assist you in calculating your debt-to-income (DTI) ratio to determine how much lenders are willing to extend. A common guideline is the 28/36 rule, which recommends that housing expenses should not exceed 28% of your gross monthly income, while your total debt should remain within 36%.

Depending on the specific loan or investor, we can often accommodate a higher DTI ratio, making homeownership accessible to more individuals. Be sure to reach out for our assistance before ruling yourself out—there may be more options available than you realize!

 

Closing Costs of Obtaining a Loan

X2 Mortgage is competitive when it comes to closing costs. These fees, which typically range from 2% to 5% of the loan amount, can vary based on the type of loan and the investor. As brokers, we have the advantage of shopping around for the best rates, allowing us to minimize your closing costs by not charging any additional fees and finding the cheapest and best investor for your situation.

You’ll receive clear documentation outlining your closing costs throughout the process. Initially, you’ll get a Loan Estimate (LE) after making an offer on a house, providing you with an overview of expected expenses. Later, the Closing Disclosure (CD) will provide precise figures for what you’ll need to pay.

Let’s break down the CD briefly: common closing costs include the origination fee. At X2 Mortgage, we excel in keeping these costs low by eliminating underwriting and processing fees, potentially saving you hundreds of dollars. Additionally, as a wholesale brokerage, we can offer flexibility with the origination fee, further enhancing your savings. With X2 Mortgage, you can feel confident that you’re getting the best deal on your closing costs.

Further along the CD, you will find appraisal fees when you close, which assess the property's value to ensure it meets the loan amount. Title insurance protects against potential disputes over property ownership, while escrow fees facilitate the management of funds during the closing process to make sure everything is accounted for. Other costs may include credit report fees, inspection fees, and pre-paid items like property taxes and homeowners’ insurance. 

Understanding these fees can help you budget appropriately and avoid surprises at closing. You can review the LE and CD with your X2 lender, allowing you to compare options and negotiate where possible. 

 

2. Getting Pre-Approved for a Mortgage 

Now that we know what costs are involved, how do you get Pre-approved to get the process going? Mortgage pre-approval provides buyers with a clear understanding of how much they can borrow. It involves a qualified broker evaluating your financial situation, including your income, credit score, debts, and assets to determine the loan amount for which you qualify. To put it another way, would you go to the grocery store to buy food if you didn't have any idea how much you could spend? We highly recommend you start with the numbers before shopping for houses.  

 

Steps to Get Pre-Approved

By getting pre-approved, you can confidently navigate your home search, knowing exactly what you can afford. The first step in obtaining pre-approval is gathering the financial documents (you were already preparing) and calling your loan officer. Depending on your situation, this typically includes gathering recent pay stubs, tax returns, bank statements, and information about any outstanding tax delinquencies or debts. Having these documents ready can expedite the process.

After you speak with your loan officer, you will fill out paperwork called a 1003 application. This can often be done online, by uploading any documents your Loan Officer requests. 

It’s important to understand the difference between pre-approval and pre-qualification. In Arizona, pre-approval is a simpler, less formal process where you provide financial information to your loan officer, who then gives you an estimate of how much you might be able to borrow. In contrast, pre-qualification involves a thorough review of your financial situation and results with a document you can give your realtor when you put in an offer. 

 

3. House Hunting

It depends on who you talk to, but house hunting can be the fun part! Looking for a home is an exciting yet often overwhelming phase in the home-buying process. Finding the right property requires a lot of looking and trial and error. 

Researching the Housing Market

Before you meet with an agent, it’s a good idea to research the housing market. You can usually do this on some online real estate apps, researching factors important to you such as location, neighborhood amenities, schools, and commute time. Market trends can also impact your decision; understanding whether you’re in a buyer’s or seller’s market can inform your strategy. You can read one more about what that means here.

 

Finding a Real Estate Agent

A knowledgeable real estate agent plays a crucial role in the home-buying process. They act as your advocate– guiding you through the complexities of the ever-changing real estate market, helping you identify suitable properties, and negotiating on your behalf. A good agent will understand your needs and preferences, provide valuable insights about neighborhoods, and assist with paperwork and closing details. As of July 2024, you’ll need to know something called the Buyer Broker agreement. This is required to sign when working with a realtor, which has to do with the relationship and commission later on.  

 

Setting Criteria for Your Home Search

Before diving into property viewings, have some criteria in mind for your home search. Begin by distinguishing between "must-haves" and "nice-to-haves." Must-haves are essential features that you cannot compromise on, such as the number of bedrooms or proximity to schools. Nice-to-haves might include a large backyard, a modern kitchen, or a swimming pool. By outlining these criteria, you can streamline your search and focus on homes that truly meet your needs.

 

Viewing Properties

When it comes to viewing properties, it’s important to be prepared. Schedule multiple showings in a single day to maximize your time and compare homes effectively. During each tour, take notes and pictures to help you remember details later. Pay attention to the home’s condition, layout, and neighborhood. Ask essential questions, such as the age of the roof, any recent renovations, and if there are any HOA fees. 

 

Making an Offer

Once you’ve found a property you love, it’s time to make an offer. Your real estate agent will draft an offer letter that includes your proposed price, contingencies, and closing date. Be prepared for possible negotiations; sellers may counter your initial offer. Effective negotiation involves being flexible while knowing your limits. Consider including a personal letter to the seller, expressing your connection to the home, which can sometimes sway their decision in your favor.

 

 

4. What Happens After You Submit Your Offer?

After you submit your offer, several steps take place to move the process forward. 

Your lender will review your contract, and begin vetting your situation with various investors. Once you give the go-ahead, your loan officer will submit your loan and your file enters into the underwriting process. 

 

 

Going Through Underwriting

The underwriting process is the investor’s assessment of the risk involved in lending you money. During this stage, underwriters analyze your mortgage application and supporting documentation to determine if you meet the investor’s criteria for approval. They also assess the appraisal and any other documentation involved. This thorough examination helps the investor mitigate risk and make informed lending decisions. During this time, you might be asked to submit further documentation or clarify any discrepancies.

Once your financial profile is analyzed, your loan officer will order an appraisal of the property. This independent evaluation determines the home’s market value and ensures that it aligns with the loan amount you are requesting. 

Once underwriting is complete, there are several possible outcomes. The most favorable result is approval, meaning you’ll receive a mortgage offer with specific terms. However, approval may come with something called conditions, such as additional documentation or clarifications needed before finalizing the loan. 

It’s essential to respond promptly to these conditions to avoid delays. Conversely, there is also the possibility of denial, which can occur if your financial profile does not meet the lender’s requirements or if the property appraisal comes in lower than expected. Your X2 loan officer is on your side and will keep you informed every step of the way. 

 

Timeline Expectations

Underwriting typically takes anywhere from a few days to several weeks, depending on the investor's workload and the complexity of your financial situation. Factors that can influence this timeline include the completeness of your application, the responsiveness of involved parties, and whether additional documentation is required. 

 

5. Closing the Deal

Closing the deal on your new home is the final step in the mortgage process, and probably the most exciting. On the mortgage side, you will get a Closing Disclosure (CD) three days before closing, to make sure you approve and understand all the financial obligations. 

With your real estate agent, you will do something called a final walk-through. This inspection occurs just before the closing meeting and allows you to ensure that the property is in the agreed-upon condition. It’s your opportunity to check that any repairs requested during the negotiation have been completed and to verify that there are no new issues. 

Closing day! At the closing meeting, you will sign a multitude of documents, including the mortgage agreement and the deed. This process may take place at the lender's office, a title company, or even at your own home. Be prepared to provide identification and confirm the final details of your loan. 

After all the papers are signed, you’ll receive the keys to your new home, marking the exciting moment of homeownership!

 

6. Conclusion

In summary, each step in the mortgage process—from preparation and applying to closing and moving in, is crucial for achieving successful homeownership. Taking the plunge into homeownership can be daunting, but with a teammate like your X2 Mortgage Broker, we are confident you can navigate this journey with ease. We are honored to be involved in this opportunity to invest in your future and enjoy the rewards of owning your own home. 

Ready to take the next step toward your dream home? Start by assessing your financial health and getting pre-approved for a mortgage today! Connect with an experienced loan officer who can guide you through the process and answer any questions you may have. Don’t let uncertainty hold you back—equip yourself with the knowledge and support you need to navigate the housing market with confidence. Visit our website or contact us now to begin your home-buying journey! Your future home awaits!