Preparing to buy a first home can initially seem daunting, and one of the main things a first-time buyer worries about is the process of getting their first mortgage. It’s always a good idea to speak to a qualified lender who can answer questions about your specific situation, but here we’ll break the mortgage process down for you so that you’ll have a good understanding of what to expect.
While there’s nothing wrong with browsing available mortgages at any time, once you’re serious about buying you should get a mortgage pre-approval. During the pre-approval process (which usually takes a few days), the bank will check out your credit score and ask for proof of your income by looking at your pay stubs or tax forms. Then once you’re approved for a mortgage you’ll find out what your interest rate will be, and what your maximum monthly mortgage payment can be.
If the bank gave you an estimate of how much you can afford without requiring proof of your income, you may have received a pre-qualification rather than a pre-approval. A pre-qualification is a good start but be aware that you’ll need a pre-approval to actually make an offer on a home.
Home shopping is the fun part! Now you have a clear idea of what the bank will lend you, you can start shopping for a home that meets your needs. If you’re planning to buy a brand-new home, you’ll work with the builder to find a home that fits your budget.
When you’ve decided on a home, you can sign a purchase contract. With a resale purchase, the contract may be subject to limitations. For instance, the contract may only be valid under the assumption that problems don’t show up in the home inspection.
The contract with the builder will show that you’re agreeing to buy one of their homes. It will include information about your lot, the model of home, and any changes you want to be made to the basic floor plan. You won’t have to pick out design details until later.
The loan process can now begin. This is where lawyers come in to review the contract and check the deed of the home. There may need to be an appraisal or inspection before the bank will finalize the deal. This part of the process can take a few weeks.
Just before you get ready to close on the home, the bank will again want to see proof of income. They’ll also check your credit again. If there’s been a major change in your income – if you quit your job to start a new business for example – or if your credit history has dramatically changed this can hold up the process. For example, if you added a car payment, the bank will have to factor that into their calculations, and they may decide that you can’t afford as much home as you could before. It’s best to not change anything about your finances when you’re in the process of getting a mortgage.
On closing day, you’ll need to set aside a few hours to sign the paperwork and finalize your mortgage. It’s at this point that you’ll need to bring in money for your down payment and for any of the closing costs – legal fees and other expenses that can be around 2-3% percent of the cost of the home. Once everything is done, you get the keys to your new home.
Completion Mortgages and Draw Mortgages
There are two types of mortgages that you might get when you’re building a home. A completion mortgage is one that you take out once the home you’ve specified is completed. It works much the same way as a traditional mortgage for a resale home. In a draw mortgage, though, you take out the mortgage while the builder is working on your home. The bank grants them funding at specific stages of the mortgage. Essentially, you’ll be paying on this new mortgage before you move into your home. Having this type of mortgage may slightly alter the timeline we’ve been discussing, but your lender will walk you through the process.
Getting a mortgage can seem like a complicated process, but this shouldn’t stop you from buying the home of your dreams. People will be there to help you every step of the way.