Whether you're a first-time homebuyer or a seasoned pro, the mortgage process can sometimes seem complex. You've been saving for a home, so where do you go from here? We've laid out the mortgage below to help you navigate the homebuying journey.
1. Homework, homework, homework
Homework — there, we said it again. Before you make any major financial decisions it's important to do your homework. If you're reading this, you've already begun! But this is just the start. Take time to get familiar with the ins and outs of the process and know what to expect. If you've read article after article and you still have questions, a Chase Home Lending Advisor would be happy to help.
2. Check your credit score
First thing's first — you need to see if you're eligible for a mortgage. Getting a mortgage largely depends on your credit score. The higher your score, the better your chances of being approved for a loan. Generally, you'll want your score to be at least 620 or above. If it's not where you'd like it to be, there are plenty of ways to improve it, like reducing your balances and paying your bills on time. Having a strong credit score can lower your interest rate, so focus on bringing that number up.
3. Measure your debt to income ratio
Lenders will ask questions about your financial situation, such as your debt-to-income ratio. This is the amount of money you bring in each month versus your monthly payments for things like credit cards and car loans. The lower your debt-to-income ratio, the more likely you’ll be approved for a mortgage loan.
4. Look at your savings
If you're ready to buy a home, you may have already started saving for it. Look at your savings and decide how much of it you can put towards a new home. Keep in mind things like emergency funds, insurance premiums and any large bills you'll have to pay soon. Subtract what you'll need in the near future to see how much you have left.
5. Decide on a down payment amount
Now that you know how much you can spend on your new home, do the math to see how much of a down payment you can afford. Ideally, you'd be able to pay a 20% down payment on a home which means you won’t have to pay private mortgage insurance, and you may have more loan options to choose from. You can put less than 20% down, but try to get as close to that as possible.
6. Choose a mortgage type
Now it's time to dive deeper into the world of homeownership. Decide what kind of mortgage you want: 30-year fixed-rate, 15-year fixed-rate, an adjustable-rate mortgage and so on. Not sure what any of that means? There are lots of resources to help you research the different types of mortgages. Do your homework and pick the one that best fits your unique needs.
7. Find your real estate agent
A good real estate agent is a valuable asset. They can answer questions, help you look for houses within your budget and assist you throughout the homebuying journey. Without a real estate agent, you could find yourself biting off more than you can chew. Agents are there to help make things as easy as possible.
8. Calculate your closing costs
After you've narrowed the houses you like down to a select few, calculate how much the closing costs will be. Generally speaking, closing costs are be around 2% to 5% of the home's selling price. This may make a difference in how much of down payment you can afford, which may affect your mortgage. If you have a real estate agent, they can help you find this cost, as well as any additional costs you'll have to pay once you.
9. Consider a prequalification
Consider getting prequalified for a mortgage. Think about this as a test run for applying for a mortgage. You'll answer a series of questions about your finances and situation, and your lender will tell you what mortgages you qualify for, as well as an estimate of how much you may be approved for. But remember — this isn't the real deal, so you may not be asked for all the information you have to provide for a full mortgage application. This means you may not qualify for the same loan amount once factors such as your credit score are considered.
10. Study your mortgage lender
As you look for a mortgage lender, pay close attention at what they offer. Be sure to note their mortgage rates. Look into their fees and any promotions they might have. Talk to lenders to fully understand what the mortgage you're considering will cost. And make sure they offer the type of mortgage you're looking for. Once you've found a lender that fits your needs, you can start the mortgage application process.
11. Gather all your papers
Make sure you have everything in order before you apply for a mortgage. You'll want to have things like your pay stubs, tax documents, debt information and bank statements handy. There's quite a bit of paperwork that goes into getting a mortgage, so make sure to ask your lender what documentation you'll need to provide.
Once you feel you're ready to go from looking to buying, it's time to apply. This can be one of the most stressful parts of the journey but fear not — as long as you're organized and you've done your homework, you'll be fine.
Your lender will ask a series of questions about your finances, personal information, the house you're mortgaging — all the information they’ll need to make your mortgage official. Your lender will ask for the documents you collected in the previous step. This is where you'll choose the type of mortgage you're applying for, and provide information about the house you're trying to buy.
13. Hurry up and wait
As your application is reviewed, try not to make any changes to your finances. Don't quit your job, try to wait before you buy that new car and don't open any new credit cards. The idea is to remain as close to your debt-to-income ratio and credit score rating as when you applied. If those change, your loan may change as well. This is the perfect time to get some tasks checked off your to-do list to prepare for your move.
14. Get an inspection
This isn't a requirement, but it's a smart move. Get your house inspected before you buy. If you don't, you're accepting someone else's word that you won't be in for an unpleasant surprise when you close on the home. The inspector will look for any issues with the foundation, roof, plumbing, electrical wiring, heating and cooling systems and so on.
15. Closing time
Once your mortgage application has been approved, you'll take the last steps to officially close on your home, like paying closing costs and handing over the down payment you've been saving up for. After you've put your signature on the last line on the last page, you're a proud new homeowner! This is the part where you get the keys and start moving in — the part you've been saving, studying and working for.
We hope this step-by-step guide of the homebuying journey has helped you understand everything that goes into it. As always, if you have any questions, call us or go to your local Chase branch to speak to a Chase Home Lending Advisor. Congratulations, and enjoy your new home!