Home Purchase Loans
Buying a home involves 5 key steps: get pre-approved to know your budget, research neighborhoods that fit your lifestyle, hire a qualified real estate agent, make competitive offers on suitable properties, and navigate the 30-45 day closing process. Pre-approval is essential before house hunting.
5 Steps to Buying a Home
There are many steps to buying a home, and if you are armed with the right approach, your new purchase should be a breeze. Read the following 5 steps to buying a house to get a good understanding of important factors in your purchase.
Get a Loan Pre-Approval
Most realtors require a pre-approval before showing you any homes. Aside from that, there are several reasons why getting a pre-approval should be the first thing you do. First, you'll find out how much you can borrow, which has a lot to do with how much house you can buy. Find out your options from your lender. Lenders are generally looking for three important factors in determining your eligibility for a home loan:
1. Your credit profile: Score and history are considered
2. Your equity position: Amount of your down payment
3. Your ability to repay the loan: Income sources and stability
Good credit, a sizeable down-payment, and stable income are generally a good starting point, but not always a necessity. If you are lacking in one or more of these areas, don't lose hope, compensating factors can be considered.
Find the Average Home Selling Prices in Your Desired Neighborhood
Find out what houses are selling for in the area where you want to buy a home. Look at selling prices – not asking prices. You can get these from a real estate agent. When you find a house roughly like the one you want, ask for three "comparables" – recent sales of houses that are roughly your target house.
Find an Agent and Happy House Hunting!
Some home buyers prefer to be very involved in the house hunting while others prefer to let the realtor do most of the legwork. Make sure you communicate your desires with your realtor. Once you have found a house you would like to make an offer on, a good faith deposit is generally requested to be sent along with a formal offer to buy. Once the offer is accepted by the seller, the clock starts ticking for your close of escrow. Make sure you give yourself plenty of time to complete purchase contingencies (such as home inspection and loan approval).
Prepare for the Closing
Talk to your lender before making any large purchases or increasing your debt during this time as it could negatively affect your loan qualification. Make sure you keep all bank statement for at least the most recent three months handy. Avoid adding any large cash deposits to your account during this time to minimize over-scrutiny of your assets by underwriting.
Close of Escrow
Prepare to sign final documents, distribute any necessary funds required for closing, and receive your keys. Congratulations, time to celebrate!
People Also Ask
What's the difference between pre-qualification and pre-approval?
Pre-qualification is a quick estimate based on self-reported information with no credit check. Pre-approval involves full documentation review, credit check, and verification, giving you a firm commitment letter. Sellers take pre-approvals seriously; pre-qualifications carry little weight.
How much can I afford to spend on a house?
A general rule: your monthly mortgage payment shouldn't exceed 28% of gross monthly income. With a $6,000/month income, that's $1,680/month max. This translates to roughly $260,000-$360,000 home depending on down payment, rates, and other debts. We'll calculate your exact budget.
What closing costs should I expect when buying a home?
Expect 2-5% of the purchase price in closing costs: appraisal ($500-700), title insurance ($1,000-2,000), origination fees (0.5-1%), escrow deposits, and recording fees. On a $400,000 home, budget $8,000-$20,000. Some costs can be negotiated with the seller.
Can I buy a home with bad credit?
Yes. FHA loans accept credit scores as low as 580 (even 500 with 10% down). Recent bankruptcies may qualify after 2-3 years. Higher interest rates and down payments may apply. We specialize in helping buyers with credit challenges find approval.
Home Buying Key Terms
- Pre-Approval
- A lender's commitment to loan you a specific amount based on verified income, assets, and credit. Includes full underwriting review. Stronger than pre-qualification and shows sellers you're a serious buyer.
- Earnest Money Deposit (EMD)
- Good faith deposit (typically 1-3% of purchase price) submitted with your offer to show serious intent. Held in escrow and applied to down payment at closing. Refundable if deal falls through due to contingencies.
- DTI (Debt-to-Income Ratio)
- Percentage of your gross monthly income that goes toward debt payments. Most lenders want DTI under 43-50%. Calculated as (total monthly debts ÷ gross monthly income) × 100. Lower DTI improves loan terms.
- Appraisal Contingency
- Contract clause protecting you if the home appraises for less than the purchase price. Allows you to renegotiate, pay the difference, or walk away without losing your earnest money deposit.
- Escrow
- Neutral third party holding funds and documents during the transaction. Ensures money and title transfer simultaneously. Also refers to the account where property taxes and insurance are held and paid by your lender.
Purchase vs Refinance Loans
Understanding the key differences
| Feature | Purchase Loan | Refinance Loan |
|---|---|---|
| Purpose | ✓ Buy a new home | Replace existing mortgage |
| Down Payment | ✓ Required (3.5%-20%) | Not applicable |
| Home Inspection | ✓ Recommended for buyers | Not required |
| Appraisal | Required to determine value | ✓ May be waived on streamline refis |
| Closing Costs | 2-5% of purchase price | ✓ 2-3% of loan amount |
| Rate Shopping | ✓ Critical for best deal | Essential to save money |
| Timeline | 30-45 days typical | ✓ 30 days typical |
| Best For | First-time & repeat buyers | Lowering rate or accessing equity |
Ready to start your home buying journey? Our mortgage experts will guide you through every step, from pre-approval to closing day.
Get Pre-Approved Today