1. Credit report - Have your mortgage lender obtain your credit report. Look at your overall credit score, credit card balances and other debt like auto and school loans. Your bill payment history should reflect that all of your bills have been paid on time for the last 12 to 18 months. If there are any red flags - items such as past-due medical bills, for example - explain to your lender exactly how these occurred. Lastly, review your credit report for any reporting errors or mistakes - you may be surprised to find that credit reports are not 100% accurate all of the time.
2. Income and expenses - A key item that will affect your loan approval, terms and interest rate is your debt-to-income ratio. While this may sound complicated, this ratio is nothing more than a comparison between how much you make and how much in total that you spend, and how much money you have left over for unexpected expenses. Common sense says that if a couple has a combined take-home income of $75,000 and their expenses are $75,000 that isn't a good situation. When calculating your debt-to-income ratio be sure to take into consideration all of your income and all of your expenses - including things like monthly credit card payments and student loan repayment.
3. Down payment options - To get the best terms and interest rates available you should expect to put some money down toward the purchase of your new home. Common downpayment sources include money that you've already saved, borrowing or a gift from a family member, or drawing on your retirement account. When putting together the funds for your downpayment be careful not to deplete your accounts so much that you don't have any money left over for decorating and your typical, everyday living and entertainment expenses.
4. Mortgage programs - Nowadays there's a loan program for almost every home buyer, but not all loan programs are created equal. Do take a look at everything that's available and consider the pros and cons of more or less of a downpayment, varying interest rates, length of the loan and repayment options. When you're looking at different loan programs it's usually a good idea to talk to a mortgage broker as well, since often times they have access to programs that a typical bank may not have.
5. Apply for your loan - After you've selected the mortgage home loan that's best for you, your lender will require documentation from you, items such as your most recent pay stubs, your most recent bank statements and your tax returns. While the paperwork that the lender needs may seem endless, it's important to understand that this is a necessary step in the underwriting process. Accurate and complete information is key to getting the best terms possible on your new home loan.
6. Loan pre-approval - Once you've given your lender your income statements she will provide you with a 'Pre-approval Letter', which is basically a document stating how large of a loan you can afford, at what terms and at what interest rate. The pre-approval is an important document that you can provide to a seller to show that you're qualified to buy the home of your dreams.
7. Select a Buyer's Realtor - Choose a real estate agent who will work with you as a buyer. Sometimes, first-time home buyers make the mistake of looking for a home on their own, by visiting open houses, not realizing that the listing agent of the open house is actually working for the seller - and not you, the buyer! A good realtor will work with you, explain the current market conditions to you, and help you every step of the way through the purchase process once you've found the home for you.
8. Get your offer accepted - Making an offer on a home is one thing, but sometimes getting the seller to accept your offer is something totally different, especially in a competitive real estate market or on a hot property where there might be multiple offers. This is another area where a good buyers' realtor can make all the difference in the world.
9. Home inspection and appraisal - Now that your offer has been accepted by the seller you'll want to schedule your professional home inspection along with any other inspections that you want to do and that your realtor recommends. Your mortgage lender will also order an appraisal, which is a professional report by an independent third-party to analyze the fair market value of your home. The appraisal is one way to make sure that you are not overpaying for your home.
10. Finalize your loan - When you complete your loan the paperwork may seem endless, but this is something that every home buyer goes through. Your lender will likely request an updated credit report, so it's crucial that from the time you receive your initial loan pre-approval to the time you finalize your loan that you keep paying your bills on time and that you do not make any major purchases that might lower your credit score.
11. Moving day - Once the title has been transferred and the loan has been funded you're ready to move in. Remember to schedule to have all of the utilities turned on, and make your moving day a fun, family affair!