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How to Buy a Home
Buying a home can be overwhelming. We know you have questions. This page is designed to help you learn about the process of buying a home and to give you the tools to help make the best decision.
Not sure if buying a home is in your future? Here are 10 reasons of why it should be.
10 Reasons to Buy a Home
1. Predictable Monthly Payments
With a fixed-rate mortgage, your monthly payments remain the same, providing predictable expenses compared to the rising rents in many areas.
2. Home Appreciation
Real estate often appreciates over time, meaning your property could increase in value. This can provide a good return on investment when you decide to sell in the future.
3. Planting Roots
Most newlyweds want to transform their individual living spaces into a space they can create together. Buying a home is the perfect way to accomplish this.
4. Growing Family
You want to expand your family, but you no longer have room in your current living situation. Buying a home allows everyone to have their own personal space.
5. A Home is a Nest Egg
A home is just another place to hold your money in. It's essentially a different type of bank account. All the principal you pay each month on your home goes into your "nest egg".
6. Living Stability
When you own your own home, you no longer have to worry about rent hikes or a landlord deciding to sell the property or not renew your lease. You can stay in your for home as long as you like.
7. No Landlord to Answer To
When you own a home, you don't have to ask permission for pets, guests, or renovations. You can live on your terms without worrying about restrictions.
8. Creative Freedom
There are many restrictions when renting, including the inability to renovate without asking the landlord's permission. You are able to personalize and upgrade your space to fit your style and needs when you own your home.
9. Tax Benefits
Homeowners can often deduct mortgage interest, property taxes, and in some cases, home improvement expenses from their taxable income, leading to potential savings. Consult with your tax advisor.
10. Diversify & Build Credit
Adding a mortgage to your credit mix can positively impact your score since it's a major form of installment credit. Making consistent, on-time payments over the life of the loan can significantly boost your score.
Are You Ready to Buy a Home?
Buying a home is a huge financial commitment. Not only do you have to make your mortgage payment each month, but you also need to be prepared for the additional costs that come with being a homeowner. Let's talk about your financial situation and other factors you should consider before purchasing a home.
Do you plan to stay in the same area long term?
If you see yourself staying in the same area for at least 3 - 5 years, then buying a home would be a good investment. If not, buying a home may not be the right decision at this point in time.
What is your credit score?
To qualify for a mortgage, most of the time you will need a credit score of 580. There are exceptions, but the likelihood of approval is rare. The higher your score, the better your terms will be.
Does your income support a mortgage payment?
To qualify for most loan products, your debt-to-income ratio needs to be 50% or below. That means that your proposed mortgage payment and all other monthly debt payments don't exceed 50% of your monthly income. If it does, you may need to pay off some debt before buying a home.
Do you have any money saved?
You will need at least 3 - 5% of the sales price saved for a down payment depending on if you are a first-time home buyer or not. In addition to your down payment, you should have around another 3% of the sales price saved for your closing costs. However, sellers are allowed to pay for closing costs, but that will need to be negotiated.
Do you have a stable job?
Before you buy a home, it's a good idea to have an established career/employment history that provides you with dependable earnings. You don't want to end up in a situation where you can no longer make your mortgage payments.
Will you be able to keep up with the expenses of being a homeowner?
Before purchasing a home, consider if you will be able to afford routine maintenance, basic up-keep, and other unexpected expenses that could come your way. Paying your monthly mortgage payment is not the only expense of being a homeowner.
Steps to Buying a Home
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How Much Money Do You Need to Buy a Home?
The money you bring to closing is made up of two parts: your down payment and closing costs.
A down payment is the portion of the sales price you pay when you buy a home. Your minimum down payment is based on the loan program you use to purchase your home. Depending on the loan type and occupancy type, your minimum down payment can range from 0% to 20%.
Closing costs are the fees and expenses you must pay to finalize your mortgage. Your closing costs are based on how much home you're buying, how much money you're borrowing, and your geographical location. A general rule of thumb to estimate your closing costs is to use 3% of the sales price.
Minimum Down Payment
We offer several low down payment programs as well as various traditional programs. While comparing these programs, remember that a larger down payment can reduce your monthly mortgage payment as well as your interest rate.
Check out our Down Payment Assistance page for information on programs we offer that can help you buy a home with little to no money down!
Program
Minimum
Down Payment
VA & USDA
0%
Conventional First-Time Homebuyer
3%
FHA
3.5%
Conventional
5%
Jumbo &
Second Homes
10%
Investment Property
15%
Avoid PMI
20%
Closing Costs
Closing costs are generally broken into two main categories: closing fees and prepaid items. Closing fees are the expenses you pay to your lender and other 3rd party service providers that help facilitate your loan. These service providers include the appraiser, home inspector, and closing attorney/title company. Prepaid items are items related to your ownership of the property, primarily real estate taxes and insurance. For a breakdown of all charges and money due at closing, see our section Closing Cost Breakdown.
It's important to note, however, that sellers can pay part or all of your closing costs. These are called seller concessions. Seller concessions are negotiable and are written into your offer to the seller. Each loan program will have a maximum allowable seller concession, expressed as a percentage of your sales price. The total amount of seller concessions cannot exceed the lesser of the maximum allowed by your loan program or the total closing costs for your loan.
Closing costs can also be paid by the lender. Generally, this comes with a slightly higher interest rate, but it may be worth paying a little more each month in exchange for less money out of your pocket at closing.
Realtor commissions are customarily not included as a traditional closing cost, as they are typically paid by the seller. This too is negotiable, but 99.9% of the time the buyer's and seller's agent commissions are paid by the seller.
Loan Type
Occupancy
Down Payment
Percentage
Max Seller Concession
Conventional
Primary & Second
Home
< 10%
3%
Conventional
Primary & Second Home
10% - 25%
6%
Conventional
Primary & Second Home
> 25%
9%
Conventional
Investment Home
All
2%
FHA
Primary Home
All
6%
VA
Primary Home
All
4%
USDA*
Primary Home
All
6%
USDA seller concessions are based on buyer's loan amount, not sales price.
PreApproval Process
Getting preapproved is an important step in the mortgage process. We believe getting preapproved should not be burdensome. We pride ourselves on issuing same-day preapprovals! Once we receive your documents, we can get the ball rolling and get you preapproved.
Getting preapproved before starting your home search offers you several important benefits and can help streamline your homebuying journey.
First off, it's important to understand the difference between a preapproval and a prequalification. Oftentimes, buyers believe that a preapproval and a prequalification are the same thing, when in fact they are different. A prequalification is an informal review of your financial status which gives you a ballpark range of how much home you can afford. A preapproval is a formal process in which a lender will review your paystubs, W-2's, and bank statements to verify your income and assets. They will also pull a credit report to ensure you have a qualifying credit score. You will be issued a formal preapproval letter that includes loan terms as well as any contingencies required for full approval.
With a preapproval, you will gain a clear understanding of your budget and how much home you can buy. Sometimes, your approval amount and the amount you are comfortable paying are two different things. Getting preapproved and understanding your price range will save you time by eliminating homes outside of your budget. This will allow you to focus your time and energy on homes that fit your budget.
When you make an offer on a home, your offer will be stronger with a preapproval letter than offers without one. Sellers will take your offer more seriously, and they will feel more comfortable accepting your offer knowing that you are preapproved buyer.
Expert Advice
Buyers will sometimes begin their home search before getting preapproved and find a house they love. When a lender tells them what the monthly payment would be, they realize that the home they love isn't in their price range. When they start looking at homes that fit their budget, they cannot find a house that they love as much as the one out of their price range.
Looking at homes without a clear understanding of your budget can sometimes lead to disappointment. Get preapproved before starting your home search so that when you do find the home you love you are confident that it fits your budget.
Monthly Payment Breakdown
Your mortgage payment is made up of several components: principal and interest, escrow for taxes and insurance, and mortgage insurance, if applicable.
Principal and interest is the portion of your monthly payment that goes toward paying back your loan. It is amortized over the term of your loan. As you get closer to paying back your loan, a greater portion of your payment will go towards paying down your principal. Principal and interest make up a good portion of your monthly payment.
Another portion of your payment will be escrow for taxes and insurance. 1/12 of your annual real estate taxes and insurance premium will be included in your monthly payment. These amounts are deposited into your escrow account as you make your monthly payments. Conventional borrowers borrowing less than 80% have the choice to waive the escrow account, choosing to pay their real estate taxes and homeowners insurance premiums separately.
The last portion of your monthly payment is mortgage insurance. Mortgage insurance is required on conventional loans with less than 20% down payment and most all government-insured mortgages.
If your property is a condominium or in a homeowners association, any applicable dues are paid separately from your monthly mortgage payment.
Closing Cost Breakdown
Closing costs can be separated into two main groups: closing fees and prepaid items. Closing fees are paid to your lender and other 3rd party service providers involved in your transaction. Prepaid items are related to your property ownership, namely real estate taxes and homeowners insurance.
Here is a simple itemization of common closing fees and prepaids that you may see on your closing disclosure.
Closing Fees
Lender/Origination Fees: Most lenders will charge a fee to cover the costs associated with processing and underwriting your loan. It will typically include the lender's administrative costs, such as verifying financial documents, conducting credit checks, and preparing loan documentation. This fee is generally called a processing, underwriting, or administrative fee and will usually range from $800 - $1200.
Discount Points (optional): You have the choice to purchase a lower interest rate, which is commonly referred to as a "rate buydown" or "buying down the rate." If you choose to buy down your rate, it will be charged to you in the form of Discount Points. This fee is generally expressed as a percentage of your loan amount. Buying down the rate will lower your overall monthly payment, however it will increase the amount of money you pay at closing. When considering purchasing Discount Points, you need to determine what is important to you and your budget.
Credit Report Fee: In order to obtain a mortgage loan, a credit report must be pulled on all applicants. Most lenders will pass this fee along to you. It should be approximately $50 per applicant.
Flood Certification Fee: All mortgage loans require a flood certification. This certification determines if your property is located in a Federal designated flood plain and will determine whether or not you will need flood insurance. Some lenders will pass this fee along to you, while others will include it in their lender fee. This fee will typically range from $10 - $20.
Appraisal Fee: If an appraisal is required, you will typically pay this fee upfront prior to closing. It is paid to a local appraiser who will give an opinion of value on the property. It will generally range from $500 - $700.
Title Fees: These fees are paid to the title company or closing attorney who is facilitating the closing. The title company will conduct a title search to ensure you will have clear title to the home as well as make sure that the lender has a clear lien position. Their fee is typically charged as a settlement/attorney fee, and will usually range between $800 - $1000.
You will also be charged a fee for Lenders Title Insurance premium, an amount that will vary based on the amount you're borrowing. It will typically cost around 0.5% of your loan amount. Lenders Title Insurance is a one-time, lender required policy that protects the lender against any title defects.
Owners Title Insurance is a one-time, optional policy that you may add to protect your financial interest in the property in the event of a title defect. The cost will vary based on your down payment amount. While Owners Title Insurance is optional, it is highly recommended.
Government Fees: There are two fees that are usually paid to your state and local government. One of them is called a "recording fee," which is the cost of recording your mortgage and deed with the county office. Recording fees are typically less than $200. The second fee is a group of taxes commonly called "transfer taxes" and/or "mortgage taxes." Transfer taxes paid to the county and/or state are based on the transfer price of the property and mortgage taxes are based on your loan amount. These amounts will vary by location.
Prepaids & Escrows
Homeowners Insurance Premium: Insurance for your home is paid in advance. That means that you will pay your first year's homeowners insurance premium to your chosen insurance carrier at closing.
Prepaid Interest: Depending on which day of the month you close, you may owe prepaid interest on your loan. This is interest from your closing date through the end of the month, which allows your first payment to be set up for the first day of the following month. For example, if you close on May 15th, you will be charged 16 days of interest so that your loan is paid through May 31st, making your first payment due July 1st.
Escrows: Your loan may have an escrow account for the future payment of real estate taxes and homeowners insurance. Your escrow account will be funded at closing with enough months of taxes and insurance to ensure the account is properly funded when those items come due. The amount of months funded into your escrow account for taxes will depend on the due dates of your county and city taxes (if any). For most purchase transactions, you can expect to fund your escrow account with 3 months of insurance.
Miscellaneous Fees
Home Inspection: The fee paid to a licensed home inspector will be approximately $500. This fee is paid directly to the home inspector outside of your closing. This is classified as a miscellaneous fee because it's not required or part of your mortgage transaction.
Termite Inspection: If you have a termite inspection, expect to pay $75 - $100 to a pest control company. This fee may be paid outside of or at closing.
HOA Transfer Fees: If the home you are purchasing has a Homeowners Association, you may be charged a transfer fee. The fee is generally no more than a few hundred dollars.
Name of Closing Fee
Amount
Lender/Origination Fees
$800 - $1200
Credit Report Fee
$50 -$100
Flood Certification Fee
$10 - $20
Appraisal Fee
$500 - $700
Settlement/Attorney Fee
$800 - $1000
Lender's Title Insurance
0.5 - 0.7%
Government Fees
Based on area
Owners Title Insurance (optional)
Based on down payment
Home Inspection (optional)
$500-$700
Termite Inspection (optional)
$75 - $100
Loan Documentation
Loan documentation will be collected during your preapproval process. Depending on the time frame from when you are preapproved to when you are under contract, your loan processor may ask you to provide updated documents. You will not need to provide every document listed below. Your loan officer will guide you in what documents you will need to provide based on your specific situation.
Income Documents
The purpose of collecting the necessary income documents is to calculate your gross monthly income. All borrowers on the loan will be asked to provide relevant income documents.
Salary: If you are a salaried employee, you will need to provide us with your two most recent paystubs and all W-2 forms from the last two years.
Hourly: If you are an hourly employee, you will need to provide us with your two most recent paystubs. Since this can be considered variable income, you may have to provide historical paystubs if you have fluctuating hours. If historical paystubs are needed, we will get an average number of hours to calculate your gross monthly pay. You will also need to provide all W-2 forms for the last two years.
Bonuses & Commissions: If you need to use income from bonuses or commissions, you will need to provide your two most recent paystubs and your last two year-end paystubs. If you do not have access to historical paystubs, a standard written verification of employment may be performed. You will also need to provide all W-2 forms for the last two years.
Self-employed: If you are self-employed, you will need to provide your last two years' tax returns, personal and business, if applicable.
Retired: If you are retired, we will ask you to provide your social security awards letter and/or pension statement for the most recent year.
Asset Documents
The main purpose of providing asset statements is to document your down payment, closing costs, and any required reserves. The underwriter will verify these funds for final approval.
Depository Accounts: If your funds are coming from a checking or savings account, you will need to provide the two most recent statements for the account(s).
Investment Account: If your funds are coming from an investment account, we will need your two most recent statements for the account(s), as well as proof of liquidation for the funds needed for closing.
401K: If you need to access funds through a hardship withdrawal, you will need to provide your most recent 401K statement showing the withdrawal of funds, as well as a statement showing the deposit of those funds into a checking or savings account.
401K Loan: If you are using funds from a 401K loan, you must provide your most recent statement and document the terms of the loan. In addition, we will need to show the proceeds of the loan being deposited into a checking or savings account.
Gift Funds: Gifts are eligible sources of down payment for most loans. We will document those funds with a signed gift letter (which we will provide.) The transfer of funds must be documented through updated borrower bank statements, or the donor may provide the funds by wiring them directly to your closing.
Credit Documents
When you submit your loan application, we will obtain a credit report. In some circumstances, you may have to provide additional documentation or explanations.
Credit Inquiries: If you have any credit inquiries in the last 120 days, we will need a signed credit inquiry letter. This letter provides an explanation for the inquiry and states if any new debt was incurred as a result of the inquiry. If new debt was obtained, you will need to provide documentation if that account is not yet reporting.
Recently Paid-off Debt Not Reporting: If you have recently paid off a debt and it's not yet reporting, you will be asked to provide documentation of the payoff.
Other Real Estate Owned
If you own other real estate, you will have to provide some additional documents for those properties.
Mortgage Statements: We will need you to provide your most recent mortgage statement for each piece of real estate you own.
Rental Income: If you need to use rental income to qualify, you will need to provide tax returns for the two most recent years. If the property was purchased or converted to a rental after the most recent tax filing, a copy of the lease may be substituted for tax returns.
Appraisals & Other Inspections
There will be two primary reports that will be conducted by licensed professionals throughout your loan process. These reports will accomplish different things when it comes to the home. Be prepared to pay for these reports prior to closing.
Appraisal
While your loan is in processing, your lender will engage a licensed appraiser to go out and establish a value for the home. This is to make sure the property is adequate collateral for your mortgage loan, as well as to make sure you aren't overpaying for the home.
The appraiser will examine both the interior and exterior of the home, narrowing in on the condition, size, quality of structure, and amenities. They will compare the home to similar, nearby sold properties to determine the value of the home.
If the appraisal comes in lower than the agreed upon sales price, you can attempt to renegotiate that price with the seller, assuming your contract contains an appraisal contingency.
Home Inspection
Having a home inspection done is optional. If you choose to conduct a home inspection, you and your Agent will engage a licensed home inspector who will examine the home for any major defects. They will be looking for any structural, electrical, mechanical, or plumbing defects.
If your contract contains a home inspection contingency, you may have the seller fix certain items, renegotiate terms, or cancel the contract based on the home inspection results.
Termite Inspection
Depending on your area, you may need to have a termite inspection. A licensed inspector will examine the property for evidence of termites.
As a side note, if termites are prevalent in your area, you may want to place a termite contract on the property. This will provide regular treatment and inspections and will cover you in the event you ever have termite damage. If the seller has a current contract, you can usually transfer that contract.
What to Expect at Closing
Once your loan is final approved, we will issue an official Closing Disclosure which details the final closing costs and provides you a cash to close figure. We provide this document at least three business days prior to closing. This allows you time to review and ask questions before closing.
A day or so before closing, you will wire your funds to close to the closing attorney. This wire needs to originate from one of the bank accounts that has been verified. Your loan proceeds will also be wired to the closing attorney a day or so before closing.
On the day of your Closing, we will meet you at the closing attorney or title company's office. At closing, you will sign documents such as your final Closing Disclosure, Note, Mortgage or Deed of Trust, and a collection of standard documents pertaining to your loan. Your closing attorney, lender, and real estate agent will be able to answer any questions you may have about these documents.
Once you have signed, your closing attorney will upload signed closing documents for lender funding approval. The lender will make sure that all documents are signed, all signatures are legible, and all funding conditions have been met. Once approved, the lender will send funding authorization to your closing attorney. At that time, your attorney will swap documents and funds with the seller's closing attorney, making your new home officially yours!
This process is generally completed the day of closing, but timing can vary based on the time of day you and the seller's close. Just be aware that it might be a few hours before you gain access to the property.
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