Well, that’s exciting! The home of your dreams is now almost yours. The homebuying process is a bit nerve-wracking, especially for first-time buyers. It is quite a long process between getting pre-approved for a home loan with the best rates, searching for an agent, visiting many homes and everything that comes after getting your offer is accepted.
The lender now has to dive a little deeper to make sure you are in a good financial state to be able to pay off the full offer amount you’ve made to purchase the home.
Now with the pre-approval in hand, it's game time!
Next step: Underwriting
What is underwriting?
Underwriting is how the lender weighs the risk of lending money. They will confirm that all documentation given in the pre-approval process still stands and the underwriter will determine your ability to repay the full amount of the loan.
They will verify four main documents:
Income – employment and income history
Property – the type of property and value of
Assets – bank account balances and other deposits
Credit – credit score
Everyone wants this dreadful process to run smoothly so remember to provide the following documents:
Your two most recent pay-stubs
Two years of W-2s
Two recent bank statements
There may be instances where collateral may be needed. Collateral is an asset you offer the lender in case you default on the loan agreement. When you take out a mortgage loan, you may use the home itself as collateral, if for any reason the payments are not made then the lender will take possession of the home.
With the documentation you’ve provided, the underwriter makes the final decision on whether the loan will be approved for you.
A good home inspection is key
A home inspection can prevent problems down the road, whether it is a brand-new home or a couple of years old the inspection can give you insight into potential problems.
Having a home inspection done can give you peace of mind. That cost of $300-$500 doesn’t compare to the relief you’ll feel knowing you took precaution.
A write-up should be given by your inspector, if not, ask for it so you can have a better understanding of what the inspection will include.
Home inspection tips
Make sure the following are covered:
Electrical – they check for any exposed wire or safety hazard
Plumbing – they check for proper flow through pipes
Insulation and roofing
After the inspection
comes the appraisal
What is an appraisal?
An appraisal is a professional appraiser’s opinion of the home or properties value. They check the area and research selling prices of other homes. The appraiser checks the size, condition, function, and quality of the home to determine a fair market value.
The market value is the likely sale price it would list as in an open and economical real estate market. It protects you from overpaying for the home, along with protecting the lender by making sure the home is at least as much money as they are lending you.
What if the appraisal is lower than expected?
Appeal the appraisal
If you are concerned about there being a mistake, you are welcome to appeal and get the home re-evaluated. You will be required to provide your lender with valid information that you think may have been wrong on the report. It can be anything from the wrong numbers of bedrooms and bathrooms to the comparison of nearby homes not being a reasonable resemblance of your home.
Negotiate with the seller
If there is a small difference between your offer and the appraisal you may be able to negotiate with the seller to lower the price by a couple thousand.
Don’t lose sight of the house
If the deal falls through because of the appraisal, just keep an eye on it. It is difficult to find a buyer for such a huge investment; the sellers may lower the price after a couple of months of being on the market if they don't receive any more offers. At that point, you may be able you jump back in.
Keep it moving
There are more fish in the sea just like there will be more homes to buy! No worries.
If none of those instances occur then it’s time to cheer, closing the loan is around the corner!
Time to close
You are so close to having the keys handed over to you. This part consists of paperwork and closing costs, so the deal can be completed.
Some closing costs include:
Down payment: Shows your lender that you are serious about the purchase
Escrow: You may have to prepay taxes or insurance, so your lender can pay them on the due date
HOA fees: homeowners association fees are sometimes required a year in advance when you move in
The closing disclosure gives you the rundown of all final costs regarding your loan. It is crucial that you read your document thoroughly.