Appraising the property is yet another integral step in the home buying process. An appraisal determines the market value of a home. The lender will require an appraisal prior to officially approving any loan. Therefore, the lender will be very proactive about ordering the appraisal early on in the loan process. In fact, you will usually pay for the appraisal up front applying for a loan. 

Unlike a home inspection, the buyer is not present for the appraisal and will probably not have any contact with the appraiser. Appraisals are most notably done through an appraisal management company. This ensures that they are a third party to the transaction and will give a fair estimate of the value of the home. The appraiser provides information that helps the buyer avoid overpaying for the property, but their real job is protecting the lender. The lender will take a good look at the appraisal to decide if the property is adequate security for the loan they are about to fund.

 The appraiser will compare the home in question to other homes in the area. There are a couple methods the appraiser may use to conduct their analysis of the property:

1. The first method is a sales comparison.

•  In this case the appraiser will compare other properties of similar nature that have sold in the same area. The appraiser will take into account nearby schools, parks, size of the lot, and condition of the home.

1.  Another method is the cost approach

• This would be best suited with new homes where the building costs are known. The appraiser assesses how much it would cost to rebuild the home if it was destroyed.

When the appraisal report comes back it will detail any major problems, but is not all inclusive like a home inspection. The appraisal report will let you know how much the appraiser finds the property to be worth. If the appraisal of the property comes in lower than the sale price, the lender will probably deny the loan. This is because the lender does not want to fund a loan that is considerably more than the property is worth. However, the game is not over! There are certain measures that may be taken in order to acquire the loan:

• The seller agrees to reduce the price
•  The buyer is able to make a reasonable down payment, therefore not borrowing as much from the lender
• Repairs can be made to increase the value of the home

These actions will increase your chances of getting approved for the loan.

After the appraisal comes in you are ready to move through the rest of the home buying process! If you have any tips or stories about what happened with your appraisal, please feel free to share below!

“What’s the first step in the home buying process and how do I make sure to find the home of my dreams?” asks the excited homebuyer.

1. Examine Your Financial Situation

First you’ll want to take a look at your current financial situation, and see where you need to make preparations. Examine your monthly income and expenses, check out your savings account, and take a peek at your credit report. Do you already have enough for a down payment? Down payments can range from 3% to 20% of the loan amount, so make a plan and set a time frame to save for this.

Here are some of the other costs to consider when buying a home:

• Title and Escrow fees
• Appraisal fee
• Home inspection fee
• Home insurance
• Lender fees
• Mortgage points
• Other various fees
• In some cases, private mortgage insurance or mortgage insurance premium

Note that you may not have to pay all of the fees, sometimes the seller will pay, the lender may cover it, or you may just have to pay in advance and get refunded later.

Take a peek at your credit report

If it’s been a while since you’ve last seen it, it’s a good idea to check your credit report with the 3 credit bureaus: Equifax, Experian, and TransUnion. Your credit score is something a loan officer will be looking at when determining how much you are qualified to borrow. The insurance agent that you will be working with to get home insurance will also consider your credit history and you may qualify for a discount if you have good credit. It’s in your best interest to clear up any errors that may appear on your credit reports as soon as possible.

2. Getting Pre-Approved

Once you have a grasp on your financial situation, and have a rough estimate of what you think you can afford for a monthly mortgage payment, it’s time to contact a licensed loan officer and get pre-approved. Getting pre-approved before you start searching for your dream home is critical because the pre-approval will determine, based on your credit and income, if you qualify for financing, and for how much. Other benefits include:

• Sellers prefer to work with pre-approved buyers because they already know their credit and income qualifies them to obtain home financing. This will give your offer on a home an advantage over buyers.
• In the eyes of a real estate agent, a pre-approval signals that a borrower is well-qualified and serious about buying a home. The higher chance they have of closing a deal, and receiving a commission, the harder they will work and the more attention you will receive. 

 To get pre-approved, the loan officer will make a thorough investigation into your credit history, credit score, assets, liabilities, income, etc. Try to provide as much information as possible to the loan officer so they can make the best assessment of your financial situation. The loan officer will look at your credit report, and will ask  for more information if  needed. If you believe your financial situation has some issues that are not easily understood, inform the loan officer right away and explain these issues.

Your debt-to-income ratio will be a key factor the advisor uses when determining how much you can borrow.  The debt-to-income ratio is the percentage of personal debt you are carrying in relation to how much you earn. Generally speaking, the ideal ratio is 36% and below, anything over this may be seen as riskier. There are various exceptions to this 36% rule, so if you are looking at your monthly income and expenses and have become concerned, speak with a loan officer before taking yourself out of the ring. 

A Pre-Approval is Not a Guarantee

It’s important to note that a pre-approval is not a guarantee that you will be approved for a mortgage for the home you have chosen; it is conditional on the appraisal of the property. Also, if your financial situation changes, (you lose your job, make a major purchase, run up credit card bills, etc.) the loan officer will have to reassess your situation and recalculate your maximum loan amount.

3. Dream-Up your Dream Home

Now that you’re pre-approved, you’re ready for the fun stuff! It’s time to imagine the ideal home, make a checklist of what makes it so special, and get out there and find it. Is it in the sunny suburbs or is it in a lively downtown area? How many bedrooms does it have and what kind of commute do you want? Is there a pool in your future? The more details you provide your real estate agent, the easier it will be for them to find something that fits your lifestyle.

When looking at homes, really inspect them, and write down details so you can remember. Find out how old the home is, if the electrical, plumbing and heating are up to code, what the crime rate is in the area, how neighboring schools perform, the condition of the roof, the distance to shopping centers and freeways, etc. Some of these factors will play a role when it comes to getting home insurance, so if there is a home you are strongly considering, it’s a good idea to ask to see the current homeowner for the Comprehensive Loss Underwriting Exchange (C.L.U.E.) report. This report will provide a record of insurance claims on the house, so you can spot any potential issues.

During this process you will be working closely with your real estate agent. Don’t be afraid to ask questions and be sure to set up a communication plan; do you expect calls weekly, or do you prefer to be emailed? Also, coordinate a plan to go about physically inspecting the properties your real estate agent will be sending your way. 

Share with us your thoughts on this topic below, and if you haven’t done so already, check out the key players in the home buying process.

With so many home loan options out there, it can be a tough decision to choose the right one! This fun and easy quiz will give you a better idea of which home loan is the right choice for you!

Use the code below to embed this infographic:

Buying a home is not only a huge milestone, but also a long process. There are multiple steps involved, so it should come as a relief to know that someone will be helping you through each phase of the process. In our last post we discussed the roles of the Real Estate Agent, Mortgage Advisor and Insurance Agent. In this post we will discuss the remaining key players who will assist you on your way to owning a home.

The Title & Escrow Officers

In MOST cases, these two people work for the same company, and although many believe that their roles are one in the same, their duties are very different.

The title officer deals with issues relating to the title or deed of the home. The title is the proof of ownership of a home. Their task is to make sure that there are no discrepancies that will get in the way of the sale. Discrepancies may include (but are not limited to) overdue taxes, zoning restrictions and liens.  In the case they do run into issues, they will contact the seller to find out the accuracy behind their findings.

An escrow officer is an objective third party that is involved in a real estate transaction. They take care of notarizing and signing the final loan documentation. In addition, they collect any other paperwork that has to do with the sale of the home and ensure completion of all requirements from each party before any money transfers hands. The escrow officer will also notify the county about the new property owner.

The Home Inspector

This person will inspect the home for damages or issues that need to be fixed; could be mold, pests, structural damage etc. It’s highly advised that you have the home inspected by a professional, but it is not mandatory. This step is critical because the outcome of the inspection will determine whether you move forward with the transaction, or stop and re-evaluate the terms of the sale.

The Appraiser

They are responsible for estimating the market value of the home. There are certain criteria that they use to estimate the value, such as measuring it against similar homes in the area. Some lenders require more than one appraiser’s estimate. If the home value estimate is less than what was offered, it’s back to the negotiation table. If the estimate is equal to or more than what was offered, the process continues on its course.

The Movers

After the paperwork is done and you have the keys to your new house in hand, the movers will come to your rescue.  There are varying degrees to which movers can be involved. It can be as minimal as loading your packed things into a truck and unloading at the new place, or as extensive as packing everything up for you. Whatever you choose, monitor what they are doing and make yourself available to answer any questions they might have. Obviously movers are not a necessary service, but if you have budgeted for them and have a big move, they will definitely make your life easier.  

I hope you have a better understanding of who will help you in the home buying process. If you still have questions please leave them below! Any advice from those that have recently been through this process is also welcome.

So you’re ready to buy a home? Buying a home is very exciting, but it can be an arduous procedure.  Luckily you don’t have to go through the process alone. There are many professionals that are ready to help you along the way. In the next two blog posts we’ll discuss the key players in the home buying process. Each of these people will assist you with essential aspects of buying a home. These differing aspects will come together to help make your dream of buying a home a reality.

The Real Estate Agent

The first key player we will discuss is a Real Estate Agent! Big surprise that you might want one of these when buying a home, right?! What exactly will a real estate agent help you accomplish? First of all they will listen to your needs, and help you find exactly what you are looking for in a home. They will find homes for you in neighborhoods that match your criteria. Once you have some properties to choose from, they will give you objective, useful information on each property. These tips will help when making your final decision on a home. When you are ready to make an offer, they will help negotiate price and give insight on market trends so that you can make a reasonable offer. In addition, they will arrange inspections, help you understand important paperwork and stay up to date on pertinent timelines. They also might be able to recommend other professionals that will help you in other areas throughout this process. They will be a valuable asset to you throughout the process, so take advantage of their knowledge and suggestions. For tips on finding the perfect real estate agent, check out our previous post.

The Mortgage Advisor

Another relevant person in this process is the mortgage advisor. They will help you attain the best rates that you can possibly get on your mortgage. Your mortgage advisor will help you get pre-qualified which will determine what your purchase price should be and your subsequent loan amount. Before you make final decisions, they will explain all loan options, whether it be a 30 year fixed rate or 15 year fixed rate,  that are available to you. In addition, it is their job to collect all necessary documents to help fund your loan. In the end they will go through all lender requirements to ensure that everything is completed. Your moving status is contingent upon completion of the loan process. A mortgage professional will be knowledgeable and helpful. Make sure you ask about anything you don’t fully understand, they will be happy to answer your questions in a timely manner.

The Insurance Agent

The last professional we will discuss in this post is the insurance agent. Before any lender will fund your loan, they will need to see that you have a homeowner’s insurance policy in place. This policy will protect your home in case of fire, theft or any other unforeseen damages. Your insurance agent will ensure that you are completely covered to your lender’s standards. Homeowner’s insurance requirements differ in each area, so the insurance agent will help you find the best fit for your needs. They will be available to you even after the home buying process is complete. In some cases, you can save money by bundling your home and car insurance.

It is important to understand what each person will help you accomplish in this long process. Each professional fulfills a role that will get you closer to your new home. If you have any tips for potential home buyers, please feel free to leave comments below. Keep an eye out for our next post about the remaining important players in the home buying process.