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If you’re a first-time buyer, odds are you’ve never seen or heard much about mortgage applications. However, for something as important as buying a home, it pays off to go into the process knowing what to expect.
Mortgage applications aren’t all that complicated in and of themselves. Most of the time, your chosen lender will walk you through the process and answer any questions that arise. However, complications do arise when it comes time to provide documentation on things like your income.
To make things easier for your first application, I’ve put together this list of frequently asked questions that first-time buyers often have about their mortgage application process.
Will applying for a mortgage hurt my credit score?
Mortgage lenders will run a credit inquiry to help determine your lending eligibility. There are two types of credit inquiries: hard and soft. A soft inquiry is a quick credit check that doesn’t affect your credit score. A hard inquiry, on the other hand, does. This means your score will be lowered slightly for a few months and then will bounce back.
Mortgage lenders run both types of inquiries. For quick, pre-qualifications, lenders typically run a soft inquiry. Then, as you progress through the approval process, they’re run a detailed credit report (hard inquiry).
What information should I have available?
Lenders will ask you for various documents. The most common things they will ask for include proof of income in the form of W-2 forms from the previous year and your most recent pay stub. They will also require a record of your other debts, including student loans, auto loans, credit card debt, and any other outstanding debt that you owe. Finally, they will ask for an inventory of your assets. This could include investments, properties, auto titles, and more.
What if I don’t work a conventional job?
People who are self-employed or have unconventional income can still qualify for a loan and will still be required to show proof of income. Lenders may ask for Form 1099 records, tax returns, or any other record or proof of income you have available.
How long does it take to complete an application?
Mortgage applications can be completed as quickly as you gather the required documentation. However, there’s more to getting approved for a mortgage than filling out an application. There will be time needed to process the application, and underwrite your mortgage. This entire process typically takes between 30 and 45 days.
Is it safe to apply for a mortgage online?
Most lenders allow you to start the application process online and their online portals are typically secure. Make sure you check your browser window to ensure that the connection to the site is secured, and you should have nothing to worry about.
Keep in mind that most online applications are designed to get you prequalified and on your way to getting a mortgage. So, if you want to avoid getting calls from the lender, you might not want to enter any data until you know you’re interested in borrowing at this time.
You’ll often hear it stated that paying rent is throwing money down the drain. As a motivation to buy a home, however, that might not be the best idea. A rule of thumb is that if you can purchase a home for fifteen times what you currently pay annually in rent, buying makes sense. In real numbers, if your rent is $1,500 a month, your annual rent is $18,000. Fifteen times that amount is $270,000. That means if you can buy a comparable home for around $270,000, it makes sense to buy rather than to rent because you’ll break even in 15 years and will accrue equity beyond that.
But even if housing prices fit that scenario, what is your personal criteria?
Is renting throwing money away?
That depends. There are multiple rent vs. buy calculators online that allow you to plug in the variables that apply to your situation. The adage that it’s always better to buy may not fit into your lifestyle, career goals or plans. Don’t buy just because someone tells you that you’re tossing away your life savings. After all, if you have enough for a down payment, you can invest it in something more liquid than property.
But, buying is a fantastic idea if you love the community, see yourself living there for at least five years, and want to own your home.
There are some guidelines, however, to help you determine if you are ready. These require that you keep financial considerations separate.
- Do you still have student loans? If so, determine the impact that more debt places not just on your pocketbook, but on your psyche. If having education debt stresses you out, adding more debt to that is not a solution. Instead, before you buy a home, work with a student debt counselor to see if you can make some headway on your loans.
- Do you have an emergency fund? For some people, if they get a flat tire or the fuel pump goes out in the car, the burden of taking care of that emergency can throw all caution to the wind. Having an emergency fund of a minimum of $1000 for short-term emergencies (car repair, flight to a family funeral, etc.) and three to six months for long-term emergencies (extended illness, job loss) protects you from disasters lurking around every corner.
- Can you set aside money for home maintenance? If you replace your rent one-to-one with a mortgage (even including taxes, PMI, and homeowner’s insurance), you still need funds for regular home maintenance. Generally, you’ll want to set aside about one percent of the cost of the house minimum for annual maintenance. If you buy your home for $300,000, you’ll need to set aside an extra $250 a month (3% or $750 a month is better) to cover repairs, maintenance, and upkeep of your home.
The other questions you want to answer are: How secure is your job? Could you be moving within five years? Do you qualify for a good interest rate? Buying just to escape renting is never a promising idea. But if the answer to these questions leads you to believe homeownership is right for you, in the right location, and it’s the right time, find the right real estate professional to help you get there.
Lot 12-10 Montelona Road, Goffstown, NH 03045
Preparing to put your home on the market almost invariably involves three things: painting, cleaning, and organizing. Since you might also need to do some repairs and updating, it's crucial that you prioritize your tasks and make sure you're not spending more money, time, and energy than necessary.
Consulting with your real estate agent about what projects are the most important will help you make the most of your available resources.
All home sellers have a different timetable in which they need to get their home ready for potential buyers. Few people, however, have the luxury of tackling those projects slowly or sporadically. When you factor in your busy schedule with everything that typically needs to be done before a house goes on the market, time management and self motivation become crucial elements in the process.
Wall painting often tops the list
In spite of your best intentions, walls and doors are going to get scuffed, scratched, and marred. Small, but noticeable holes from nails and thumbtacks also have a way of increasing with every passing year. Regardless of how careful you think you've been, it's virtually impossible to keep your walls looking fresh, clean, and well maintained. Bathrooms pose even more of a challenge because moisture and steam from showers will gradually cause paint to crack, peel, and lose its original smooth quality. Bedroom walls, especially those of children and teenagers, will also be subjected to a lot of wear and tear.
Fortunately the cost of a couple gallons of paint, along with brushes, rollers, and other basic supplies, is an affordable solution for most home sellers. It's one of the most cost-effective methods of freshening up your house, and it significantly enhances your home's eye appeal and marketability.
One of the pitfalls of repainting your walls, however, is the possibility of choosing colors that may turn off some potential buyers. Colors which you may describe as vibrant, splashy, or cool, might be viewed by others as garish, tacky, or "over the tip." That's why it's often best to play it safe by choosing colors that are considered neutral, such as grey, beige, tan, eggshell, and ivory.
By veering away from colors that might be considered too bold and strident, you're increasing the likelihood that your décor will appeal to the widest range of potential buyers. While there may be exceptions to just about every rule -- especially as it pertains to decorating -- your objective as a house seller is to increase the probability that your home will appeal to as many people as possible!
"Immaculate" is a good goal
Another thing prospective buyers will frequently notice is the level of cleanliness in your home. While it's difficult (at best) to keep your home absolutely spotless all the time, it does pay to establish a few family rules and expectations to help you maintain a semblance of order until your house is sold!
If you've inherited a house you'd rather not live in, here are some things to consider—before you accept it. Before we get to the selling or renting part, calculate the cost of:
Yes, you may decline your inheritance if it's too burdensome to accept, as long as you're not already named on the deed, and as long as you meet applicable deadlines for submitting a notarized disclaimer of interest form.
Now let's look at selling or renting.
1. Selling an Inherited Home Can Produce High Tax Savings.
The federal tax treatment of an inherited home, when sold, can be highly supportive of a deceased homeowner's loved one or family.
Under IRS stepped-up cost basis rules, you may sell without paying tax on the gains that accrued since the deceased homeowner first bought the house. You'll pay capital gains tax only on any increase in the property's value between the time you inherited and the time you sold. These savings alone can be a great gift to you.
Inheritance taxes are not a major factor for most homes, and that factor is easily checked.
2. Working Out a Shared Inheritance Commonly Means Selling.
Are you one of several beneficiaries? Does everyone agree on what to do? One sibling may wish to sell. Another might want the house. These factors typically mean someone will sell their inherited interest.
Selling after a loved one has passed away is quite often the best decision for all concerned. It relieves family or other loved ones of the costs of repairs and upkeep, utilities, taxes and insurance. It also ensures that everyone receives an equal share of the gift.
3. You Could Have a Choice of Which House to Sell or Rent.
If you inherit a free and clear title, you can move into your inherited home, and enjoy it without debt, while selling your current home. Be sure to use the time when the home is in probate to speak with your real estate agent about preparing the home for sale.
Renting out the house for investment income is another option. Your real estate agent can check for any zoning restrictions and offer you further pointers.
Tip: If you rent out the home it won't be a primary residence, so it won't get the capital gains tax benefit when you ultimately sell the home. Yet certain rental property spending is tax-deductible, and rent-related income has a low tax rate.
Need Advice to Fit Your Situation and Today's Market? We're Here to Help.
Inheriting real estate can put a lot on your plate. Your real estate agent can advise you step by step, offering indispensable knowledge when you need it most.