Money Matters: Financing The Home Of Your Dreams

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Homeownership is the quintessential American Dream, dating back to our country’s pioneer days and the homestead acts of the second half of the 19th century. “Buying a home is one of the largest, if not THE largest purchase one will make in their lifetime,” says Debbie Grishaw of Bank of the James. “It is a scary process; however, I really want to make the borrower comfortable with me and comfortable asking any and all questions. There really isn’t a dumb question. If you are educated in the process, then the process is much easier.”

The best place to start in the process of purchasing a home is by meeting with a local lender—someone who understands the local real estate market and economy. Billy Woolridge of Embrace Home Loans says that while the internet is a great source of information for many things, it’s not personal enough for applying for a mortgage. “Shop around and talk to more than one local lender,” he advises, as everyone’s situation is different and the right lender for you may be different than the lender for say, your squash partner. 

Upon meeting with a local lender, they will give you a “punchlist of necessary items,” says Rick Comar, mortgage specialist of Select Bank, to bring to a meeting. This list will include tax documents, recent pay stubs, statements and assets. You’ll talk about the process and see what mortgage might best suit your needs; there are a number of options available, particularly for first-time buyers. Says Grishaw, “The borrower leaves the meeting knowing what they can and cannot buy.”

It is important to have established credit when purchasing a house, but a lender can talk you through what you need to establish credit, says Comar. “There are traditional trade lines to developing that—car payments and credit cards, as well as non-traditional ones that look at utility payments, rent” and the like, he says. Comar explains that your credit score is based on credit history as well as the amount of available credit you have. The takeaway on this? Don’t cancel those cards if you’re not using them, as cancelling them decreases your amount of available credit.

Once you’ve been pre-approved for a mortgage, you can begin searching for the home of your dreams with a local real estate agent. As with a lender, you’ll want to work with someone who has experience with the local market as well as the price range you are interested in. A good place to begin a search for both a local lender as well as a Realtor is by asking a variety of friends for recommendations, learning what they liked and didn’t like about their experiences, then interviewing a few of each to see who might be the best fit for you. Any number of unexpected events can pop up on the road to homeownership, but working with experienced, trusted professionals can help you navigate it successfully.

In working with a Realtor, one of the first things they will ask is what is you are looking for in a home—this includes not just price and location, but features. They will guide you through what is available in your price range until you find THE ONE. It is advised that throughout this process, you stay in touch with your lender, so that upon making an offer and having it turn into a ratified contract, your lender will be able to deliver your financing commitment based on your pre-approval, contingent upon appraisal of the home you wish to purchase. A home appraisal looks at the condition of the home as well as comparable sales of three to five similar properties over the last six to 12 months in the area—a critical final step in the loan approval process.

Recent changes in the regulations concerning mortgages were enacted in October of 2015, known as “TRID,” which is really an acronym for an acronym: the TILA (Truth in Lending Act)/RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure rule. TRID regulations are part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was a reaction to the great recession of 2008 and launched what is known as a “Know Before You Owe” campaign. As part of TRID, a loan estimate is issued at the time of loan application, and a closing disclosure document is required to be issued at least three days prior to closing, spelling out the monthly payment as well as all the costs involved in obtaining a mortgage and closing the loan. While these changes have added time onto the process, lender timelines vary as to exactly how much time.

Mortgage rates have been at historic lows in recent months. You may have seen headlines regarding the Federal Reserve’s rate hikes last December, the first since 2006, in response to a solid US economy. Despite the hike, both 30- and 15-year fixed interest rates have stayed low, even dropping a little, thanks to fluctuations in the stock market. The housing market having stabilized, there is much optimism in the real estate field. Combined, low rates and a stable market make now a good time to make that purchase you’ve been pondering.

Navigating the path to homeownership can seem overwhelming, but working with professionals who understand the local market and economy can help ease your journey. The first step is just learning how easy it can be.