Financing Your Home - Here are the Basics

EP 43 - Financing Your Home - Here are the Basics

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Before we dive in today. Let me ask you this. Have you ever wondered how you could finance your dream home without breaking the bank?

Well, today, we're going to share some valuable insights. On the steps involved in the mortgage process, potential pitfalls to watch out for, how to solve underwriting issues, and what you can truly expect. In terms of a realistic timeline for approval and settlement.

So, let's get started.

Hello. And welcome back to another episode of the ask. Ralph podcast, where we talk about how to master your finances, lower your taxes. Grow your business, and find personal success. I'm your host, Ralph Estep, Jr. And today we have an exciting topic to discuss financing your home. Today, we're going to discuss the steps to make your dream home purchase a reality. So stay tuned.

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The process of financing your home can be overwhelming. But with the right knowledge and understanding, and it can also be a smooth and rewarding experience.

Today, I'm going to walk you through the steps involved in the mortgage process. Before we get started.

Let me tell you my story.

 I remember doing this when I was about 22 years old. And how all through the process.

I was so afraid it was never going to happen. In fact, I recall building a three inch binder with all the information that was assembled during the process. And after the closing, which I thought was never going to happen. I went back and looked at my notes and there were so many times I felt like just giving up, but let me tell you my [00:02:00] friends. Persistence is the key. So let's break it down into manageable steps.

Let's start with step one. And that's the pre-approval. process. Before you start shopping for your dream home. It's essential to get pre-approved for a mortgage. This process involves gathering your financial documents, such as pay stubs. Tax returns, and bank statements. And submitting them to a lender. The lender will evaluate your financial situation to determine how much they are willing to lend you. after all it's , their money. It's also important to take a pause at this point, folks, and really consider how much you really can afford. This is the start of the process.

And I recommend you take the time to truly understand the financial impact. That this home purchase will have on your finances.

It's not just the mortgage. My friends. It's all the other costs associated with that mortgage. So then we move on to step two, which is probably the funnest part of the whole process.

And that's house hunting. So once you've been pre-approved, it's time to start searching for your dream home. It's important to work [00:03:00] with a licensed real estate agent who understands your needs. And most of all, understands your budget. They will help you narrow down the options. And help you negotiate the best deal on your behalf.

Well, once you've found a house that you love and you got to have it. The next step is the tough step and that's applying for a mortgage.

So after finding the perfect home, it's time to finally and formally apply for a mortgage. This step involves completing a loan application. Providing documentation, such as employment verification and asset information. And paying their associated fees. The lender will review your application. And, if everything meets their criteria, they will move you forward with the underwriting process.

Now, hold on tight at this point, because in my experience, this is a time for a bumpy ride.

So let's talk about some of the bumps that I, and many others have experienced and some typical hiccups in this underwriting process.

One common mistake borrowers make is taking on new debt or making significant purchases [00:04:00] before closing on their mortgage. This can negatively affect the underwriting process and potentially lead to a loan denial or increased interest rates. It's crucial to maintain your financial stability throughout the mortgage process by avoiding major changes to your financial situation. The truth is folks.

Once you get that preapproval letter, You need to keep your financial health in check. Don't go out and buy new things. This is not the time to go grab that new set of wheels or finance, a full home of new furniture. Unfortunately, I've seen this cause a huge kink in the process. And I've had clients who have been unable to clear underwriting because of these purchases.

Another pitfall to watch out for is not fully understanding the terms and conditions of your mortgage agreement. It's essential to review the loan documents thoroughly. I ask questions, and seek clarification on any areas that are unclear. Remember, a mortgage is a legally binding contract, and it's crucial to understand your obligations as the [00:05:00] borrower. And let's be honest. It's also likely the largest and longest running debt decision you'll ever make.

So you've got to take time to understand that all.

So now we've discussed some of the potential pitfalls in the process. Let's discuss how to solve common underwriting issues that borrowers may encounter.

One issue that can arise is insufficient income documentation. This happens a lot with my clients who are self-employed. If you're self employed or have irregular income. It may pose a challenge to meet traditional underwriting criteria. In such cases, it's advisable to work with a lender who specializes in alternative documentation loans. Or consider providing additional supporting documents that demonstrate your financial stability. The truth is I meet with prospective clients who are in the process. Of doing this routinely, and we put together a plan to document their income. Well, before they even get into this underwriting stage truth is we probably do that during the approval stage. There are [00:06:00] lenders who specialize in some of the less conventional mortgage deals. And you have to know what to expect beforehand, so you can make the right connections. This is a great time when you are shopping for a lender to ask them about your specific situation and make sure they have programs to meet your needs.

And yes, you can shop for a mortgage. You don't just have to go with whoever is recommended to you. By perhaps the person who is, maybe it's your realtor. Or maybe it's, the settlement agent has recommended, you know, to use this mortgage company, you can really shop around and there are mortgage brokers and mortgage companies that specialize in specific areas that might be more suited to your particular needs.

Another common underwriting challenge is a low credit score. I did a podcast a few weeks ago on this topic. So I encourage you to go back and listen to it. If you've not already.

This is critical. In the mortgage process. If your credit score is less than ideal, there are steps you can take to improve it before applying for a mortgage. You notice I say before, applying for a mortgage. Once you've applied for the mortgage. You're not going to improve your credit [00:07:00] score overnight. So this is all part of that building process up to the point of applying for the mortgage.

Well, what's the key to this Ralph?. It's not that complicated. Paying your bills on time. Keeping credit card balances, low, and disputing any errors on your credit. report can all help boost your score. You need to know what your credit score is before you apply for a mortgage. Additionally, working with a loan officer experienced in credit repair can provide valuable guidance, but be careful on this one. There are some real bottom feeders out there who are just looking to prey on people who have credit issues and just spend your money and get you into all kinds of credit repair scams that aren't really going to help you.

Now, let's talk about expected timeline for mortgage approval on settlement. So once you've got this pre-approval you found the house, you've done the mortgage application, you're going through underwriting, but let's talk about what that process and a timeline looks like.

The timeline can vary depending on the various factors, such as the complexity of your financial situation.

 if you're [00:08:00] self-employed, it might take a little longer. And the efficiency of the lenders underwriting process. now that everyone is working from home, that can be a challenge as well. On average, the mortgage approval process can take anywhere from 30 to 45 days from the time of application. And it might seem like a long time, but again, This is a huge purchase.

This is a debt that you're going to be paying on for some time. Now it's essential to be prepared for potential delays and factor that into your planning.

You need to be prepared for that. Now the cool news is once your mortgage is approved, it's time to prepare for settlement.

So what the settlement look like? This involves reviewing and signing various legal documents, such as the mortgage note and closing disclosure. It's essential to carefully review these documents to ensure accuracy and address any concerns or questions you may have. And finally my friends settlement day. Finally, on settlement day, you'll sign the final paperwork, pay any remaining closing costs, and receive the keys to your new home.

It's a process folks. [00:09:00] And I wish I could tell you it was all smooth sailing. But armed with the right information and the right connections, you can achieve your home purchasing goals. Just think about the pleasure you will have for years enjoying your home.

And it will make all the stresses of the process worth it.

Now, before we wrap up today's episode, I want to remind you to visit our podcast page. At ask Ralph podcast.com. There, you can leave a review, send us a message, or explore our other episodes on mastering your finances. Lowering your taxes, growing your business, and finding personal success. I also encourage you to join our mailing list and we'll have some special guests for those who sign up for our email list.

Well, thank you for tuning into today's episode or the Ask Ralph podcast, where we always talk about how to master your finances. Lower your taxes, grow your business, and find personal success.

We hope you found this information on financing your home valuable and have a better understanding of the mortgage process.

Remember, this, if you have any questions or topics you'd like to cover in future [00:10:00] episodes, feel free to reach out. We'd love to hear from our listeners. So until next time, as I always say, stay financially savvy, and God bless you. My friends.