Home ownership 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. These days, you don’t have to be willing to forge life on a homestead for a specified amount of time to acquire your own little spot to call home, but rather, you can apply for a mortgage to help finance the home of your dreams. While there are some that might think the process of living on a claim in order to make it their own is easier than financing the purchase of a home, applying for a mortgage is not as complicated as you might think.
Recent changes in the regulations concerning mortgages have made it “easier and more straightforward for consumers,” says Jason Witt, vice president and loan officer at Bank of the James in Charlottesville. Enacted October 3, 2015, these new regulations are 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 the 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. According to Robert Falconer, loan officer at Union Mortgage Group in Charlottesville, “While the US economy is doing reasonably well, the downturn of the Chinese economy along with the precipitous decline in oil prices have combined for a flight to quality in certain bonds—like those used to price mortgage-backed securities.”
With low rates and a housing market that has stabilized, now might be a good time to make that purchase you’ve been pondering. Both Witt and Falconer agree the best first step in buying a home is setting up a meeting with a local banker—someone who understands the local market and economy. At that first meeting, you’ll share your goals with the lender, who will recommend a mortgage to fit your distinct needs and talk you through the pre-approval process.
“Having a clear understanding of what you can afford is the important first step toward buying a home,” says Witt. Your lender will help determine what price range is best for you without compromising your lifestyle, as well as share any programs and financing options for which you may be eligible. Your lender will also share a list of items you’ll need to provide at that first meeting, which should include income documentation, and may request more as you go through the process. If you have credit issues, advises Witt, a banker should be able to walk you through resolving those as well. It is key that you have established credit when applying for a mortgage. While many of us aren’t comfortable with racking up credit card debt, it is actually best to keep a small balance on a credit card to keep your credit history alive, recommends Witt.
Once you’ve gone through the process of getting pre-approved for a mortgage and have a good handle on what you want to spend, you’re ready to begin working with a local Realtor. As with a lender, you’ll want to work with a real estate agent who has experience with the local market as well as the price range you are interested in. A good place to begin finding both professionals is by asking a variety of friends for recommendations, learning what they liked and didn’t like about their experiences. Any number of unexpected events can pop up on the road to home ownership, but working with experienced, trusted professionals can help you navigate it successfully.
In working with a Realtor, one of the first things he or she 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 you stay in contact with your lender during this process, keeping them apprised of your search, 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 previous six to 12 months in the area—a critical final step in the loan approval process. Both Witt and Falconer recommend that having everyone involved—real estate agents representing both sides (buyers and sellers), lenders, appraisers and lawyers handling the closing—be on the same page early and every step of the way for a smooth process toward realizing home ownership.
Navigating the path to home ownership 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.