Steps to buying a Home and Misconceptions to Home Loans

 

The Home Buying Process & Loan Misconceptions: A Guide for Buyers

Buying a home can feel overwhelming, and understanding the steps involved is key to making the process smoother. As a realtor, two of the most common questions I receive are:

1. Can you help me understand the home buying process?
2. I probably won’t get approved for a loan. How can I better my chances?

I want to help clear up confusion and provide guidance on both the home buying process and common misconceptions about home loans. This guide covers everything you need to know. Let’s get started!

 

 

Steps to Buying a House

 

1.    Assess Your Financial Situation

o   Check your credit score

·        You can use free credit service like the ones below:

1.      AnnualCreditReport.com – You can get a free credit report (but not the score) from all three major bureaus (Experian, Equifax, and TransUnion) once a year.

2.      Credit Card Providers & Banks – Many banks and credit card companies offer free credit score access, such as Discover, Chase, Capital One, and Wells Fargo.

3.      Credit Monitoring Websites – Sites like Credit Karma, Credit Sesame, and Experian offer free credit score tracking.

·        Or directly from Credit Bureaus:

1.      Experian, Equifax, and TransUnion all allow you to check your score, sometimes for a fee or with a free trial.

o   Determine your budget

·        Analyze your finances:

1.      Monthly Income: Calculate your total household income (salary, bonuses, side income, etc.).

2.      Current Expenses: List out fixed expenses (rent, car payments, insurance, groceries, debt payments, etc.).

3.      Savings: Consider how much you have saved for a down payment, closing costs, and emergency funds.

·        Use the 28/36 rule:

1.      28% of gross monthly income: Your monthly mortgage payment (including principal, interest, taxes, and insurance) should not exceed 28% of your gross income.

2.      36% of gross monthly income: Your total debt payments (including mortgage, car loans, student loans, credit card payments, etc.) should not exceed 36%.

·        Consider Your Down Payment & Loan Options

1.      Conventional Loan: Typically 3%-20% down

2.      FHA Loan: 3.5% down

3.      VA Loan / USDA Loan: 0% down (if eligible)

·        Factor in Additional Costs

1.      Closing Costs: Usually 2%-5% of the home price

2.      Property Taxes & Insurance: Varies by location

3.      HOA Fees: If applicable

4.      Home Maintenance & Repairs

o   Save for a down payment and closing costs

·        Determine Your Target Down Payment

1.      Conventional Loans: Typically require 3%-20% down.

2.      FHA Loans: Require at least 3.5% down.

3.      VA & USDA Loans: 0% down if you qualify.

·        Factor in other costs

1.      Closing Costs: Usually 2%-5% of the home price.

2.      Emergency Fund: Keep 3-6 months of expenses saved to cover unexpected costs.

3.      Moving & Initial Expenses: Furniture, home repairs, utilities, etc.

·        Choose a savings strategy

1.      Set Up a Separate Savings Account: A high-yield savings account can earn interest while you save.

2.      Automate Savings: Set up auto-transfers to your savings account.

3.      Cut Unnecessary Expenses: Reduce dining out, subscriptions, or other discretionary spending.

4.      Increase Your Income: Consider side gigs, freelance work, or selling unused items.

5.      Use Windfalls Wisely: Tax refunds, bonuses, and gifts can go directly into savings.

·        Explore assistance programs

1.      Check for first-time homebuyer programs, down payment assistance grants, or employer homebuying benefits in your area.

2.    Get Pre-Approved for a Mortgage

o   Shop around for lenders

·        Get the Best Interest Rate

1.      Even a small difference in rates can save you thousands over the life of your loan.

2.      Example: On a $250,000 loan, the difference between 6.5% vs. 6.0% could save you over $50/month and $18,000+ over 30 years.

·        Compare Loan Terms & Fees

1.      Lenders offer different closing costs, origination fees, and discount points that can impact your total cost.

2.      Some lenders may have lower fees but slightly higher interest rates—or vice versa.

·        Find the Best Loan Type for Your Needs

1.      Some lenders specialize in FHA, VA, or USDA loans, which have different benefits.

2.      If you have a low down payment, credit challenges, or special financing needs, different lenders may be more flexible.

·        Better Negotiation Power

1.      If you get multiple loan offers, you can use them to negotiate a lower rate or better terms with your preferred lender.

·        Avoid Unnecessary Extra Costs

1.      Some lenders charge prepayment penalties or hidden fees—comparing offers helps you catch these early.

·        How to Shop for a Mortgage Loan

✅ Get quotes from at least 3-5 lenders (banks, credit unions, online lenders, mortgage brokers).
✅ Compare APR (Annual Percentage Rate), not just the interest rate to see the true cost.
✅ Ask about closing costs, lender fees, and loan flexibility.
✅ Get pre-approved before house hunting to know what you can afford.

o   Submit necessary documents (income, credit history, assets)

o   Receive a pre-approval letter

3.    Hire a Real Estate Agent

o   Work with a local agent (like me!) who knows the market

o   Discuss your home preferences and budget

4.    Start House Hunting

o   View homes that match your criteria

o   Consider location, property condition, and resale value

o   Attend open houses or schedule private showings

5.    Make an Offer

o   Submit a competitive offer based on market conditions

o   Negotiate terms (price, contingencies, closing timeline)

o   Earnest money deposit is submitted

6.    Conduct Home Inspections & Appraisal

o   Hire an inspector to check for issues

o   The lender orders an appraisal to determine property value

o   Negotiate repairs or price adjustments if necessary

7.    Secure Final Mortgage Approval

o   Provide any additional documents requested by the lender

o   Review final loan terms

8.    Closing Process

o   Perform a final walk-through

o   Sign all necessary paperwork

o   Pay closing costs (can include taxes, lender fees, insurance)

9.    Get the Keys & Move In!

o   Receive the deed and keys

o   Celebrate your new home!

---

 

Common Misconceptions About Home Loans

 

1.    You Need a 20% Down Payment

o   Many loan programs allow for lower down payments (FHA: 3.5%, VA: 0%).

2.    Pre-Approval Guarantees Loan Approval

o   Pre-approval is not a final guarantee; lenders will re-evaluate finances before closing.

o   Things to avoid once pre-approved

1.      Making Large Purchases

1.      Why? Big expenses (like buying a car, furniture, or appliances) increase your debt-to-income (DTI) ratio, which can make lenders reconsider your loan.

2.      Tip: Wait until after closing before making any major purchases.

2.      Changing Jobs or Income

1.      Why? Lenders verify your employment and income stability before closing. A job change can delay or even disqualify you.

2.      Tip: If you must change jobs, notify your lender immediately.

3.      Opening or Closing Credit Accounts

1.      Why? Opening new credit (like a credit card or car loan) can lower your credit score and increase your DTI. Closing old accounts can shorten your credit history and affect your score.

2.      Tip: Keep your credit situation unchanged until after closing.

4.      Making Late Payments

1.      Why? Late payments on credit cards, loans, or utilities can lower your credit score, which could affect your loan terms or even cause a denial.

2.      Tip: Set up autopay to avoid missing any payments.

5.      Co-Signing a Loan for Someone Else

1.      Why? Even if you’re not making payments, co-signing a loan increases your DTI because you’re legally responsible if the other person defaults.

2.      Tip: Postpone co-signing until after your home loan closes.

6.      Moving Large Sums of Money or Depositing Cash

1.      Why? Lenders track your finances, and large unexplained deposits or withdrawals may trigger red flags requiring extra documentation.

2.      Tip: Keep your finances steady and avoid moving money between accounts without consulting your lender.

7.      Ignoring Lender Requests

1.      Why? Lenders may request additional documents before final approval. Delays in providing them could slow down closing or even risk denial.

2.      Tip: Respond to your lender quickly and keep all necessary documents handy.

8.      Making Any Financial Decisions Without Consulting Your Lender

1.      Why? Any change in your financial situation—whether it’s a loan, large purchase, or job change—could impact your approval.

2.      Tip: Always check with your lender before making financial moves.

3.    Your Credit Score Must Be Perfect

o   While higher scores get better rates, many loans are available for credit scores as low as 580 (or lower with certain lenders).

4.    All Lenders Offer the Same Rates

o   Interest rates and terms vary by lender, so shopping around can save you money.

5.    You Can’t Buy a Home with Student Loans

o   Lenders consider your debt-to-income ratio, not just student loan debt. Many buyers with student loans still qualify.

6.    Fixed-Rate Mortgages Are Always Better

o   Adjustable-rate mortgages (ARMs) can be beneficial for short-term homeownership plans.

7.    Skipping the Home Inspection Saves Money

o   Inspections help identify costly issues that could turn into financial burdens.

8.    I cannot get a home loan if I recently changed jobs

o   Positive Factors (More Likely to Get Approved)

1.      Same Industry & Career Progression – If your new job is in the same field with equal or higher pay, lenders may see it as stable.

2.      Salary-Based Pay – If you earn a steady salary (vs. commission or hourly pay), lenders feel more confident.

3.      No Employment Gap – If you switched jobs without a gap in employment, it shows stability.

4.      Higher Income – A job change that results in higher earnings can actually strengthen your mortgage application.

o   Challenges (Could Delay or Affect Approval)

1.      Probationary Period – Some employers have a 30-90 day probation period, which lenders may consider risky.

2.      Commission or Self-Employment Income – If most of your income comes from commissions, bonuses, or self-employment, lenders typically require 2 years of income history.

3.      Frequent Job Changes – If you’ve had multiple job changes in a short time, lenders may question long-term stability

I hope this was informative and helpful. If you have any other questions or are need of a Realtor®, please feel free to call me at 989-714-7427 or email me at mtorres@arhousebay.com