Before you finalize your home purchase, you’ll need to get a home inspection.
What does a home inspection do?
A home inspection ensures the house is in good shape and there aren’t any major lurking problems.
Some sellers will get their own inspection. If you trust the seller, you can use their inspection. If you’d rather get a second opinion, you can hire your own inspector to look at the house or talk to your agent for a recommendation.
The inspector will look at the following parts of the house and make sure it’s in solid, working condition:
- Roof
- Foundation
- Heating and air system
- Wiring and the plumbing
- Basement and the attic for mildew and draining problems
- Fireplace
- Chimney
A home inspection costs anywhere from $300-$700, so factor that into your budget. You should also set money aside for septic and pest inspections, since those aren’t included in the home inspection.
What if the inspection uncovers a problem?
If your inspector discovers an issue, there are a few ways to handle it. First, you can ask the seller to fix the problem. You could also ask them to give you a credit at closing and then make the repairs yourself.
If there’s something seriously wrong with the home, the third option is to cut your losses and cancel the sale.
Why is it important to understand mortgage rates?
When buying a home, the interest rate is incredibly important because it ultimately determines how much your loan will cost over the long term.
Mortgage expert Stephen Moye explains, “The most misunderstood part of the mortgage process is how mortgage rates are determined and what factors (out of the loan officers’ control in most cases) affect mortgage rates.”
If you’re not completely comfortable running the numbers, ask a Reali Loans home loan advisor to help you understand the details. We can’t stress this enough—your interest rate (even a few points difference) can mean thousands of dollars over the life of your loan.
How do mortgage interest rates work?
You’re probably wondering where Reali’s rates come from. Like all mortgage lenders, our rates are calculated based on the 10-Year Treasury market rate, plus a spread.
Rates aren’t fixed. In fact, they can change daily. That’s why it’s important to lock in your rate as soon as possible. We’ll explain how rate locks work a little later on.
Your interest rate is linked to your credit rating. The better your credit, the better your rate. If you don’t have great credit, you may be able to get a lower rate by purchasing discount points. Discounts points are fees paid directly to the lender at closing in exchange for a reduced interest rate. The question is, should you do it?
When you buy points, you’re really prepaying the interest on your loan. Each point you buy lowers your interest rate. One point is worth 1 percent of your mortgage. So for every $100,000 you borrow, a point would cost $1,000.
An easy way to decide if you should buy discount points is to plug the numbers into a mortgage calculator. Determine what your mortgage would cost with points and without them.
If you’d save a lot on interest over the life of the loan, then buying points upfront may make sense. If buying points wouldn’t lower your rate enough to have a big impact, you may want to just save the cash instead.
Are mortgage interest rates going up?
When the Federal Reserve raises the federal funds rate, interest rates on loans and credit lines move in tandem. While mortgage rates have hit historic lows several times this year, it’s important to lock in a rate as soon as you’re comfortable, in case they go up again.
What interest rate will I get approved for?
The rate you’re approved for depends largely on the following:
- Type of loan you applied for
- Loan amount
- Loan term
- Where the home is located
- Your down payment
- Whether you choose a fixed or adjustable-rate loan
Again, this is where a mortgage calculator comes in handy because you can use it to compare rates using different loan scenarios.
What does a “rate lock” mean?
After you fill out the online application, you’ll see a Loan Estimate, which includes the details of your loan terms. Then, your Reali Loans home loan advisor will ask for confirmation to lock in your loan’s interest rate. This means we’re guaranteeing you a certain rate for a set period of time.
Your rate is usually locked for 45 days. Your home loan advisor will let you know how long it is locked for when your loan is locked.
Why should I lock in my rate?
Locking in your rate can keep you from paying more in interest if rates go up between the time you apply for a loan and the time you close. You can extend a rate lock for longer if you need to, but there may be a fee.
Why wouldn’t my loan be approved?
There are many reasons why this may happen, and although it’s a setback (and a disappointment) if you didn’t get approved, use this as a learning opportunity. There are a few possible reasons:
If your credit score is too low
One of the first things that happen when you apply for a loan is a complimentary credit check.
Unfortunately, a poor credit score can be a roadblock to a mortgage. Every lender has a minimum credit score to approve borrowers, so if your score falls short, it’s likely you won’t get approved. If that happens, you’ll need to work on raising your score.
Start with these three steps, in this order.
- Pay all your bills on time. Your payment history has the most impact on your score.
- Pay down your debt. A large percentage of your score is based on how much of your available credit you’re using in relation to your total available credit. This is known as your credit utilization ratio.
For example, if you have two credit cards with a maximum limit of $5,000 each, you have $10,000 available credit. Let’s say you use up $5,000. This means your utilization is 50%—not great in the eyes of lenders. Basically, the lower your utilization ratio, the better. Try to get it under 10%.
- Hold off on applying for new credit. Credit inquiries can negatively impact your score. Also, don’t rush to close any credit accounts you’re not using. Closing old accounts may work against your score.
If your debt-to-income (DTI) ratio is too high
To determine your DTI, simply add up your monthly debt payments and divide that by your gross monthly income.
For example, if you make $4,500 a month and $1,500 goes to debt, your DTI ratio would be 33%.
Reali likes to see a debt to income ratio of 45% or less. If you’re above that percentage, you’ll need to increase your income or pay off some of your debt.