What You MUST Do When You Go Under Contract

What You MUST Do When You Go Under Contract

Love Buying a Home series – Week 9

This step-by-step series will take you through the entire home-buying process — from finding a buyer’s agent to settlement day, and all the details in between. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

Once you’re under contract to buy a home, you want the final stages of the mortgage process to go smoothly – you don’t want anything to sidetrack the sale from here on out!

Nothing is a done deal yet even when you’re under contract. Both your future home’s appraisal and your ability to get approved for the mortgage your were pre-qualified with can affect the outcome of your purchase. (That is why it is so important that you stay pre-qualified even after your receive your letter.)

So here’s what you need to keep in mind when you reach this stage:

Appraisal of Your New Home

Why do you need an appraisal now? Your appraisal is the check and balance to make sure the home you’re buying is worth at least the amount that the seller agreed to sell it to you for. If you are purchasing a home for $450,000, we want to make sure it is not only worth $435,000. A bank or lender will only provide a mortgage for a certain percentage of the home’s value.

Your loan officer has already pre-qualified YOU and your finances but now it’s got to approve the home you’re about to buy.

A licensed appraiser’s report is much more detailed and the only valuation report the mortgage underwriter will consider when determining if it will lend money to a borrower. The report will include:

• details on the property/home;
• comparisons to three o more other similar properties;
•  an evaluation of the local real estate market at the time;
•  statements on any issues that may hurt the property’s value, such as structural damage or even if the property took too long to sell.

Don’t confuse an appraisal with a home inspection! Appraisers are not home inspectors so don’t rely on them to determine if your home is in good condition. They don’t look for leaky roofs, test appliances, or any other items found on an inspection check-list.

Locking In Your Mortgage Rate

If you have been following along to this series, then you would have chose your Loan Officer even before you started shopping. Your Loan Officer should have already discussed loan programs, first time home buyer incentives, your budget and affordability, so there should be no surprises now that you are under contract. Your next step is to complete the formal Loan Application and discuss locking in your interest rate.

What exactly is a lock-in?  A lock-in is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time (typically 30, 45, or 60 days), while your loan application is processed. It’ll protect you against any rate increases during the loan process.  However, rates could also drop after you lock in, so make sure that the interest rate that you lock in to is in line with your monthly payment goal.

The rate that you are offered ultimately depends on the market (you can check out Freddie Mac averages here) and the loan criteria and program you are in. I always say there is no one-size-fits-all when it comes to home finance, and your interest rate is just one piece to that puzzle. Here is some of the criteria that is considered in your interest rate.

1. Credit Score – A higher credit score is a indication that you have been financially responsible with other credit and able to pay bills back on time. Typically the higher your credit score, the more loan programs and products may be available to you
2. Down Payment – Typically the more you put down, the better this looks to the bank or lender since you have shown the ability to save for the purchase
3. Property Type – There could be an interest rate adjustment on a Condo versus a Single Family Home since you would be buying into an association
4. Loan Program – Conventional, FHA, VA, and USDA all may have slightly different interest rates depending on if they are backed by Fannie Mae/Freddie Mac or the Government
5. Loan Term – Shorter terms tend to be priced slightly better (15 year fixed versus a 30 year fixed)
6. Loan Amount – There may be some price adjustments if you are within the conforming loan limits for the county/area that you purchase in. If you are over the loan limit for the area, you would be looking at a Non-Conforming or Jumbo loan which could have different terms and interest rates
7. Occupancy – Rates tend to be higher on an Investment Property versus a Primary Residence or Second Home

Your interest rate is likely not the same as your neighbors (even if you bought around the same time), and the market is always on the move! That is why it is important to work with a Loan Officer that will help prepare you for how the market fluctuations could impact you financially and keep you informed along the way!

If you have any questions about affordability or would like to see what you may be able to get pre-qualified for, I am here to help! Just email me at jeng@firsthome.com and we can get started!

There you have it—what needs to happen right after you go under contract.  This sometimes can be a scary time especially for first time buyers, but don’t worry, I’ll be with you every step of the way! 

In the meantime, stay tuned for next week’s article, How to Navigate a Home Inspection, is the tenth article of this Love Buying a Home series. You don’t want any surprises after you move in, right?! Here’s the breakdown of what to expect during your home inspection and what to do if any red flags arise.