The homebuying process: 7 important things to consider

1. Pre-qualification is not the same as pre-approval

When you’re thinking about buying a home, it’s helpful to understand that pre-approval is not the same as pre-qualification. While they’re both levels of approval, they have fundamental differences. Pre-qualification is used as an informal way to get a ballpark figure of how much you can afford to spend on a home. Pre-approval is a conditional written commitment with the maximum loan amount you’re pre-approved to borrow. If you’re wondering how to start the homebuying process but unsure if you’re financially ready, getting pre-qualified is an excellent opportunity to learn about mortgages and down payment requirements based on your budget. However, you don’t have to get pre-qualified first. If you’re ready to start looking for a home and are seriously considering buying, it’s time to get pre-approved.

2. You don’t need 20% down to purchase a home

Lower borrowing costs can be one advantage of a larger down payment. But putting 20% down can also deplete your emergency savings fund or leave you with no cash on hand for routine maintenance or emergencies. Luckily, there are a variety of mortgage programs that include low or no down payment options so you can get the best mortgage based on your financial situation.

3. You can purchase a home even if you’re not debt-free

If you have healthy credit, a steady job and some savings, you’re still a good candidate for a mortgage even if you have student loan, credit card or car payment debt. Remember, having some debt and being able to pay it off is better for your credit than having no debt at all. In addition, lenders recognize that certain high-paying professions require advanced degrees and more debt accrued over those extra years. That’s why Guild offers a doctor loan program for eligible medical professionals such as doctors, dentists and veterinarians who have student loan debt on their credit reports.

4. How much home you can afford depends on several factors

The cost of homeownership isn’t limited to just your monthly mortgage payments. If your goal is a mortgage that you can afford with your salary and a home you can afford to keep, consider the impact of other factors such as your down payment amount, loan term, total monthly debt, common household expenses and closing costs.

5. There’s more than one type of mortgage

While there are hundreds of loan programs to choose from, they all fit within these financing types.

• Adjustable-rate (ARM)

  An adjustable-rate mortgage is a loan with an interest rate that can change periodically. An ARM starts with an introductory fixed interest rate for 7 or 10 years, then adjusts after the introductory fixed interest rate period ends. Your monthly payments will go up or down when interest rates fluctuate.

• Fixed-rate

  A fixed-rate mortgage is a loan where the interest rate remains the same for the entire term, resulting in a fixed payment amount that will not change. Interest rates are locked up-front, allowing borrowers to predict their future payments accurately. Find out if a fixed-rate versus an ARM mortgage is right for you.

• Government-guaranteed

  When looking for an affordable lending program, you may choose a loan backed by the government, such as an FHA, USDA or VA loan. Designed for low-to-moderate income borrowers with less-than-perfect credit, FHA loans offer low down payment options, while USDA and VA loans offer 100% financing to eligible borrowers.

• Conventional

  Homebuyers with good credit and a qualifying debt-to-income ratio may also select a conventional loan that “conforms” or meets the Federal Housing Finance Agency (FHFA) requirements and the funding criteria of Freddie Mac and Fannie Mae.

• Jumbo

  Jumbo loans are non-government loans typically used by borrowers looking for larger loan amounts. They’re great options if you’re looking to buy a more expensive home but have a higher credit score and a strong financial situation.

6. Sudden changes can affect your mortgage application

When your mortgage application and documentation go to underwriting, the underwriter will evaluate your ability to repay the loan. The mortgage underwriting process measures how risky your mortgage is to the lender. Because underwriters assess job stability, employment and credit history, any sudden changes in these areas can affect your loan approval. During the homebuying process, it’s helpful to understand what can affect your mortgage application so you’re in the best position possible to get a home loan.

7. The homebuying process can be started online

Today, almost every step required to purchase a home can be completed online. Submitting an application, consulting with a lender and signing mortgage-related documents are now all available electronically. At Guild, you have the option of starting the homebuying process by applying for a mortgage online with a MyMortgage account. Here you’ll find an easy-to-follow online application with personalized checklists. MyMortgage guides you through the application step by step. However, you can also apply over the phone or in person if you prefer.