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Learn important mortgage and homebuying concepts

Key Homebuying Concepts to Know

Confused about homebuying? We're here to help!

Review these key concepts so that you have a better understanding of mortgages and the homebuying process. 

Concepts to know before you apply for a mortgage:

Credit Score: In general, the higher your credit score, the better interest rate you can expect from most lenders. After you apply for a mortgage, the lending officer will present your best options based on your current credit score.

Income History:
Ensure that you can document your income sources before you apply for a mortgage. Your lender will want to verify that you have a stable flow of income to support future mortgage payments.

Monthly Housing Expense:
Calculate your housing debt ratio – monthly housing expense divided by monthly income – and try to achieve a ratio of 28-32%. This serves as a guide to home affordability for both you and the lender.

Overall Monthly Expense:
Calculate your debt ratio-overall monthly expense by adding the monthly housing expense to all other debt, and then dividing that total by your total monthly gross (before-tax) income. Lenders generally consider an overall expense ratio of 39%-43% as a guideline for accessing overall housing affordability.

Down Payment & Closing Costs: For most mortgages, you'll need to pay a specified down payment (a percentage of the purchase price) plus additional expenses such as titling and recording fees at the time of loan closing. Talk with an Advantis Mortgage Officer if you have limited funds--we have $0 and low down payment options available for qualified borrowers.

Concepts to know before you shop for a new home:

Earnest Money: You include earnest money with your offer to show that you sincerely want to buy the house. Earnest money will be credited toward your closing costs, so think of it as the first part of your down payment. Earnest money is forfeited and given to the seller if you break the contract you established in the offer. Earnest money is returned to you if you cancel the purchase for reasons included in the offer, such as inability to obtain financing or an unacceptable home inspection.

An offer is the initial draft of the purchase contract in which you include any conditions that must be met before you’ll buy the house. Examples include:

  • Specified closing date
  • Repairs to be done on the house
  • Requirement that the house appraises for at least the purchase price
  • Requirement of satisfactory home inspection
  • Subject to financing approval from your lender
  • Seller to pay certain fees or closing costs

Counter Offers:
Counter offers are made when the initial offer isn’t quite right. Essentially, the other party is saying “no, but how about this?” Counter offers are a normal part of negotiation, and you’re not bound by a counter offer unless you accept it. If you don’t want to accept it, work with your agent to write up a counter offer of your own. There is no contract until both parties agree to the terms.

Getting an inspection is like taking a used car to the mechanic before you buy it. An inspector will check for working electrical outlets, signs of water damage, the condition of the roof, and other important elements. An inspection will help you decide if you want to buy the home in its current condition, and also help you plan for normal wear-and-tear expenses if you decide to make the purchase.

Appraisal: Your lender will require an appraisal to determine the market value of the home you want to purchase. Essentially, they want to ensure that they base the loan on what the house is worth, in case you offered too much.

Title Company:
When it’s time to close your loan, the title company is responsible for ensuring that all the proper documents and forms are in order, money changes hands, and the transaction is recorded properly.