This month we celebrate all things homeownership and how the ability to purchase a home continues to enrich families and communities across the nation. For hundreds of years, the American dream has consisted of owning a home. From Abraham Lincoln’s signing of the Homestead Act in 1862, which handed 160-acre plots of land to settlers for the price of a small filing fee to the Fair Housing Act that passed in 1968 that prohibits housing discrimination based on race, color, religion, or national origin, our government has recognized the importance of fostering homeownership for everyone. This year is a bit different compared to years before, but it’s important to remember that even amidst COVID-19 homeownership isn’t dead, it’s just different.
The Benefits of Owning Your Own Home
Compared to renting, owning your home may offer more stability with a set payment that doesn’t change unexpectedly. This means that you can stop chasing lower rent year after year. Instead, you’re building equity in several different ways. One is that the value of your home typically increases over time. The other happens each time you make a mortgage payment. That’s because as you pay down the interest on your mortgage loan, you’re building up financial resources by way of equity.
You also get several tax breaks for owning a home. Perhaps the most notable is the deduction you’ll receive for the interest and property taxes paid toward your mortgage. This is a great way to off-set the initial financial blow that comes with a home purchase. If you decide to refinance your home later, then you’ll have the choice to take out a home equity line of credit, which is also tax-deductible. Finally, when you decide to sell your home, there’s a chance that you won’t have to pay taxes on any profit that you make. Something else to consider is that a mortgage is considered “good debt” and will likely increase your credit score with each payment that you make. It also shows your creditworthiness and opens the door for other large purchase financings.
Aside from economic reasons, homeownership evokes a sense of pride in both self and community. Oftentimes, you have the freedom to make changes to your property how you see fit. You’re also invested in your neighborhood and community on a more personal level. In fact, a 2016 study revealed that homeownership has a positive impact on educational achievement, promotes civil engagement, contributes to improved physical and psychological health, and reduces crime.
The Mortgage Process
Perhaps the scariest part of becoming a homeowner is simply getting started. It’s easy for any one’s head to start spinning once they look at everything involved with acquiring a home loan and it’s completely understandable. However, knowing how the mortgage process works and being prepared is key to a successful transaction.
We’ve broken it down for you in six easy steps:
Step One: Pre-Approval
This is where a lender determines whether or not you’re qualified to borrow money based on your credit history, employment history, and verified income. Once pre-approved, you’ll get a letter stating that you can indeed afford a home loan up to a certain value.
Step Two: Submit Initial Documents
After the pre-approval process, you’ll have to determine the type of mortgage loan that is appropriate for you and submit the documents needed to verify your income and prove that you’re able to afford the loan.
Step Three: Processing
Once initial documents are submitted, an experienced processor reviews, packages, and monitors your loan request. They also contact credit bureaus, employers, accountants, and anyone else needed to verify your information.
Step Four: Underwriting
Once the processor has gathered all the supporting documentation, your loan is sent to the underwriter. It’s the underwriter’s job to review it and assess a lender’s risk in working with you. If they’ve determined that the loan is something you can manage, they’ll issue a mortgage commitment.
Step Five: Pre-Closing
Once your loan has been underwritten, it’s time to finalize all the details of your loan with the lender and get everything in place for closing day. This includes conducting a walkthrough of the property and securing homeowners’ insurance set to go into effect the day you move in.
Step Six: Closing
This is the final step to becoming a homeowner. At this time, you’ll sign all necessary paperwork and confirm your electronic wire has been received. You’ll also need to bring a photo ID. When it’s all said and done, you’ll get the keys to your home!
The home buying process has certainly changed amid the COVID-19 pandemic, but the industry has found innovative ways to keep the process running smoothly. Thanks to technology, virtual open houses have become more common across the country. For those who need to physically view a property, widespread social distancing policies have been implemented to ensure everyone’s safety.
While an appraisal is still required to obtain a mortgage, desktop appraisals are taking the place of traditional ones for the time being. This method consists of a certified real estate appraiser using information such as tax records found via public records along with evaluating comparable sales in the area. The research gathered is then used to assess the value of the property. Another option is a drive-by or exterior appraisal. This involves looking at the outside of the home and combining those findings with real estate records to determine the value. During an exterior-only appraisal, pictures are taken to verify that the home exists. From there, the remainder of the appraisal is like a desktop appraisal in that research is conducted to gather the additional information required.
While a home inspection isn’t usually required, it’s recommended, and remote inspections are now an option for many. During a remote inspection, houses are combed over by the inspector alone who then reviews their findings with the buyer via videoconference. Pictures and videos are taken of any issues or concerns. They are then emailed to the client and discussed in length. This is a great alternative to the traditional method. The trick is finding a reputable, licensed inspector whom you trust and not be afraid to ask questions.
E-closings are also becoming more popular as we look for ways to limit interaction during this time. An e-closing consists of one or more documents being signed electronically. While this may not eliminate the need to be present at the closing table altogether, it can drastically cut the time it takes to close.
You’ve Got Options
Most people think that you must have a 20% down payment to own your own home, but this is not the case. There are numerous loan programs and down payment assistance options designed especially for those who need a little extra help with financing. In addition to grants and loans that can be accessed via your local or state housing authority, you can also contact a lender to see what programs they offer that you may qualify for.
Here are just some common programs that Silverton Mortgage offers:
With an FHA loan, low-to-moderate income borrowers with a credit score on the lower end can finance up to 96.5% of the value of a home. This means that you’d only have to make a down payment of 3.5%. Insured by the Federal Housing Administration and issued by an FHA-approved lender, such as Silverton Mortgage, this program has helped many people become homeowners throughout the years.
This loan is not insured or guaranteed by the government but requires as little as 3% down. A higher credit score of 620 or more is required. While monthly mortgage insurance payments are required, it can be canceled once your loan-to-value ratio reaches 80%. This is the most popular loan option for most borrowers without a large down payment.
VA loans are designed specifically to help service members, veterans, and eligible spouses become homeowners. What makes this loan different from many others is its competitive interest rates without requiring a down payment along with no required mortgage insurance. VA loans are provided by private lenders with the Department of Veterans Affairs guaranteeing a portion of the loan. This makes it possible for the lender to provide more favorable terms. Silverton Mortgage is proud to support our veterans by offering VA loans to those who qualify.
USDA loans offer a zero-down-payment mortgage option for those who are looking to live in approved rural areas of the country. If you’re unable to get approved for a conventional loan due to income or credit and would rather tree lines over skylines, this may be the perfect avenue to homeownership. If your credit score is 650 or higher, the process is very streamlined. However, if that is not the case, you’ll need to undergo stricter underwriting standards.
This program, backed by Fannie Mae, helps low to moderate-income borrowers buy or refinance. With reduced payments and lower credit score requirements, the most notable feature of this loan is that borrowers may be able to cancel their mortgage insurance once their home reaches 20% equity. This means lower monthly payments later.
What It All Means for You
Homeownership certainly is not for everyone, but those who are ready for it have plenty of resources available to them. The industry has recognized the need to adapt to current events and has found effective ways to keep the path clear for those who desire to own their own home. At Silverton Mortgage, we understand that home loans are as diverse as the people who seek them. That’s why we work with everyone on an individual basis to determine which program works best for their unique needs. If you’re interested in exploring your options, contact one of our qualified mortgage professionals today and start a conversation.