Home Purchasing Guide
Shopping online for a house is likely not the best place to start the process of purchasing a home. Here are some suggested steps to help you get the ball rolling:
- Check your credit report and scores
- Get pre-qualified by Red Oak Mortgage
- Find a real estate agent
- Shop for a home
- Make an offer
- Apply for a mortgage
- Get an appraisal and a home inspection
- Prepare for closing and moving
- Attend closing
- Move in
1. Check Your CreditYour credit score is based on several factors, including how much debt you have, your credit history and whether or not you pay your bills on time. Your credit score can affect whether or not you’ll meet the requirements for a mortgage loan and, if so, what types of loan programs you will qualify for.
You can find out about your credit score by obtaining your credit report:
- You can get one free credit report each year at www.annualcreditreport.com; read through it carefully and make sure there are no mistakes, as that could affect your score.
- If you have already obtained a free credit report within the last 12 months, you may have to pay a fee to obtain your credit score
2. Get Pre-QualifiedRed Oak Mortgage’s pre-qualification program offers you the ability to know what you can qualify for. More details on the pre-qualification process can be found on our Resources page. During this time, we’ll help you find the right loan program and explore the opportunities that are available.
3, 4, 5. Find a Real Estate Agent, Shop for a Home, Make an Offer
Once you are pre-qualified for a mortgage and are in a stronger position to shop for a home, connect with a real estate agent who knows your market.
Using online resources, shopping for a home has never been easier. When you are shopping for a home, you may want to consider not only the price and location but also the school systems, safety of the neighborhood, and access to services such as medical care.
Once you select a property, you will make an offer and negotiate with the seller on a final sales price. It’s likely the seller will take your offer more seriously because you’ll have a pre-qualification from Red Oak Mortgage.
6. Apply for a Mortgage
You can apply for a mortgage once you have selected a property. The actual process of applying for a mortgage requires reading, signing and supplying a number of documents. Red Oak Mortgage wants to make the mortgage process as easy as possible. We recommend that you review our Documentation Checklist to start gathering the documents you need as early as possible.
7. Get an Appraisal and a Home Inspection
Your lender will obtain an appraisal of the property once your loan is approved. If you are working with a real estate agent, they may recommend service providers for a home inspection..
8. Prepare for Closing and Moving
Once your loan is approved and your appraisal and inspection are satisfactory, it’s time to prepare for closing. Your Mortgage Consultant will guide you through this exciting time. One of the biggest risks to closing on time is a change in your finances. Avoid opening a new credit card account, buying a car or making any other large purchase without speaking to your mortgage consultant first. Moving isn’t fun, but your real estate agent and mortgage consultant will guide you the entire way, helping you with new utility providers, references for qualified movers, and any other services you may need.
9. Attend Closing
Although takes about an hour, we suggest you set aside a bit more time to be sure you clearly understand what you are signing. Generally, it’s required that you attend the closing in person and bring a government-issued photo ID and the funds to close (generally in cashier’s check). You won’t be alone! All closings are handled by a licensed settlement agent, and in many cases your attorney will be present at your purchase as well. Also, the seller and real estate agents are likely to join you.
10. Move In
You’ll feel great when you get your keys and unlock the door to your new home!
When dealing with anything this complicated, the list below isn’t comprehensive. If you have questions or would like additional clarification on any mortgage terms, please contact us.
Here’s a look at some of the most popular mortgage-related terms:
ARM's are loans where the interest rate is subject to change throughout the term of the loan. In many cases, the rate is fixed for a number of years and then can adjust thereafter with the market. Details on the terms of the ARM are located on the Loan Estimate. Many borrowers who are averse to risk and future payment increases opt for Fixed-Rate Mortgages.
This is also known as the term of your loan, and refers to how many payments you have to make. For fully-amortized loans, the loan balance will be paid to $0 over the term of the loan. So, if you have a 30-year fixed, fully-amortized loan, your mortgage balance will be paid in full in 360 months of equal payments.
Annual Percentage Rate (APR)
APR refers to the cost of the loan as a percentage of the amount financed. Unlike your interest rate (which is the amount of interest you’re actually paying on your debt and what you should negotiate), the APR is the total cost of loan expressed in the form of an annual rate on the remaining balance of the loan (outstanding balance). It’s complicated, for sure.
It is the fee that a lender charges in order to process a borrower’s loan application. At Red Oak Mortgage, we never charge any fees payable to us until closing.
In the case of a balloon loan, monthly payments are not sufficiently large enough to repay the entire loan at the end of the loan term. The balance remaining at the end of the loan-term is to be paid out as a lump sum amount. These days, balloon loans are very rare.
These costs include all non-recurring charges relating to the closing of a mortgage. Closing costs generally include lender fees, title insurance-related fees, attorney fees, survey fees, credit reports, and other incidental expenses. Closing costs are estimated on your Loan Estimate.
Equal Credit Opportunity Act
An anti-discrimination federal law that prohibits lenders and all other creditors from refusing to grant credit to an applicant on the basis of the applicant’s race, national origin, gender, age or marital status.
Fannie Mae is a popularly used acronym for the Federal National Mortgage Association (FNMA). This is a government sponsored entity (GSE) that creates uniformity among mortgage lenders to provide for marketable Mortgage Backed Securities on the secondary market. Most lenders nationwide underwrite their loans to these standards, and Red Oak Mortgage is no exception.
Federal Housing Administration (FHA)
FHA is a governmental agency that operates, oversees and monitors a wide variety of home-loan programs and initiatives. The FHA doesn’t lend money, but it does insure loans that meet the established criteria protecting lenders from potential losses.
Another GSE, like Fannie Mae, Freddie Mac establishes uniformity in underwriting with the intent of securities mortgages in bulk on the secondary market.
The index refers to the baseline for calculating future rate changes on Adjustable-Rate Mortgages. Some common examples are the 1-year LIBOR, or the 3-year Treasury. Indexes are publicly-reported financial metrics used by lenders.
Interest Rate Ceiling
Used with Adjustable-Rate Mortgages, the interest rate ceiling is the maximum rate that the mortgage can ever reach.
A type of mortgage that requires the borrower to repay only the interest that accrues on the loan balance at each payment period (usually a month). In this type of loan, the outstanding principal balance doesn’t change each month. This is the opposite of a fully-amortizing mortgage.
The fee imposed by the lender/servicer for failure to make timely payments. Generally, this is 4-5% of the mortgage payment.
Used in Adjustable-Rate Mortgages, the margin refers to the premium over the Index that the lender will charge when the interest rate adjusts.
Mortgage Acceleration Clause
A clause in the mortgage agreement that enables the lender to demand the entire balance of the loan to be repaid as a lump sum payment, for example in the event the house is sold or refinanced. The clause also applies in the instance that the borrower defaults or where the title changes hands.
This refers to a fee charged for processing any loan agreement. It is also known as Points.
PITI (Principal, Interest, Taxes, and Insurance).
This is the total monthly payment including taxes and insurance. It may also include Mortgage Insurance and HOA Fees, when applicable.
Private Mortgage Insurance (PMI)
PMI is the insurance provided to the lender (and paid for by the borrower) to protect against default. Generally, it is included on loans with less than 20% down.
These formulas are used by the lenders to estimate how much a potential buyer can borrow. In other words, qualifying ratios denote the affordability range of the buyer for the lender’s purposes.
Rate Lock is the term used to define when the interest rate is confirmed for a particular mortgage transaction. All rate locks must be provided in writing and will include the rate the borrower is locked at and the expiration date of the lock.
Total Expense Ratio
This ratio is a percentage representing the monthly debt obligations to the gross monthly income.
For any further help with respect to mortgage terms or to find out the meaning and purpose of any other term, please contact us here.
So you want to buy a house? Purchasing real estate is the largest financial transaction most of us will make in our lifetimes. There are many questions, and here are some answers to a few of them. As with anything, this list is not comprehensive, but the knowledge base of the professionals at Red Oak Mortgage is available to you. Contact us here if you have questions that aren’t listed here so we can update our site to include them.
Q: Why should I use a local lender like Red Oak Mortgage instead of a large bank or online mortgage broker?
If you have done some research into other mortgage companies, you probably found the 30-60 day answer to this question. At Red Oak Mortgage, our high-level of technology and amazing team of mortgage professionals can close your purchase in as little as 10 business days. However, just because Red Oak Mortgage can do it in 10 days doesn’t mean that’s realistic. There’s a lot that goes into a purchase including the collection of documentation from the buyer, the appraisal of the home, obtaining and reviewing the home’s title history, and coordinating inspections. Realistically, 3 weeks is the quickest turn-around for a purchase from contract to close in New Jersey.
Q: How much can I qualify for?
When it comes to qualifying for a particular loan amount and purchase price, there are many factors involved. The three main factors we review are your income, your expenses, and your assets. Understanding your mortgage-qualifying income is no easy task, but the team at Red Oak Mortgage has years of experience reviewing income documentation. Through constant training, we always stay up to date on new guidelines and opportunities to take advantage of every option available. We then compare your qualifying income with your monthly expenses as reported on your credit report, as well as the carrying costs on your potential new house. This gives us your debt-to-income ratio which is a key component of your mortgage approval. To get some estimates of what your potential mortgage payment will be, take a look at our industry-leading calculators here. Finally, we will review your available assets and help guide you to what assets you can use to purchase a house. With the availability of gifts, 401k loans, and down-payment assistance programs, our team will help you realize your maximum down payment potential. With your income, expenses, and assets in place, we will help you determine what loan program is best for you. Every program is different and has different requirements, and we look forward to helping you find the best fit. You can start the pre-qualification process here.
Q: How much money do I need to purchase a home?
This is a great question, and (like everything in the mortgage world) it has a very complicated answer. Red Oak Mortgage offers an array of loan programs that start with 0% down (like VA loans, for example) and go all the way through 25% down. There are conventional loans for certain buyers that allow for 3% down and FHA loans that allow for as little as 3.5% down. There are also advantages to putting 5%, 10%, and then 20% down. Your pre-qualification includes an analysis of the available options and some recommendations on how best to take advantage of the available programs. In addition to the down payment, there are many other costs associated with buying a new home. Before closing, you’ll likely be responsible for things like a home inspection and an appraisal. At closing, settlement charges include closing costs like title insurance and attorney fees, as well as prepaid items for interest, taxes, and insurance. Red Oak Mortgage will provide a complete estimate of these fees for you with your pre-qualification which you can do here.
Q: How does a Pre-Qualification differ from a Pre-Approval?
The purpose of pre-qualification is to give potential buyers an idea of their affordability range. Pre-qualification involves a preliminary review of your credit, income, expenses, and assets. We rely on your stated information (so generally no documentation is collected). Our pre-qualification process is simple and can be started here. After we receive your information, a determination of qualification and affordability will be made; with this, you can begin shopping for a house and making offers on potential properties. A pre-approval requires preliminary underwriting of your credit report and your income and asset documentation. A commitment, subject to finding a property (TBD), will be issued by one of our mortgage underwriters. From there, all we need to do is ‘plug in’ a property (with purchase contract and appraisal) and you are ready to go. The full application to begin the pre-approval process is located here. In almost all cases, a pre-qualification is sufficient to get us through the home shopping and contract phase of your purchase. Once you have a contract in place and through attorney review, we move to the approval. Please contact us here if you have more questions about pre-qualification vs. pre-approval.
Q: How do I make an offer on a house?
Once you’ve been pre-qualified for a mortgage, it’s time to make an offer. In most cases, you’ll want to work with a Realtor who knows your market well and can guide you. Red Oak Mortgage has worked with hundreds of Realtors and you can find contact information for some of them here on our Business Partners page. Whether you work with a Realtor or not, Red Oak Mortgage will provide you with a ‘transaction-specific’ pre-qualification letter when you are ready to make an offer. This letter will be dated the day of your offer and be for the exact amount and purchase price you are offering. In our experience, this puts your best foot forward to the seller. In many instances, there will be some negotiation back and forth with the seller. Once you have agreed upon a price, we will revise your pre-qualification letter and send it back to you. Once you have an accepted offer your contract will generally enter the attorney review phase which can take anywhere from 1 day to a week or more. After attorney review is completed, your purchase is considered ‘under contract’ and it’s time to get started on your Home Inspection and mortgage application.
Q: Is a Home Inspection necessary?
Home inspections are not specifically required for most mortgage programs, however it is always a good idea to hire a professional, qualified inspector to inspect the home you’re planning to buy. Professional inspectors look for any mechanical issues and structural problems that may exist in the home and that can lead to a number of problems for you and your family in the near future. In addition, the inspector also checks appliances and all other items in the home to make sure that everything is in working order. Using that information, your Realtor and/or attorney can make requests for repairs to the seller. Red Oak Mortgage has worked with many qualified inspectors over the years. Find some of them here on our Business Partners page.
Q: What documents will I need to provide when I apply for a mortgage?
A great question, and again a very complicated answer. Since every transaction is different, the list of what is needed to process a loan will vary from borrower to borrower. In general, you can expect to document your income (W2s, paystubs), document your assets (bank statements, deposit checks), and document your identity (driver's license, social security card). Depending on the nature of your income, we may ask for tax returns (specifically for self-employed income or rental income). If you own any other properties, we’ll ask for property profiles (mortgage statements, tax bills, insurance, HOA). We’ve compiled a list of required documents for a mortgage here. You can trust the professionals at Red Oak Mortgage to give you a clear, comprehensive list of what will be required to process your loan when your application is taken. After you’ve completed the online application, you can log-in here to securely upload documents to us. Q: How long does the purchase process take? If you have done some research into other mortgage companies, you probably found the 30-60 day answer to this question. At Red Oak Mortgage, our high-level of technology and amazing team of mortgage professionals can close your purchase in as little as 10 business days. However, just because Red Oak Mortgage can do it in 10 days doesn’t mean that’s realistic. There’s a lot that goes into a purchase including the collection of documentation from the buyer, the appraisal of the home, obtaining and reviewing the title history of the home, and coordinating inspections. Realistically, 3 weeks is the quickest turn-around for a purchase from contract to close in New Jersey or North Carolina.
What takes place at loan closing?
On the date of loan closing, you will have to sign your loan documents at any designated place (such as our office or your attorney’s office). On the same date, and in the presence of a signing authority, you will have to carefully review and sign the agreement and prepare a certified or a cashier’s check to pay off any remaining down payment, closing fees and any other amount required to close the funds. In some cases, you will be required to wire your funds directly to the title company. Our loan processors will guide you throughout the entire closing process and advise you on the best possible course of action. As soon as the loan-related documents are signed, you become the proud owner of your new home.
Q: How can Red Oak Mortgage continue to help me after I’ve closed?
Just because you’ve closed on your house doesn’t mean you’re done with the professionals at Red Oak Mortgage. Every six months, our clients receive a complimentary financial review. If there are loan opportunities available to save money, we’ll reach out. In many cases, refinances of your existing loan takes only 10 days and comes with very limited (if any) closing costs.
Q: Mortgage insurance - What is it and when is it required?
Mortgage insurance, also called PMI, is a form of insurance designed to protect mortgage lenders against financial losses. It allows you to purchase a home with less than 20% down, and is generally required on any conventional loan that meets that loan to value. The two main types of mortgage insurance are Borrower Paid and Lender Paid, and the consultants at Red Oak Mortgage can help guide you towards the best option.
Q: What factors are considered when quoting interest rates?
Quoting interest rates is one of the trickiest part of the mortgage process. Be vary wary of lenders who post rates online, as there are many factors that go into the interest rate for a loan that can’t possibly be known. To accurately quote an interest rate, a lender must know the loan amount, estimated/appraised value, credit score of the borrower, loan program desired, and estimated closing date. Our industry is flooded with ‘fake’ companies who will advertise very low rates online, and many clients come to find they don’t qualify for those rates for some reason. It’s important to be very careful about shopping for an interest rate and to always make sure the source of the rate quote is both reputable and has all of the necessary information to quote accurately.
Q: What factors could delay the approval or closing of my loan?
There are many factors that could delay an approval or a closing. It is very important to work with a Lender who is on top of your loan file and offers constant communication and online access to your loan status to keep the ball moving. However, even when you and your lender are attentive, things can always come up at the last minute. Issues with the Seller, the Certificate of Occupancy, or the Settlement Agents do happen from time to time. For that reason, it’s important to work with a versatile lender who can roll with the changes and make sure everything is handled with these issues as the come up. At Red Oak Mortgage, we work to clear a loan to close weeks before the scheduled closing date (not at the last minute like some of those other guys), and that allows us to offer flexibility for closing rarely available.
Q: When can I lock an interest rate, and are there fees to do so?
Every lender will give you a different answer here, but this is ours. Generally speaking, we look to lock an interest rate for a purchase once the contract is out of attorney review, an inspection has been completed, and the appraisal is back and accepted. However, many loans are locked before this, and many loans aren’t locked until a few days before closing. Work with your mortgage consultant to find a lock-in time that works best for you. At Red Oak Mortgage, there are never fees to lock a loan for up to 90 days (and for new construction we offer locks up to 365 days that do come with fees).
Q: Why do interest rates change daily?
Mortgage rates are tied to mortgage-backed securities that fluctuate on the open market. The supply and demand for these securities is what drives interest rates, and just like stocks these trade throughout the day. Interest rates should be considered a moving target until one is locked and a written Loan Estimate is provided showing a rate lock.
Q: How can I improve my credit score?
Your credit score is one of the 4 important factors in your mortgage approval. There are some strategies you do make sure your credit score is as high as it can be, including verifying all information is correct (and disputing what’s not), and keeping balances on credit cards as low as possible. At Red Oak Mortgage, we work with credit repair experts that can help guide you towards a better credit score. Contact us for details.
“The key to securing your dream home is by starting out with a great plan, and then hiring a great team!”
Before venturing into the property market and shopping for a home, you need to get pre-qualified for a mortgage. This process requires a careful review of your credit, income, and assets to determine your purchasing power. Red Oak Mortgage offers our pre-qualification service free-of-charge, which allows you to determine your affordability range to help you scout for a new home.
Here’s how we can assist:
Why get pre-qualified with Red Oak Mortgage?
Unlike other online marketing companies with giant call-centers who employ application-takers, Red Oak Mortgage offers tailor-made support for evaluating the creditworthiness of clients. Our advanced process helps you be confident in your qualification for a mortgage by:
- Determining your ‘monthly income’ to ever-changing mortgage guidelines
- Guiding you to the loan that best suits you needs
- Demonstrating to potential sellers that you are an able and willing buyer
- Providing you with an added leverage when buying a home
- Making your offer look more appealing and appeasing to sellers and lenders
- Adding value to your credit report through an independent, third party review
How do I get pre-qualified?
Use our online pre-qualification tool here to get started.
First Time Buyers
Buying your first home is indeed a big step. For most people, it will be the largest financial transaction you’ll ever make. There’s a lot to do, so we’ve simplified the process into 7 easy steps:
1. Consider your budget.How much can you afford to spend? Home buying is much more than just a mortgage payment, so you’ll want to consider all the potential costs (including property taxes, homeowners insurance) and the other monthly expenses you’ll incur, like utilities and maintenance expense. Once you have all of the information, you can crunch the numbers and determine what’s affordable.
2. Find the right lender.Shop around for a lender who has the experience and loan programs you need to take this big step with confidence. The mortgage consultants at Red Oak Mortgage are trained to guide first-time homebuyers through the process and are waiting to assist.
3. Get pre-qualified.The consultants at Red Oak Mortgage will get you pre-qualified so you can shop with confidence. This step also shows real estate professionals you’re serious about buying and can strengthen your negotiating power. More information about pre-qualification can be found on our Resources page.
4. Know what you want in a house.
Single-family home or condo? How many bedrooms do you need? Are there certain towns you want to avoid? How much privacy do you want? How important is proximity to work or nearby amenities? Consider all the factors that will make you happy when you move in.
5. Select a ideal estate agent.The right agent is your partner in finding the right home and negotiating a good price for it. Find a suitable match by tapping into neighbors, friends and co-workers. Red Oak Mortgage also works with great real estate agents all over the state and would be happy to make some introductions.
6. Shop.Once you’ve evaluated your budget, picked a lender, gotten pre-qualified, decided what you want in a home, and picked a real estate agent, it’s time to go shopping!
7. Make an offer.When you find the home that’s right for you, you’ll know it. Work with your real estate agent to find recent comparable home sales to determine what you should offer. Once you agree on a price, Red Oak Mortgage will put our first-time homebuyer specialization to work for you.
How To Refinance
This guide provides 8 simple steps to refinance your mortgage. There are many reasons to consider a refinance with the most common being to shorten your term or lower your monthly payment. However, refinancing also allows you to take cash-out from the equity in your home or perhaps remove your mortgage insurance.
Step One: What’s your goal?
Determine what’s important to you in a refinance, as some compromise may be required. To get the lowest rate, for example, you might have higher fees. Lowering your payment might involve lengthening your loan term. Paying off your loan more quickly might result in a higher mortgage payment monthly. There are many options, and a mortgage consultant from Red Oak Mortgage can help guide you to the best possible program.
Step Two: Confirm your eligibility for refinancing
Once you decide that market conditions make refinancing attractive, you should check your credit score and eligibility for refinancing. You can obtain your credit report for free online, or complete the Pre-Qualification tool on our website to verify you are eligible.
Step Three: Research Your Home’s Current Value
One of the biggest factors in refinancing is your home’s current value. Equity is defined as the difference between the current value of the property and how much you owe. The bigger the equity cushion, the better your refinancing options are likely to be. Since real estate values change all the time, you need to make an up-to-date estimate of your home’s value. Check out real estate websites for estimates of your property’s market value and also look at the recent sale prices of comparable properties nearby.
Step Four: Use a Mortgage Refinance Calculator
A mortgage calculator is an excellent tool for comparing your current loan with possible refinance opportunities. The two key things to look at when making this comparison is how refinancing would affect your monthly payment and how it would change the total cost of the loan in the long run. Often, the size of your monthly payment is the most obvious thing people look at when refinancing, and being able to afford those payments is essential. However, spreading a mortgage out over a longer period can lower your monthly payments at the expense of costing you more interest over the long run. A mortgage calculator like the ones in the Resources section of our website can help you decide if a refinance makes sense.
Step Five: Get started with your refinance
Using the Pre-Qualification link on our website, you can get the ball rolling on a refinance. Just click the button and answer simple questions about your home and current situation and we’ll get to work on your application right away.
Step Six: Program Choice
Most refinancing goals can be met with more than one program, and a knowledgeable mortgage consultant can help borrowers determine the most appropriate program for their needs. For example, homeowners desiring smaller payments can achieve them by finding a lower interest rate, stretching out their remaining balance over a longer term or choosing an interest-only loan. We have many loan programs available and look forward to guiding you to the best one.
Step Seven: Understand your fees and costs
Closing costs for a refinance can be a significant amount of money, and might even make the difference in determining whether or not refinancing is cost-effective. Red Oak Mortgage will provide you with a written Loan Estimate of all of the costs associated with your loan and show you how those costs impact your refinance.
Step Eight: Lock and Close
The final step is locking in a mortgage refinance rate and closing the loan. Locking a rate can be done at any time during the refinance process. Until the interest rate is locked, borrowers are said to be “floating” their mortgages. Once a rate is locked, it is guaranteed until the lock expires — unless there are “material” changes to the application, such as the borrower choosing a different program or the home appraising for less than expected. Closing a refinance differs from closing a purchase, and most refinance closings occur within 10 days of application at Red Oak Mortgage. Please feel free to contact us if you have any questions about refinancing not covered in this section.