Homebuying 101

Before Buying a Home

Things to Consider Before Buying a Home

For many people, buying a home is the single biggest investment they will make in a lifetime. The right time to buy is different for everyone. Before making a decision to buy a home, ask your Grand Home Loans Loan Officer to help you answer the following questions.

Can You Qualify for a Mortgage?

Qualification is based on your debt-to-income ratio. This is the amount of debt you have as it compares to your income. This can be determined by adding up all your monthly debt payments and dividing that number by your gross monthly income.

For example, if a loan program uses a 28/36 qualifying ratio, it means the homebuyer is allowed to spend no more than 28% of his or her gross income on monthly mortgage payments and no more than 36% on total debt. Total debt includes car and school loans, credit cards, child support and alimony. More specifically, if an individual earns $60,000 per year, his or her monthly gross income is $5,000. Under the 28/36 guidelines, that person's maximum monthly mortgage payment should not exceed $1,400 while his or her total monthly debt should not exceed $1,800.

A high debt-to-income ratio can imply that there might be an issue making monthly mortgage payments. A number below 43% is generally considered adequate when qualifying for a mortgage.

How Much Home Can You Afford?

When you start the search for your new home, you'll save yourself a lot of time and frustration if you have a good idea of how much home you can afford. Putting pencil to paper, calculating the mortgage expenses and establishing a budget will give you a better idea of your specified price range.

Be sure to consider additional costs that might be involved above and beyond your monthly mortgage payment. In some instances, you'll encounter upfront and ongoing expenses.

Upfront Expenses

Home Inspection costs: These cost can be anywhere from $200 to $900. The costs depend on the running rates in your area.

Down Payment: The down payment for homes usually ranges from 3% to 30% of the purchase price. Your monthly payments will be lower and you will acquire more equity in your home with a larger down payment. If your down payment is less than 20%, you will be required to have mortgage insurance.

Closing Costs: These are the expenses that fall above the price of the property which are incurred by buyers and sellers in the process of transferring ownership of a property. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. Typically, the cost of closing is about 2 to 7 percent of the mortgage amount. Closing costs will vary by property.

Your Grand Home Loans loan officer will be able to provide an estimate of your closing costs.

Ongoing Expenses

In addition to your monthly mortgage payment, as a homeowner you may incur the following potential expenses:

  • Homeowners Insurance (required)
  • Mortgage Insurance (if applicable)
  • Flood Insurance (if applicable)
  • Utilities
  • Property Taxes
  • Home Repairs/Improvements/Maintenance

After you've considered these factors and established a preliminary budget, the next best step you can take is to obtain a prequalification* letter from your Grand Home Loans Loan Officer. Armed with this, your search will have the strength that comes from financial backing, and you will have the freedom to enjoy looking for your new home.

How's Your Credit?

Your credit score is the most important number you need to know before starting the home-buying process. All lenders require a credit report that contains personal financial information such as loan payment information, bank and credit card accounts, and more. You are able to obtain a copy of yours by contacting any one of the credit bureaus throughout the United States.

*A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met.

What is Best For Me?

Taking the first step toward buying your home is both exhilarating and overwhelming. Before you dive too deep into the process, it is important to consider several factors. Buying a home will be one of the largest financial investments you make in your life, so you want to be well prepared for the adventure ahead.

What is the best scenario for you - Renting or Owning?

As with anything in life, you'll find advantages and disadvantages to consider in regard to deciding if homeownership is the best option for you. It's important to look at both the rewards and realities of homeownership before you commit. Should you stop renting and buy a home?

Renting Versus Owning

The Rewards of Homeownership

Invest in your future

Your monthly mortgage payments are not going into the pockets of a landlord. Instead, with each payment, you build equity in your home and contribute to your own long-term, personal investment.

Lighten your tax load

You will find homeownership opens up a world of potential tax savings*. Typically, the interest paid on your mortgage is tax deductible which can provide significant financial relief. To discover all the possible tax advantages available to you upon purchasing a home, it's best to consult with a trusted tax advisor.

Develop your credit further

Homeownership is one of the best investments you can make. Additionally, making monthly mortgage payments on time will further improve your credit history and help you with future investments.

Remove questions

When you become a homeowner, your monthly payments are no longer subject to increases by the renewal of a lease and the discretion of a landlord. This will help you make a long term budget plan and remove variable factors in your future financial decisions.

Make it your own

With the only potential parameters being homeowner association guidelines or city codes, you are able to remodel, renovate, and redecorate according to your own personal tastes. You are free to make your home your own - however you see fit.

*Everyone’s tax situation is different. Please consult a professional tax advisor.

The Realities of Homeownership

Know the numbers

There are many significant homeowner costs to consider, such as, a down payment, property insurance, property taxes and maintenance and home improvement. As a renter, some or all of your utilities may have been covered and your landlord was ultimately responsible for maintenance. This is no longer the case when you are a homeowner. Any repairs or other routine maintenance required on the home will be your responsibility.

Stay put

Owning a home is a long term investment and deciding to move out does not remove your financial responsibility as the home owner. Plus, the process of selling a home can be a time consuming and costly endeavor. It may not happen as quickly as you would like or hope. On the other hand, renting provides flexibility. You have the option to renew your lease (or not) and you suffer only minimal penalties if you decide to break the lease prior to the time of renewal.

Be realistic

The housing market is perpetually unpredictable. While the hope is that the home will appreciate in value over the time of ownership, this is not always the case in every market. If and when the time comes to sell your home, be prepared for whatever condition the market might be in at that time. Housing prices could be down, the market may be slow, and the home may have depreciated in value. Owning a home is typically a sound investment, but it provides no guarantees.

Who Do You Need On Your Team?

Buying a home can be an intimidating process, but if you surround yourself with the right team of professionals they can guide you towards reaching your dream of homeownership.

Loan Officer

The best way to start your home search is to find a trusted and experienced Loan Officer – Like the ones you will find here at Grand Home Loans! With just a little information from you, your Grand Home Loans Loan Officer can help you get prequalified for a loan. Making it much easier to calculate a housing budget that will serve as a well-grounded foundation for your house hunt.

Your Grand Home Loans Loan Officer is your best resource for mortgage industry related questions. When determining the best loan program for your individual situation, investigating how much of a down payment to make and calculating your closing costs, this is who can answer your questions and who will be there for you.

Real Estate Agent

Understanding the real estate market can be a challenge, especially since it is incredibly dynamic and constantly changing. A knowledgeable real estate agent can provide valuable insight into the complex world of real estate.

You'll want to find a real estate agent who is aware of local information, as well as your personal needs. You will benefit from a real estate agent who is familiar with the neighborhoods and local school systems where you'll be looking, and who is up to date on recent sales and comps.

Real Estate Attorney

Buyers in certain areas and specific complicated situations may find it necessary to hire a real estate attorney. Involving legal counsel in the real estate transaction can further confirm that the contracts of the transaction are legally sound and meet all governing stipulations and requirements. It may be best if any unique or specific additions to the agreement are provided or refined by a lawyer specializing in real estate. Ask your real estate agent if bringing on legal counsel for your transaction is advised.

Professional Tax Advisor

To get a better perspective of the tax deductions that might be available to you in your specific situation, you can consult with a professional tax advisor. He or she will be familiar with the most recent laws and changes and will help you approximate potential tax savings. The information this professional can provide will help you know which of your mortgage expenses will be tax deductible.

Be Prepared

The best way to begin the home buying process is by being prepared. To do this, you'll want to consider all aspects of your finances and determine the current status of your savings, credit, debt, and income. All these elements set the stage for you to begin the buying process.

Your Down Payment

The amount you may or may not have available for a down payment will be one major deciding factor on which mortgage program best suits you.

In today's environment, there tend to be more opportunities available for those buyers who are able to provide a larger down payment. However, even if you may not have the funds available for a substantial down payment, you can still find loan programs that allow a low or no down payment option.

To prepare yourself to contribute a down payment towards the purchase of your home, there are a few simple things you can do:

  • Spend Less: Although it may seem obvious, by avoiding some of the large ticket, unnecessary items, you'll find more of your financial resources available to put towards a down payment. It's a good time to start distinguishing between your wants and needs in regards to your purchases.
  • Put Some Aside: Contact your Human Resources Department and look into their direct deposit option. Look at your monthly budget and determine how much you could safely afford to have directly transferred from your paycheck into a savings account.
  • Be Realistic: No matter how much you desire to purchase a home and how excited you are to move forward in the process, be sure that the efforts you make towards saving for a down payment don't hinder your overall goal -- purchasing a home. As you look at your monthly expenses and income, be realistic about how much you can truly afford to set aside. Don't do too much today and hurt your dreams for tomorrow.

Your Monthly Payment

Another concern will be which loan program fits your needs and how to structure your monthly mortgage payments. Before moving forward, you'll want to consider those items that make up your monthly payment and the factors that influence them.

Typically referenced as PITI, your monthly mortgage payment is comprised of Principal, Interest, Taxes and Insurance (PITI).

The initial amount you borrow to purchase the home and the remaining outstanding balance throughout the life of the loan is the PRINCIPAL.

The charge for borrowing money is the INTEREST.

Collected in an escrow account, your TAXES are assessed by your local government and typically paid to your lender as a portion of your payment. The lender will then pay them to the government upon their due date.

Established in a similar fashion as your taxes, INSURANCE is collected by the lender and put into an escrow account. Your insurance is composed of two prominent types of coverage. Homeowner's insurance provides you coverage for damages inflicted by hazards such as (but not limited to) wind and fire. Mortgage insurance is typically required for those making a smaller down payment on their loan; it provides protection for your lender in the instance that you are not able to fulfill the mortgage requirements and repay your loan.

Your Interest Rate

One of the issues that most concerns homeowners is their mortgage interest rate. This is for good reason as the interest rate directly affects the monthly payments for the life of the loan. Because of this, homebuyers search for steps they can take to obtain the lowest rate available.

Contributing factors to the interest rate include whether the homebuyer decides to:

Special Considerations

The final decision that you and your Grand Home Loans Loan Officer reach about your loan program is also affected by other special factors.

  • If your credit history reflects large amounts of debt, foreclosure, bankruptcy, and/or other credit challenges, you will need to pay attention to the loans that are available with flexible qualifying criteria.
  • If your loan amount exceeds Fannie Mae's and Freddie Mac's conforming loan limits, it will be classified as a jumbo loan.
  • If the loan is insured by the Federal Housing Administration (an FHA loan) or by the Department of Veterans Affairs (a VA loan), you will have the opportunity to pay a lower down payment as well as have more flexible qualifying criteria. To be eligible for a VA loan, you need to be a veteran or currently serving in military active-duty.

These special factors don't exclusively determine which loan program is best for you, but they definitely contribute to reaching the best decision.


Getting Prequalified

Just like you wouldn't dive into a pool without knowing how deep it is, you wouldn't want to house hunt without knowing how much you could afford. That's why once you have decided buying a home is your best option and you've examined what your finances will allow, it's a good time to talk with your Grand Home Loans Loan Officer about being prequalified.

Why Bother?

Knowing how excited many homebuyers can be, it can seem frustrating to add a step before the house hunt. However, there are several advantages to being prequalified that can make it worthwhile.

  • Credit challenges or problems that might prevent qualification are discovered and addressed early in the process.
  • You will be able to house hunt with confidence knowing the financial backing that is available to you.
  • Home sellers typically see more strength in offers from prequalified buyers.
  • For self-employed or commission-based buyers, a prequalification letter can demonstrate financial backing. For buyers whose incomes may fluctuate more than those of salaried buyers and therefore possibly demonstrate more risk.
  • Prequalification letters show that the lender is willing to move forward with the loan for first-time homebuyers even though they may lack a credit history that demonstrates their ability to make monthly mortgage payments. It helps equalize their offer with similar offers made by previous homeowners.
Finding Your Home

When you feel that the time is right and you’re ready to start your search, be sure to make a list of everything you want and need in home and neighborhood.

Choosing a Neighborhood

As you consider your housing choices, also strongly consider your neighborhood options. The neighborhood you live in is as important as the house itself.


Is it important that you live close to work? Keep in mind short commutes limit your neighborhood options.

Your Personality

Do you prefer country, suburban or urban living?


If you have children, is the neighborhood in a good school district? Do you need to live near other family members?

Outside Involvements

Do you want to live close to your church or temple? What entertainment venues are nearby?

Future Zoning and Development

Is the park behind your house going to be developed in the future? Does this community have plans to build a large attraction of some sort?

Neighborhood Age

What will the neighborhood look like in 10 years? Are you satisfied with an older neighborhood? Are you content with potential changes your neighborhood could make?

Time of Day

Does the neighborhood feel the same at night as it does during the day? Is weekend traffic heavier than during the weekday?

Extra Costs

Can you afford the county or city taxes or any homeowners association fees?

Homeowners' Associations

What are the homeowner’s association rules? Are they good for protecting home values?

Neighborhood Investment

Have the homes in this neighborhood held or increased in value?

Talk to the people who live in the neighborhoods in which you are interested. These individuals will know the most about the area and are your potential neighbors. More than anything, you'll want a neighborhood where you feel at home.

Choosing the Type of Home You Want to Live In

Type of Housing

While there are a good number of housing styles out there, each one provides unique features. The type of house you choose will depend greatly on your lifestyle and personal goals.

Single-Family Home

With the purchase of a single-family home, homebuyers acquire ownership of the home as well as the surrounding lot. All maintenance expenses and property taxes would be the homeowner's responsibility. Of all housing choices, this one typically provides the most privacy and flexibility.


In purchasing a condo, the buyer owns the areas within the walls of the living space but not the surrounding lot of land or building. Typically, a condo is governed by guidelines from a homeowner's association. These associations require monthly dues or annual fees (which are not tax deductible). In turn, the condo owner does not hold sole responsibility for repairs and maintenance to the unit and has access to property management services. Condo units are evaluated individually to determine property taxes (which are the condo owner's responsibility and are tax deductible*).

Planned Unit Development

Also called a PUD, a Planned Unit Development is structured so that the buyer not only owns the house and the surrounding lot, but the person also purchases and owns a portion of common space that is shared with others that live in the development. These common areas are maintained through the homeowner's association. As with condos and co-ops, these fees are not tax deductible.*

*Please consult with your tax advisor or attorney to discuss your specific situation.

Choosing the Features of the Home

What features in a home are important to me?

Before you begin your search for a home, make a list of all the qualities you want in your home. Things like paint or new carpet are easily changed before or after you move in. Look for features that are already part of the home’s construction and design. Think about:

  • Would you like a one or two-story home?
  • How many bedrooms would you like? Will that change in the future?
  • How many bathrooms do you need?
  • Do you need a garage?
  • Do you want a big yard or a small one?
  • Do you want a pool?

How to apply for a Home Loan

To begin the application process, we need to collect a variety of information that will help us to determine what type of loan will best suit your needs.

Grand Home Loans has provided a borrower required document checklist to make it a little easier on our customers when collecting the documents necessary for applying.

Documents Needed For All Loan Applications

All Borrowers:

  1. Copies of W-2's for the last two years;
  2. Copies of the two most recent pay stubs showing year-to-date earnings;
  3. Copies of checking and saving account statements for last three months (all pages);
  4. Copies of quarterly or semi-annual statements for checking, savings, IRA's, CD's, money market fund, stock, 401k, profit sharing, etc.;
  5. Copy of sales contract when ratified;
  6. Employment history for the last two years (address any gaps of employment);
  7. Residency history over the last two years, with name, phone number, address and account number of Land or mortgage company; for rental property copies of leases;
  8. Canceled earnest money check when it clears or corresponding bank statement, if applicable;
  9. Check for the expense of appraisal & credit report if required;
  10. Refinance copy of note, deed of trust, settlement statement, survey, and insurance information;
  11. Documentation of any assets used for down payment, closing cost, and cash reserves;
  12. If paid off mortgage in the last 2 years, need copies of HUD1;
  13. Copy of driver’s license for applicant and co-applicant.
  14. Copy of Social Security Card for each applicant and co-applicant(s);
  15. Copy of your past two years’ tax returns.

Self-Employed Borrowers:

  1. Copies of most recent 2 years tax returns (with all schedules including k-I's if applicable);
  2. Copy of current profit & loss statement and balance sheet;
  3. Copy of corporate/partnership tax returns for most recent 2 year period if owning 25% or more of company -- copies of W-2's and/or 1099 forms.

Documents Which May Be Required:

  1. Relocation Agreement if move is financed by employer, i.e. buyout agreement plus documentation outlining company paid closing costs benefits;
  2. If you’ve had a previous bankruptcy, bring copies of petition for bankruptcy and discharge, including supporting schedules;
  3. Divorce Decree (if applicable);
  4. Documentation supporting moneys received from social security/retirement trust income, i.e. copies of direct deposit bank statements, awards letter or other evidence income will continue.

Documents Needed for FHA/VA Loans:

  1. FHA: Copy of Social Security Card and driver’s license for each applicant and co-applicants;
  2. VA: Original certificate of eligibility and copy of DD214 discharge paper;
  3. VA: Name and address of nearest living relative

So you've found your dream home and now you're ready to buy it. Here's how to take those next steps that can make that home yours.

Extending an Offer

Purchasing a home is one of the few transactions that involves heavy negotiations. A real estate agent is a valuable resource to have on your side as you determine the appropriate initial offer to extend. During this portion of the process, you'll want to consider the following:

  • To demonstrate the strong financial backing and genuineness of your offer, you'll want to have the prequalification* letter from your Grand Home Loans Loan Officer ready. Sellers obviously prefer an offer with financial security.
  • Facilitate all your negotiations in writing. This will provide a record of deals and decisions made as well as help clarify any misunderstandings.
  • To demonstrate the seriousness of your offer, you'll want to have money ready to use as an earnest money (or “good faithâ€�) deposit. While the amount varies depending on your location, all of it will be placed into an escrow account until the purchase transaction is complete.


As you come to the closing stage, you've entered the final stretch. At this point, you'll want to be sure to you cover a few things:

  • Go over the loan commitment with your Grand Home Loans Loan Officer and be sure you understand your loan's rate terms and the additionally established requirements and details.
  • Obtain homeowners' insurance and, if required, flood insurance.
  • Using your loan commitment and purchase agreement as guides, set a closing date and time.
  • Verify with the closing agent or attorney that a property survey was ordered.
  • Prepare to move.
  • Do a final inspection of the home you are about to purchase.
  • Confirm that you have met all the guidelines and conditions in the purchase agreement established by the seller.
  • Bring the total you owe in closing costs, in the form of a certified or cashiers' check, to your closing appointment. Typically, personal checks and/or cash are not accepted.

The Purchase Agreement

A legally binding contract between the buyer and the seller of the property, the purchase agreement outlines all terms and features of the final transaction. This can include:

  • The property address and legal description
  • The sales price, the loan amount, the down payment and deposit
  • The names of all parties involved, including the buyer, the seller, the buyer's agent, the seller's agent, the mortgage broker/banker and any attorneys
  • Time limits that might apply to the transaction
  • Any contingencies that must be addressed prior to the deal being complete and finalized (such as the sale of the buyer's present home, issues from the home inspection that might need to be repaired, etc...)

Because of special and unique features of every home transaction and the varying needs of each home buyer and home seller, purchase contracts are not exactly the same. A real estate agent, a title company or an attorney may assist in the negotiations and execution of a purchase contract; this is dependent on the state in which the transaction is being conducted.

*A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met.

Out of the entire home buying process, closing costs are often the least understood pieces. At Grand Home Loans, we will take the time to address your questions and guide you to answers.

What to Expect at Closing

Closing Costs

Although they tend to vary from lender to lender, closing costs are generally considered any costs tied to the purchases of a new home. Today, these costs range from 2 to 7 percent of the home's purchase price and include three basic categories:

Prepaid Expenses

Prepaid expenses include homeowner's insurance, mortgage insurance and the costs to set up an escrow account. An escrow account is when a lender will pay the annual insurance premiums and various taxes on the borrower's behalf. The amount that goes into this account is based on the first year's premiums. An additional amount also is included to pay for future premiums. Prepaid expenses are difficult to determine because they vary based on the type of property and the time of the closing.

Mortgage Points

A mortgage point is equal to 1 percent of the mortgage loan amount and actually helps reduce the loan's interest rate. For example, depending on prevailing rates, a $100,000 mortgage might be obtained at 7.75 percent with 2 points, or at 8.25 percent with no points. Obtaining the lower interest rate would cut the mortgage payment by about $35 a month, but would require $2,000, or 2 points, up front at closing.

Out-Of-Pocket Expenses

Fees for appraisals, attorneys, credit reports, deed recording, tax services and other miscellaneous expenses make up the out-of-pocket expenses. Usually performed by a third party, these fees for services are directly charged to the borrower. The majority of out-of-pocket fees are necessary and legitimate. However, if the borrower encounters a fee that causes confusion, he or she should ask the mortgage professional about it.

Purchasing a home is one of the largest financials investments you can make. It's vital that you understand it fully and completely so that you avoid unwelcomed surprises and are confident in every step you take towards your new home.

Steps in the Closing Process

The closing can be held at the title company, your lender’s office, a real estate attorney’s office or another location, depending on the situation.

What you can expect:

  • You’ll review and sign all of your loan documents. Be sure to take your time. Make sure each document is explained clearly, and you understand the terms you’re agreeing to. If something is different than what you expected or agreed to, don’t sign until the issue is resolved to your satisfaction.
  • Your lender will distribute (wire) the funds covering your home loan amount to the closing agent.
  • Depending on your loan terms, you may be required to set up a new escrow account with your lender that will be used to pay your property taxes and homeowners insurance as part of your monthly mortgage payment.

Don’t forget that if you have any questions or concerns you can always contact your Grand Home Loans Loan Officer and they will be happy to explain everything.

How can a Mortgage Calculator help Me?

The exciting experience of buying a new home can also be a stressful one. At Grand Home Loans, we want to be there to guide you and put your mind at ease. That’s why we have developed a comprehensive set of online home loan mortgage calculators to help you predict your monthly mortgage payment and ensure that you choose the loan that is right for your unique situation.