Is the first step to buying a new home looking for one?
Answer this: when you shop for a car, do you start by looking at several hundred vehicles? Probably not. You likely do your research, find statistics and reviews, determine what you can afford, and then you go test drive. A home is a much bigger investment than a car, so more research and financial planning should be considered prior to walking floorplans, touring models and available homes. This article goes on to discuss those initial steps a new home buyer should take before searching the home market.
So, where do I start?
The best way to start is to determine your affordability in the home market. Answer for yourself: how much home can I actually afford? You can use Lennar’s home affordability calculator to get a quick estimate of your purchasing power, even narrow down your search to a specific Lennar community. For a more in-depth impression though, you should see a loan officer for pre-qualification. You can get pre-qualified in as little as 15 minutes with the digital mortgage tool from Eagle Home Mortgage, Lennar’s trusted lending partner.
What is pre-qualification? This is the initial step in the mortgage process. You supply a lender with an overview of your finances, including your income, assets, and debts. In return, the lender provides you with an estimate of how much money you may be able to borrow. It is not until you are issued a pre-approval letter that you know how great a loan you actually qualify for to borrow. More on pre-approval later though.
While you are with the lender, use the opportunity to go over questions, understand how the components of your financial history influence your borrowing power, and maybe even find out which components can stand improvement and how to improve them. Keep in mind though: a lender pre-qualifies you based on the information you provide them. If you leave out anything pertinent, the qualifying estimate may be inaccurate. Ask your lender prior to your appointment what details are necessary and what type of documentation is acceptable.
A loan, as well as any interest that gets tacked on, are influenced by several factors. These include your debt, credit score, and down payment. Let’s start with debt. The lender should look at your debt-to-income (DTI) ratio, which is a measure of your debt, including future mortgage payments (and other home costs), to your gross monthly income. This figure is expressed as a percentage. A ratio of 36% or less is often preferred by lenders. No more than 28% of that should be your mortgage dues. Some loan options will accept a higher DTI ratio; but you might avoid higher interest rates if you knock out as much debt as you feasibly can before filing a loan application.
Next, the lender may review your credit score. Your credit score is a three-digit number between 300 and 850 that assesses your creditworthiness. If it is too low, a lender may think you are at a higher risk of defaulting on the loan. To default means you fail to make your monthly mortgage payment and fall behind. There are loan options for credit scores as low as 500, but there are often terms to offset the risk. Click here to learn more about credit scores and loan options. You are entitled (upon request) to a free copy of your credit report once a year at AnnualCreditReport.com. If you have your credit report, you and the lender can identify the negative components of your credit history that make your credit score so low; then, you have the option to address those issues and raise your score before taking out a loan.
Finally, the lender might ask how much of a down payment you plan to make on a new home. The rule of 20% or more is actually a myth, and you can click here to learn the loan options for a smaller deposit. It cannot be argued that more money down means the less money you have to borrow. Everyone can appreciate that. A smaller loan can also come with lower interest rates, and you may not have to pay private mortgage insurance (PMI). Should you decide to fix your debt and credit score, perhaps you can use that time to save for a bigger down payment as well.
So, I get pre-qualified. What then?
If you are in a good place to take out a loan, then your next step is to get pre-approved. Pre-approval is a more in-depth review of your credit history and credit worthiness, completed by an underwriter, and gives you a more concrete idea of how much money you can borrow and how much home you can afford. When you are pre-approved, you will receive a letter of pre-approval which you can then present to a seller when you make an offer on a home. This letter shows you are a serious buyer with the funds to complete a home purchase.
What comes after pre-approval?
Arguably, your next step could be looking for a home; however, we will inject a sub-step here: Make a life plan. Make sure the events of your life line up with where you want to live. Ask yourself these questions: Do you plan to marry? If you are married, will you have kids? Are you satisfied with work, or would you take a new job and relocate? Could you move for other reasons, such as being closer to family? Do you want to live in the heart of the city, in the suburbs, or somewhere close to the countryside? Once you know these answers, you can decide where you want to live and how big a home you want to own.
I have a plan. So now…?
Yes! You can start looking for a new home!
At Lennar, we have Internet Sales Consultants (ISC) and New Home Sales Consultants (NHC) who can answer your questions, walk you through the steps of a Lennar new home journey, and send you available listings, prices, and other information. Our NHCs operate out of our Lennar new home communities and office at our Welcome Home Centers (WHC). They can lead you on a tour of our models and available homes, show you the community and its amenities, and go over the Everything’s Included® features of your new home.
A few more search tips: when you visit a Lennar community, ask current residents what they like most about living there. Get to know them and a sense of the community itself. What amenities do you like? Is it nearby a desirable school district? What about food and dining options, recreation, shopping, transit, and other necessary services – are those close by? Finding a new home is not just about the home itself; it is also about where the home is and if you will be happy there.
Finally, leave yourself open to options. If one home becomes unavailable, maybe there is a second home you love that is still for sale. Some Lennar floorplans may be available in more than one community, and our Consultants will gladly help you find them or discover other plans that meet your new home needs and wants.
In conclusion…
Looking for a new home can be fun, and certainly buying a new home is exciting. At Lennar, we want you to feel confident and satisfied with your new home purchase. When you are ready to discover your buying power and get approved for a loan, reach out to a professional loan officer from Eagle Home Mortgage. Eagle can provide the most appropriate loan options to suit your new home needs.
Our ISCs and NHCs are always ready to help you find your new dream home. Search the Lennar website, browsing our market and community pages, till you find a floorplan or available home (also called a quick move-in home) you like. Our ISCs, or the NHCs operating out of that community, will gladly schedule your visit at a day and time that work best for you. Happy home hunting!
Additional Sources
Pre-qualified vs. Pre-approved: What’s the Difference? by Eagle Home Mortgage (November 2017)
Documents Needed for a Mortgage Preapproval Letter: A Checklist by Marilyn Lewis (December 2006)
First-Time Homebuyer Guide from Eagle Home Mortgage
