This post has been a long-process in the making!! I wanted to create a thorough – all inclusive guide to buying a home and securing a loan that helps make clearer a process that can be confusing and intimidating to most! Here, I will walk you through the process WE went through on our first home (which was new and confusing at the time! But was A LOT clearer this second time around because of what we learned the first time!) I also have asked for Capitol Federal’s expert advice on some of YOUR questions that you sent me!
1. Finding a realtor
Before we bought our first home in Brookside, we were newbies to the process of buying a home (obviously!). When Brandon and I realized that we were ready to make the big investment and move out of our little apartment, we started by finding a real estate agent that could help us through the process. Brandon's family lives in Kansas City, and so it made sense to us to ask his parents for some guidance in picking an agent. We decided to go with Steve Johnston with Reece Nichols: the agent that his parents had used for their homes they had purchased and sold through the years. Steve was helpful in guiding us through the process of buying and answering any questions that we had along the way! A few additional notes on selecting a knowledgable and reliable realtor:
Comps (Comparable homes) are critical in understanding the value of a home in your area. A seasoned realtor (and appraiser) will not only understand how to gather all the appropriate comps, but also may have bought/sold some of them for clients! In our case, Steve had transacted numerous homes in the neighborhood we were looking at and understood the value of additions that were made to the home relative to those done in the area.
Brand reputation of a realtor is important only insofar that you want to make sure that their organization is credentialed and perhaps has been referred to you by one or two others who had transacted with them.
Trust that the realtor is doing everything they can to represent your interests. This not only includes selecting a home, but also the recommendations they make in selecting partners like the mortgage company, inspectors, home repair companies. They’re the quarterback of your home-buying team, place your trust in them or quickly move on and find someone who you can fully trust.
2. Choosing our mortgage team
For us, we depended on our realtor to recommend a lender that he had experience with and knew would be reliable in making the process as smooth as possible. Steve recommended Capitol Federal and spoke highly of their mortgage team from our very first conversation on home-buying. He put us in touch with our lending consultant, Tom Rosberg, (who happened to also work with Brandon's parents in the past) who let us know that the best first step in our search for a new home was to get pre-approved. From our first conversation, Tom made sure to understand that we were first-time home buyers and provided ample advice from start-to-finish.
Just a note on Capitol Federal and other features that have made us happy customers!
CapFed is a leading mortgage lender in the Kansas City area. Their number one goal is to make it an easy and worry free experience from application, through closing and the life of the loan. CapFed keeps the servicing local on all conventional loan products. Borrowers can easily make their payments online or in person. Also, if servicing questions should arise, such as, “What do I do with my hail damage check?”, you know you can call or come into a branch to walk through the process with experienced staff. Working with an online lender may seem intriguing, but when buying or refinancing a home, you want to work with a local lender who has the experience and the confidence to get you to the finish line on-time with no surprises!
3. Getting Pre-approved
Pre-approval was something of a fire drill for us because we had finally found a home that we both loved in Brookside and wasn’t aware that in order to start the process we needed a letter of pre-approval from our mortgage company! This letter is critical because the bank will look at your assets and debt-to-income ratio to make sure that you’re a qualified buyer AND you’re not getting into a home that’s out of your budget. This process can cause anxiety for those unprepared for the process, but in all actuality we had been saving money and making sure our major debts (credit card, student loans etc.) were paid down before entering the home searching process. From that point, we called Tom and he gathered some of the fundamental financial information to get us started listed below:
Social Security Number
Proof of Employment – a recent month’s pay stubs will do
Proof of Income - likely in the form of a W-2; can include spouse if married
Tax returns for two years - Easy to get from accountant or from your accounting software
Places of residence - Typically up to two years
Bank account information - Snapshots of checking accounts & financial accounts
Estimate of monthly expenses – the lender will pull your credit report to help verify
Purchase Agreement - Your realtor can provide this if you’ve prematurely entered into a purchase agreement with the seller
While this may seem like an overwhelming amount of documentation, it’s the stepping stone needed for the bank to ensure that you’re a serious buyer and helps get all the necessary mortgage documents in place early (trust us, this pays off later when there’s more documents to file). Fortunately, Capitol Federal will set you up with their online portal that makes it easy to upload documents and see the list of additional documents. Tom’s team at Capitol Federal were spectacular (shout out to Aaron Ridenour!) and assisted us when more documents were needed or something was amiss. Once all documents are completed, the bank will run an analysis and will get you your letter of pre-approval within 24-48 hours! At this point, you’ll be in great shape to pursue your dream house you’ve found (as in our case) or start your home search.
4. Tour homes in your price range.
Now for the fun part, that can make or break a relationship. Fortunately, we were very aligned in what we were looking for in a home once we knew our price range -- bright light, high ceilings, character and walkability to a town/city center were all critical to us. We had no kids (just our 2 year old pup, Mochi!) at the time, but knew that we would likely have at least one kid in the home, so multiple bedrooms and a tub were also important. Brandon had grown up in Kansas City and had taken me down to the Brookside area on bicycle and motorcycle (wild, I know) because it still had all the charm and the homes were roughly what we were looking for. On a gorgeous Sunday, we were meeting up with some friends for brunch in Brookside and happened across a home that had just come back on the market after the initial offer fell through. We immediately called the seller’s agent and our buyer’s agent and toured the home, falling in love almost immediately.
The home was in our price range and we went through several days of white knuckle negotiation with the help of our realtor. After 3-4 back-and-forths, we thought our final offer was going to come in too low, but in the final hour, they accepted our offer! While it was slightly above what we wanted to land on, we knew that we could negotiate further during/after the inspection period. This is critical to understand -- just because you settle on a particular price, you can still negotiate further after the inspection to have particular work done on the home. While seller’s typically won’t agree to upgrades, they will agree to bringing the home up to a certain standard. This could include removing trees, foundation work, electrical work, plumbing and an assortment of other home-related elements. This process can take a few weeks, but it’s worth addressing up front because once you take possession of the home, all those issues become yours! So remember to negotiate both the price, but also realize you’ll have some negotiating leverage after you’ve had your inspector come (inspectors are typically between $200 - $1000 depending on the size/uniqueness of the home).
After negotiating price and the work-to-be-done post-inspection, you’ll want to set a close date that lines up with you moving out of your apartment or other living arrangement. We happened to be living in an apartment and had about a two-week overlap between our home close and our apartment move-out. While we had to pay two weeks of rent plus the mortgage, it turned out to be a blessing in disguise as we were able to take our time moving and do some cleaning/painting before moving in completely. But let’s rewind for a second because now we needed to look into our mortgage!
5. Locking in interest rate/ deciding what type of loan to get
Capitol Federal is a community bank with many locations in Kansas City and they deliver both a professional and personal touch. Tom proved to be very understanding of our situation as first-time home buyers that were budget conscious and naive in this whole process. When determining the length and type of loan to get, he made a great point for us to consider -- At 28 years old, this will be a great starter home and likely not be our final home. We also bought in 2016 when interest rates were unbelievably low and variable-rates were even lower than fixed-rates (more on this later). Back when our parents were buying homes, mortgage interest rates were sometimes 10% and up to even 15-18%. We are in an environment today where loans are regularly under 5% (for well-qualified buyers) and even as low as 2.875% for a 7/1 Adjustable Rate Mortgage (ARM), which is what we ended up going with at the time in 2016. Relatively, the fixed-rate was somewhere around 3.30%, so the few additional points difference really affected our monthly payment!
In regards to the down payment, it’s typically best to put down as much as possible up-front. Since we had some home projects to do that required capital on-hand, we put down 5% less than the suggested 20% down payment (20% of your total mortgage is required by most banks to avoid Private Mortgage Insurance (PMI) which can be a few dollars to a few hundred dollars per month extra), but the offset in interest made our total monthly mortgage payment completely manageable within our budget. To eliminate the PMI, we ended up allocating our bonuses or other influxes of cash to paying off higher chunks of our principal (Capitol Federal does not penalize you for overpaying or paying off your loan early!) and thus getting to 20% quicker.
Capitol Federal has a great program that allows you to ‘lock-in’ your rate on a particular day but give you the difference if rates go lower at the time of your close. This is incredible, particularly if you have a difference of a few months between your rate lock-in and the close date since sometimes the Fed will lower rates to encourage economic spending and home buyers to enter the market. We benefited from this and hope you will too!
Once we selected the 7/1 ARM at 2.875% and secured our 15% down, we were able to work with Capitol Federal on the remaining documents and signatures required for the mortgage. Additionally, Capitol Federal secured our appraiser for the home to get the value assigned, which happened to line up exactly with what we bought it for. This is typically the likely scenario as you wouldn’t want to pay over the amount a house is worth and, while it’s nice to have the appraisal come back higher than what it’s worth, it typically will change as the market evolves and you do work to the home in the coming years. Kansas City typically doesn’t realize extraordinary gains in real estate, but it also doesn’t have huge downturns either. Furthermore, when we analyzed Brookside, we found that most all of the homes had realized a rise in value over several decades and would continue trending that direction if we took care of the home, made modest upgrades and didn’t realize another full-blown economic meltdown. We knew this home was in a desirable area and within the 3-7 years that we planned on being in it, hopefully the value would continue to increase.
Ah yes, finally closing day. We’d gotten pre-approved, toured homes with our realtor, negotiated the price and post-inspection work, completed the mortgage application and prepared for our move. With so many moving pieces, it was phenomenal having a partner like Capitol Federal to help keep us on track during the process and make the final closing day go smoothly. And by smoothly, I mean, smooth like peanut butter. On our scheduled date and time, we arrived at the Capitol Federal office in Overland Park to the smell of hot coffee and cookies. The keys to our new home felt just around the corner! First, we had to get through a mountain of paperwork, but fortunately, the loan closer and our realtor were there to help guide us through every page and every signature. Just looking at the paperwork, it looked like it would take a whole day to get through! With the great folks at CapFed, we were in and out in under an hour and a half. After our wire transfer went through, we finally took possession of the house and could call it our own!
Working with Capitol Federal has been the greatest experience of our home buying life. We’ve heard horror stories around the home-buying/selling process but, fortunately, our story couldn’t have been better. From friendly and informative people like Tom Rosberg, to the rockstar Loan Originator, Aaron Ridenour, we were guided through our first home purchase with ease. (To contact Tom, click here.) We’re thankful for our Reece Nichols realtor, Steve Johnston, who put us in touch with Tom and Aaron at CapFed. Without them, I think we’d still be millennial renters dreaming about the American dream. We loved them so much, we went back to them for our new home.
Now for some of YOUR questions answered!... A few weeks back, I had asked for any of your questions that you had about buying a home/ the mortgage process. I asked CapFed for some of their input and advice on these so you are getting these answers straight from them!
How far in advance should you get preapproved before looking/buying?
Capitol Federal: The preapproval process can take 2-3 weeks depending on the applicant’s scenario, so Capitol Federal recommends applying as soon as you know you are interested in buying a home and before you start actively looking in person. (this is something we didn’t know when buying our first home!) You really want to make sure you have that preapproval letter in hand when you start going to open houses. With homes selling quickly, it’s good to have the bargaining power already with you so you can make an offer with confidence. Once a real estate contract has been executed, the rest is easy! The lender will order the appraisal on the home, which generally takes 1-2 weeks to be completed and the loan can be closed soon thereafter. The lender sends several closing documents in advance to ensure any questions are answered prior to closing.
How did you get a down payment before selling your house? (For those of you who followed along in our home buying process in real-time - we had our offer accepted BEFORE we even had our house on the market. HOWEVER, we did not close on our new home until we first had closed on our previous home.)
Capitol Federal: If your down payment is from the equity in your current home, it is usually best to have it sold before closing on the new home, so you are not having to make house payments on both homes at the same time. Bank regulations have “affordability” criteria to follow now which may limit how much an applicant’s monthly obligations can be, so some may not qualify making two house payments. If qualifying for two house payments is not an issue, one way to use the “equity” in the current home is to also apply for a “swing loan” or “bridge loan” where the bank advances the equity on the current home to use on the purchase of the new home. These are typically short-term, interest only loans, meant to be paid off when the current home sells. The bank will include the current home payment, the new home payment and the swing loan payment when calculating qualifying debt ratios, so having a back-up plan such as a gift from relatives is something to think about.
How do you know how much you can afford?
Capitol Federal: The easiest way to know what you can afford is to talk to a mortgage loan professional. A “prequalification” process can answer typical questions regarding how much home you can afford or what the typical closing costs will be. A “prequalification” is typically free, however, the information provided by the applicant is not verified, so it doesn’t provide the same amount of assurance to a realtor or seller as a fully verified “preapproval” does. Preapprovals are preferred.
How do you know what type of loan is best for you?
Capitol Federal: Each borrower’s needs can be different. Asking yourself where you think you will be in 5-7 years is a good place to start. (This is exactly where we started on our first home in Brookside, since we knew it wouldn’t be our “forever home”.) If this is your forever home, a fixed rate loan might help you feel comfortable knowing your principal and interest payment will not be increasing over the life of the loan. If this is a starter home, or you work for an employer that relocates employees from time to time, an adjustable rate loan might be something to consider. The interest rate is typically lower than a fixed rate loan for the first three, five, or seven years, depending on the loan product offered. If the borrower is selling prior to the time the interest rate adjusts, then the borrower gained the benefit of the lower rate for the duration of owning that home.
FInally! I want to thank Capitol Federal for all their help navigating our home loan process - and for taking the time to help answer some of your questions!! If you are in the looking-for-a-new-home process and have ANY more questions for me on our personal experience, as always I am happy to help!
*This post is sponsored by Capitol Federal®.