Official Site of The State of New Jersey
Buying a home is a big step and it can be hard to know where to start. New Jersey Housing and Mortgage Finance Agency (NJHMFA) provides a variety of programs to assist prospective homebuyers.
Homebuying Roadmap
A Detailed Walk Through the Homebuying Roadmap
STEP ONE • Become an Educated Homebuyer
- Buying a house is a big step – and deciding where to live is one of the biggest decisions you will ever make. Now is the time to prepare yourself with the necessary information that will enable you to make the right home purchase decision.
- Since this new home search will be both an emotional and financial decision, it’s best to take some time to review your finances. Be sure to consider the expenses involved in owning a home when outlining a budget.
- Here are some things you should be aware of:
Credit and Credit History
It’s no secret. Your credit history will affect your ability to obtain a mortgage for your home purchase. Lenders want to see a record of how you borrowed, and how timely you repaid money in the past. These money management habits are reflected in your credit score. Credit scores range from 300 to 850 and lenders believe that borrowers with higher scores are more likely to repay their loan.
Down Payments
You will need to make an investment in your new home, called a down payment, in order to obtain a mortgage. A down payment is the upfront portion of a home's purchase price that you pay out of pocket, with the rest financed by a mortgage loan, typically 3% or more thereby reducing the amount borrowed. It shows your commitment to the lender and reduces their risk, making you a less risky borrower. NJHMFA offers a down payment assistance program, which provides eligible first-time homebuyers with up to $22,000 of down payment assistance in the form of a five-year forgivable loan.
Mortgage Insurance
If you’re making a down payment that is less than 20% of the home price, your lender may require mortgage insurance. Mortgage insurance is an insurance policy protecting the mortgage lender in the event that the borrower fails to make their mortgage payments resulting in default. This type of insurance does not protect the borrower. However, this may assist you in becoming a homeowner as it allows homebuyers to put down less than a full 20% down payment.
STEP TWO • Fill Out the NJHMFA Lender Request Form
- NJHMFA works with a number of participating lenders that are authorized to take part in our homebuyer programs. Participating lenders will help you get the homebuying process started, take your mortgage application for both the first mortgage and down payment assistance, and provide guidance on the best program to fit your needs.
- Complete the Lender Request Form on the NJHMFA website by entering your contact information and answering a few basic questions.
- NJHMFA will pair you with three loan officers based on your location, contact preferences, and language. Only NJHMFA participating lenders that produce significant volume are included in the program.
STEP THREE • Work With Your NJHMFA Participating Lender
- Your lender will work with you to obtain a loan to finance the purchase of your home. The lender will walk you through the homebuying process, help you understand what you can reasonably afford, and be there to answer any questions you might have.
- Prior to finding your home, you may choose to get prequalified or preapproved for a mortgage:
Prequalification
This is a simple process which can be done over the phone or online, usually without cost. You supply a bank or lender with your overall financial picture, including your debt, income, and assets. After evaluating this information, a lender can discuss with you the mortgage types and amount for which you would qualify.
Preapproval
Completing this stage will help you stay realistic with your expectations while shopping for a home. You’ll know exactly how much you are able to spend, since a lender or bank will now perform an extensive check on your financial background and current credit rating once you provide the necessary documentation and fill out an official mortgage application, for which you will pay a fee.
The lender can then tell you the specific mortgage amount for which you are approved and the interest rate you will be charged on the loan. In some cases, you might be able to lock in a specific rate.
Armed with this information, you are able to show a potential seller that you are serious and when you make an offer, it’s with the understanding that you are sure it’s what you can afford. Being pre-approved could also prevent you from losing the home to another potential buyer who already has financing arranged.
STEP FOUR • Attend a Homebuyer Counseling Course
- The Department of Housing and Urban Development sponsors approved housing counseling agencies throughout the country to provide free or low-cost advice on buying a home, renting, default, foreclosure avoidance, credit issues, or reverse mortgages.
- NJHMFA requires homebuyers attend an education course conducted by a HUD-approved counseling agency.
- The counseling course is an easy-to-understand class exploring the various aspects of homebuying. The class will cover budgeting for a home, choosing a neighborhood, finding the right home, and learning the definitions of a variety of mortgage types and real estate terms.
- The course will also cover applying for a mortgage, down payment and closing cost requirements, credit, making an offer, the home inspection, preparing for closing, and post-purchase issues.
- Housing counseling agencies are staffed by counselors who are trained and approved to provide tools to current and prospective homeowners and renters that will help them make responsible choices that best match their housing needs with their financial situations.
STEP FIVE • Find a Home and Enter Into Homebuying Contract
- This is the fun part! Now that you know what you can afford, it’s time to start looking at houses. Keeping in mind that no single property will offer everything you want, the home you finally purchase should meet as many of your needs as possible, without overloading your monthly budget.
- Consider starting your search by creating a “wish list” of features and appointments that you consider absolute priorities for your day-to-day living.
- Your home’s location is one of the most important aspects to consider. Here are some questions to ask yourself as you weigh the pros and cons of choosing a location:
- How far are you willing to commute to work?
- How accessible is the home to highways or public transportation?
- How close are shopping, houses or worship, day care facilities, and recreation areas?
- What is the quality of the public schools and where are they located?
- When looking at prospective homes, also consider the neighborhood, the home’s exterior, interior floor plan, number of bedrooms and bathrooms, commuting distance to work and school, and the reputation of the schools and overall community. Be careful to consider the local environment, including the likelihood of flooding and other weather-related concerns.
- Once you are confident that your search has ended and you’ve found the home that’s right for you, it’s time to make an offer. After you make your offer, the seller may accept, reject, or counter it with a different price. If the seller counter-offers, you can then accept, reject, or counter that. When an offer is accepted, a purchase and sale agreement are written, spelling out the terms in specific detail.
STEP SIX • Loan Processing and Underwriting
- To assess fair market value of the home, your lender will order an appraisal. Additionally, you will need to submit documentation to verify your employment and financial standing.
- NJHMFA-required documentation includes:
- Three years of signed federal tax returns or three years of transcripts, 30 days of pay stubs, and two years of W-2s, are required with the file submission.
- Two months of bank statements are required, documenting all borrowers’ liquid assets. This is used to evidence the source of funds for down payment, closing costs, and any asset reserves required.
- Additional requirements or limitations may apply.
- After reviewing your application, your lender underwrites your loan. During underwriting, your lender will examine and confirm the information you provided, and evaluate your application against the eligibility criteria of the program before issuing a final sign-off of your loan application.
- Your lender will provide your completed, lender-approved loan application to NJHMFA for a compliance review. Once the compliance review is successfully completed, then your lender will be able to close your loan.
STEP SEVEN • Loan Closing and Move-In, Congrats, Homeowner!
- Within 24 hours of the closing, you should walk through the home to make sure it looks as you expected and is in move-in condition. This final inspection gives you the opportunity to see that the seller has moved out and completed all repairs agreed to in the sales contract.
- The closing is usually held at the attorney or mortgage lender’s office. A closing agent, escrow agent, and sometimes an attorney will be present. Be aware there will be many documents to review and sign. Make sure you understand what each one outlines before signing.
- At closing, you should expect to receive one or both of the following:
- Mortgage note
- The mortgage note is legal evidence of your mortgage and includes your formal promise to repay the debt. It also spells out the terms of the loan, along with penalties the lender can impose if you do not make your payments on time.
- Deed of trust
- This document gives your lender a claim against the house if you do not comply with the terms of the mortgage. It lists the legal rights and obligations of you and the lender, including the lender’s right to foreclose on the home if you default on the loan.
- Mortgage note
- Don’t be surprised when sometime after the closing, you are notified that your loan is being transferred to NJHMFA for “servicing,” which means NJHMFA will now be the collector of your loan payments. NJHMFA will purchase your loan from your lender and become the loan servicer.
- The NJHMFA down payment assistance program functions as a five-year forgivable loan. You must live in your home for a five-year period, without moving or refinancing, for the down payment assistance to be forgiven. Upon meeting the five-year requirement, you can email payoffs@njhmfa.gov or call 1-800-NJ-HOUSE (1-800-654-6873) to obtain a statement of satisfaction and have the lien removed from your home.