Obtaining a Mortgage in Another State

1. Do Your Research

Getting to know a new place from afar – especially one in another state – can be difficult, but there are several ways to research an area.

City Website

If you know what city you’ll be moving to, or have a list of areas you’re interested in, visit each area’s website.

There, you may find information on services, facilities and parks for resident use, parks and rec activities offered by the city, various services provided for residents and city laws and ordinances. You may even find news stories that are specific to the city.

This brings us to our next resource.

Local News

Start by reading local news articles online to learn about events and other happenings, (virtually) meet community members making a difference, discover new businesses popping up and even learn more about the drama or crime happening in the area. This can help you decide if it’s the right fit for you and your family.

Google Maps

Use Google Maps to find your new home’s proximity to schools, hospitals, parks, grocery stores, restaurants and other attractions. Once you have the names of the nearest school, businesses and spaces, look them up and do your research on each one so you know which to attend or avoid and what to expect. Check out their websites and read reviews. Then, visit their social media sites and see how they interact with their clients.

Resident Groups On Social Media

If you already know the city you’re moving to, request to join the community group through social media platforms such as Facebook or Nextdoor. There, you’ll be able to read posts from residents about things they’re experiencing as they live in the city.

These groups provide a more personal view of life from actual residents who are a part of the community. You’ll be able to find hidden gems from people raving about their experience, uncover common problems many residents face and see how neighborly people within the city act towards each other. You can even post in the group – introducing yourself as a new resident, asking questions about the area and getting tips and recommendations from people who know it best.

Decide what features you need in your first home

You should consider the:

  • Home size
  • Budget price range
  • Interior features
  • Exterior features
  • Remodel or repair budgets
  • Location
  • Re-sale value

We’ve all seen the HGTV memes of couples that have an ‘impossibly small’ budget at $1 million – Unless this is you, you will likely have to be willing to make some sacrifices.

Decide what those sacrifices are, and communicate them to your real estate agent. This will allow them to easily aide you in your search! Finding the right home, in the right location, for a right price and winning the bid can be a bit of a mystical unicorn!

Decide what you can and cannot live without.  Each real estate office site is different as well, so find a search tool that is helpful and has the features you need to specify.

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2. Get Pre-Approved

Getting pre-approved for your mortgage is an essential first step in the house-hunting process. Pre-approvals give you an idea of how much you can borrow and ensures that home sellers take your offer seriously.

As important as your mortgage pre-approval is, don’t forget your budget. How much you want to afford often differs from the maximum amount you’re pre-approved for. Having an accurate budget and sticking to it will set you up for a long run of happy, stress-free years in your new home.

Get pre-approved for a mortgage today.

Create a Plan

Discuss your situation with your real estate agent and broker. You will need a plan before buying in another state. If you are picking up a vacation home, you will need to make sure you meet the income requirements necessary to support a second mortgage. Inform the broker if you know you will be unable to attend the closing in person. The broker can arrange for you to complete the paperwork via fax or mail.

Close on Your Existing Home First

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Out-of-state closings can fall through if they’re scheduled to take place the same day as the closing on your existing home. Before closing on the house you’re buying, the lender making the loan for your new house must receive the closing statement—or, if applicable, the Housing and Urban Development (HUD) statement—from the closing on your existing home as well as any funds being wired from that sale. The best solution is to schedule the closing on your new house a few days after the closing on your existing home. istockphoto.com

Get an Inspection

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An inspection is often required as part of a sales contract, but if you’re paying cash or if the house is selling “as is,” you’ll need to order one yourself. A good inspector will check everything from the roof and the foundation to the health of the HVAC system, plumbing, and wiring. You’ll pay $300 to $400 for a professional inspection, but doing so could save you from buying a house with hidden problems. istockphoto.com

Stick to Local Agents and Brokers

Contact an agent in the area where you plan to buy. Ask locals for referrals and recommendations to help you find an experienced agent. Buying a home is hard enough without the added obstacle of being an out-of-state buyer. You want an agent who can help ease the process. Your agent can also refer you to a local mortgage broker. Although most lenders are national, a local broker is familiar with the lenders and knows their guidelines and requirements.

FHA mortgage requirements

Qualifying for a mortgage backed by the Federal Housing Administration (FHA) may be easier than a conventional loan. Because the FHA insures the mortgage, FHA-approved lenders can offer more favorable rates and terms to first-time homebuyers.

There’s good news for borrowers struggling to qualify for a mortgage to buy a more expensive home in 2022: FHA loan limits increased to $420,680 for most parts of the country. Higher-cost areas get even more bang for the buck, with maximum loan amounts as high as $970,800.

Current minimum mortgage requirements for FHA loans

  • Down payment. FHA loans require a 3.5% down payment with a 580 or higher credit score, and funds can come from employers, close friends, family members or charitable organizations. The down payment requirement jumps to 10% with a credit score of 500 to 579.
  • Mortgage insurance. FHA borrowers are required to pay two types of FHA mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, typically financed into the mortgage. The second is the annual mortgage insurance premium (MIP) that ranges from 0.45% to 1.05% of the loan amount, and is divided by 12 and added to your monthly payment.
  • Credit score. You can have a credit score as low as 500 up to 579 with a 10% down payment. Homebuyers making a minimum 3.5% down payment will need a score of at least 580.
  • Employment. FHA loan income requirements look at the borrower’s stability of income and employment for the past two years. Job-hoppers will need to explain changes or gaps in employment.
  • Income. There are no income limits for FHA loans.
  • DTI ratio. For FHA loans, the front-end DTI ratio max is 31%, while the back-end DTI ratio is capped at 43%. The front-end ratio primarily considers your mortgage PITI payment (principal, interest, taxes and insurance). The back-end ratio looks at your mortgage payment, plus all other revolving monthly debt, including car loans, credit card payments and other loans. Higher DTI ratios may be approved with strong credit scores or extra cash reserves.
  • Cash reserves. FHA loan qualifications don’t usually require cash reserves unless you’re buying a two- to four-unit home, or trying to qualify with a lower credit score.
  • Occupancy. A one- to four-unit home financed with an FHA loan must be your primary residence for at least the first year after buying it.
  • Property types. With FHA financing, you can buy a one- to four-unit home in a subdivision, an FHA-approved condominium project, a cooperative unit or a manufactured home attached permanently to a foundation. Another perk: You can purchase a multifamily home with only 3.5% down and qualify for the loan with rental income from the other units, as long as you live in one of the units for one year.
  • Home appraisals. FHA purchase loans require an appraisal regardless of down payment. FHA appraisal guidelines have stricter safety and habitability requirements than conventional loans.

How a mortgage cosigner can help you get approved for a home loan

What you need to know about adding a mortgage cosigner to your home loan application. Check out our complete guide about non-occupant co-borrowers…

5. Visit the City

If possible, visit your new city in person. This will help you better assess the neighborhoods, culture, and amenities your new town comes with.

While you’re there, go on a few home tours — even if you’re not ready to buy yet. It will give you a good idea of home styles in the area, and it might even help you hone your must-haves list a little more.

Get pre-approved for a mortgage today.

The Ease Of Money Flow

Most people are tied to their jobs. They cannot just get up and relocate to another city and state. However, as the work from home trend increases, it is logical for more people to consider relocating to a lower-cost area of the country. Or to an area that provides for a higher quality of life.

I’ve discussed this multi-decade migration trend in my post, Why I’m Investing In The Heartland Of America. The nationwide lockdowns are only going to accelerate this trend. Real estate is the obvious beneficiary. The difficulty is figuring out the right real estate investment and the best way to invest in real estate.

If you have a family and earn $300,000+ in most big cities, the quality of life is fairly good. You can own a modest home, afford to raise a couple kids, and max out your 401(k) every year. Heck, you can even take some nice family vacations once in a while.

However, even if you earn multiple six figures in the SF Bay Area, it doesn’t mean much when the cost of living is so high here. You’re squarely in the middle class. In order for us to boost our standard of living, we should move.

Relocating to Honolulu will stretch our dollars by

Relocating to Honolulu will stretch our dollars by ~30%. Therefore, our $250,000 in estimated passive retirement income would grow to roughly $325,000 in buying power. You can get a mortgage for a low rate and live in a different state to save.

I wouldn’t have to go back to work for several more years to accumulate more capital. I could also just focus on writing on Financial Samurai instead of spending any time on business development.

Living in a nicer environment with increased buying power is an enticing proposition. Further, my parents would have extra support just in case they need help.

Bonus: Take A Trip

There’s nothing that can substitute taking a trip to your new location, even with today’s technology helping close the gap between virtual and real life. If you’re able, go to the area and see for yourself what feels right.

If you’re still in the home search phase, plan to visit a number of cities within your desired commuting distance from your job. Visit the downtown area, if there is one, and walk through a few of the neighborhoods. Note what you like and don’t like about each one to help narrow your search to one area. If you have time, you may be able to attend a few walkthroughs or open houses.

If you’ve already purchased a home or had a bid accepted, take a trip down to walk through it before closing. Drive through the neighborhood, meet your neighbors and visit nearby restaurants and businesses to get a feel for what life will be like in the coming months.

Find a trusted Realtor

Finding a Realtor is tricky business. Many of us would ask for referrals from friends, family or colleagues. If you can get a Realtor referral in your new state – that is a great start! 

If you have to research and find a Realtor on your own, check out their website, social media channels and interview a few to find a good fit.  Reliability and punctuality will be critical, especially for bidding, etc. down the road! Because you are out of state, your Realtor is incredibly important!

  • Put technology to work! Even though you may not be able to physically ‘be there’ it can still be done. Skype, Google Hangouts and even Facetime tours are possible.  Your Realtor will be able to set appointments and take you there, virtually.  You can also take advantage of the incredible 360* online tours and tour photos while searching the MLS. Find a home search site that you can search the features that matter to you – Each broker or agency is different!
  • Use a local branch if possible. (This is where it may be easier to use a franchise agency, or at least a nice referral network) Using your local Realtor for information and learning curve can be very helpful – But remember, there is nothing in it for them! If you have a Realtor friend locally or have someone that can refer you a trusted professional, they may be able to shed some helpful light.
  • Make sure your Realtor understands YOU. Which brings us to our next two points. You must be clear and concise about what you want in a home, and what you are willing to waver on! Having a clear plan and communicating those effectively will help your agent help you!

Getting a Mortgage When Moving Out of State

If your employer has implemented work-from-home or remote work policies, you can often take advantage of these and keep your job when you relocate. However, a more traditional scenario is relocating and switching jobs at the same time. In this case, mortgage lenders use several criteria to determine whether you’re a safe prospect or a high-risk one.

Some companies offer relocation packages with various components, such as guaranteed buyouts or a mortgage relocation program. Some companies partner with banks to provide relocation mortgage loans for valued employees to make moving for the job a breeze.

However, you may not have access to such perks. These days, many lenders are willing to consider “offer letter mortgages,” where your signed offer letter in the new location is accepted as proof of income. Even then, mortgage lenders will consider the specifics. If you’re moving to a better job – higher position, better pay or other career advancements – in the same industry, lenders will regard this positively. If you’re making a lateral move but have a long history of steady employment, lenders may be more cautious but are still likely to approve.

Your next steps

Buying a house out of state might seem intimidating. But it’s totally doable if you take it one step at a time and rely on the experts you’ve hired to help you along the way.

If you’re ready to get serious about home buying, contact a mortgage lender as soon as possible to determine your budget and start your move out on the right foot.

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