The Home Buying Process
Steps to Buying a Home
Step 1: Check Your Credit Report & Score
Before getting a mortgage or any kind of loan, you should always check your credit. According to the law, you're allowed to receive one free copy of your credit report per year. You can do this by visiting Annualcreditreport.com. Scores range from approximately 300 to 850; generally, the higher your score, the better loan you'll qualify for. Don't forget to check your report for errors. If there are any, dispute them. It may help your credit score. You can also check your credit score for free at www.creditkarma.com.
Step 2: Figure out How Much You Can Afford
You can calculate how much you can afford by starting online, but speaking to a mortgage specialist is best. There are several online mortgage calculators that will help you calculate an affordable monthly mortgage payment. Don't forget to factor in money you'll need for a down payment, closing costs, fees (such as fees for an attorney, appraisal, inspection, etc.). Remember that you don't always have to put down 20 percent. There are loans available with little to no down payment. An experienced home loan expert can help you understand all your loan options, closing costs and other fees.
Step 3: Find the Right Lender and Real Estate Agent
To find the right mortgage lender it’s best to shop around. Get recommendations from your friends, family, and realtor. Talk to a few mortgage lenders to be able to compare rates and terms. Don't be afraid to ask questions. This is a big purchase and you should understand all of the ins and outs of your loan. Make sure to find someone that you are comfortable with and makes time for any questions and concerns you have.
Once you have the right mortgage lender, make sure you get a pre-approval. Qualifications are only a guess based on what you tell the lender and are no guarantee, whereas a pre-approval will give you a better idea of how big a loan you qualify for. The lender will pull your credit report to get a more complete picture of your financial history.
Step 4: Look for the Right Home
This is when things start to get fun! Make a list of the things you'll need to have in the house. Ask yourself how many bedrooms and bathrooms you'll need and get an idea of how much space you desire. How big do you want the kitchen to be? Do you need lots of closets and cabinet space? Do you need a big yard for your kids and/or pets to play in?
Once you've made a list of your must-haves, don't forget to think about the kind of neighborhood you want, types of schools in the area, the length of your commute to and from work, and distance to shopping.
Step 5: Make an Offer on the Home
Now that you've found the home you want, you have to make an offer. You'll want to put forward a fair, educated, and competitive offer. Your agent should provide you with a list of comparable properties with their corresponding sales prices so that you are aware of what other similar properties are selling for.
Once you've made your offer, the sellers will review it with their agent. There may be multiple offers for them to review. Hopefully your offer is the one they accept! But this isn't the seller's only option. The seller may make a counter-offer to which you can also counter-offer and hopefully come to an agreement. Once you come to an agreement you now have an accepted offer. After all signatures are in place you will make an earnest deposit, which is money that goes in escrow to give the seller a sign of good faith. This money is deducted from the price of the house.
Step 6: Get the Right Mortgage for Your Situation
There are many different types of mortgage programs out there, but as a first-time home buyer, you should be aware of the three basics: adjustable rate, fixed rate and interest-only.
Adjustable rate mortgages (ARMs) are short-term mortgages that offer an interest rate that is fixed for a short period of time, usually between one to seven years. After that, the interest rate can adjust every year up or down, depending on the market. These are good for people who don't plan on living in their home very long and/or are looking for a lower interest rate and payment.
Fixed-rate mortgages are more traditional and offer a fixed interest rate (and thus a fixed monthly payment) for a longer period of time, usually 15 or 30 years, though they're available in 20 or 25 year terms. These are good for people who like a predictable payment and plan on living in their home for a long time.
Both fixed and adjustable rate mortgages can have an interest-only payment. What this means is that for a certain amount of time during the loan term, you're allowed to pay only enough to cover the interest portion of your payment. You can still pay principal when you wish, but don't have to if your budget is tight. There is a myth that with interest-only mortgages, you don't build equity. This is not necessarily true, since you can build equity through home appreciation. The benefit to interest-only mortgages is that you increase your cash flow by not paying principal.
Remember to ask your mortgage lender or mortgage banker lots of questions about which mortgage is right for you and your situation.
Step 7: Home Inspection/P&S & Second Deposit/Closing on Your Home
If you have opted to have a home inspection, this is usually done quickly after an accepted offer. A home inspector thoroughly goes through the home to find and structural and/or safety issues. If any issues are found, there may be a second round of negotiations for repairs.
After everything is settled from the home inspection, the attorneys for both you and the seller will draw up a Purchase and Sales Agreement. This will include all of the dates set forth in the accepted offer as well as any negotiated repairs. Once this Purchase and Sales Agreement has been signed you will proved the second deposit that was outlined in the accepted offer. This needs to be in the form of a cashier's check.
Closing! This is the day you get the keys to your new home. Be sure you talk to your mortgage banker to understand all the costs that will be involved with the closing so there are no surprises. Closing costs will likely include (but are not limited to) your down payment, title fees, appraisal fees, attorney fees, inspection fees, and points you may have bought to buy down your interest rate. This will typically be done in person and is your last round of signatures. Once the new deed goes 'on record' you have officially bought a new home!
Step 8: Move In!
You've got your mortgage, closed the deal and now it's time to move in! You're done with the home buying process so start enjoying your new home! Buying a home for the first time doesn't have to be a confusing or overwhelming if you're surrounded by the right professionals and you are prepared with the right information. I can make your home buying process a smooth one!