Buying a home is an exciting adventure, and it’s probably the biggest purchase you’ll make in your lifetime. Here is a quick guide to buying your first home.
Know What You Can Afford
The first step is determining what you can afford. Everything else will depend on that answer. Let’s explore what lenders look for when determining whether to give you a loan.
Why Get Pre-qualified?
Before you start looking at houses, it’s important to work with me to get pre-qualified, which will let you know how much home you can afford. This can help you narrow your home search to houses within your budget, give you an idea of how much you’ll need for a down payment, and help you identify budgeting goals to work toward.
How Does My Lender Determine My Loan Amount?
To determine the loan amount you can qualify for, a lender will look at your credit, income, assets, and debts.
Knowing how much you can afford to pay each month toward your mortgage will help you as you begin your search for a new home, and your credit, Loan-to-Value, and Debt-to-Income all contribute to determining your budget and your loan amount.
Costs that Come with Buying a Home
Down Payment and Earnest Money
Before you even buy the home, you’ll need cash for your earnest money and down payment. You may have heard the myth that you need a 20% down payment to buy a home, but there are loan programs available that require as little as 3.5% or even zero down.
Your Monthly Mortgage Payment
- Principal: The actual amount you are borrowing.
- Interest: What it costs to borrow money for your home.
- Escrow: A third-party account used to pay taxes and insurance on your behalf.
You’ll also have to pay closing costs when ownership of the home is transferred to you. Closing costs are a one-time payment due when you close your loan. These may include:
- Appraisal Fee
- Discount Points
- Origination Fee
- Recording Fees
- Title Service Fees
- Transfer Taxes
Finding a Home
Step 1: Choose the Right Agent.
Along with your lender, your real estate agent is a crucial player in the home-buying process. Start by asking around for a referral and be sure to talk to a few agents before choosing one.
Step 2: Find the Right Home.
Buying a new home can be a stressful event. Making a list of features you must have, would like to have, and don’t want can help you stay focused when you’re visiting potential new homes.
Step 3: Make an Offer.
Your real estate agent or lawyer will draw up the contract that outlines the terms and conditions of the sale. In a seller’s market, you may get a counteroffer, and your buyer’s agent will negotiate on your behalf.
Step 4: Get a Home Inspection.
A home inspection is a thorough examination of the property, from foundation to rooftop, that assesses the home’s general condition and any needed repairs. While it is an additional cost, a home inspection is highly recommended. The inspector will be looking for things like leaky roofs, termite damage, and structural issues.
Getting the Mortgage That’s Right for You
You’ll have a lot of choices when it’s time to select the type of home loan that fits your needs. Below are some common types of home loans:
- First Time Home Buyer
- Conventional and Conforming
- Home Equity Loans and Lines of Credit
- Vacation Home
- Investment Property
Once you find the home loan that works best for you, you’ll need to gather documents that show your income, assets, and debts. These documents include:
- Tax returns
- W-2s and/or 1099s
- Recent bank statements
- Recent paystubs
The Mortgage Application Process
Once you’ve submitted your loan application, it triggers a series of events that must take place before you get your loan approval.
Within three days of submitting your application, you will receive a Loan Estimate, a form that details the loan you’ve applied for. This is a summary of what your loan will look like if you decide to move forward.
Once you decide to continue, the application goes to the processor who checks that all the necessary paperwork is present. An appraisal is also ordered on your prospective property.
At this stage, a licensed third party will evaluate the property to ensure it’s worth the loan amount. The appraiser will look at the home’s condition, age, and size, and will compare the property to other home sales in the neighborhood and consider the replacement cost of the property.
Once the processor has compiled a complete loan file (i.e., the application and all supporting documents), the underwriter reviews the application in detail to make the final decision to approve or deny your mortgage loan. This includes reviewing your employment history, credit history, and appraisal report. The underwriter also ensures your mortgage meets current loan product guidelines. You may be asked to provide additional documentation, which is not unusual.
Once your application is approved, you’ll receive a loan commitment letter, which outlines the details of your loan, including the amount being borrowed, the interest rate, and the term or repayment period.
Closing is when your contract is finalized and you sign the documents that make you an official homeowner. But before you close there are important steps you need to take:
- Get a home inspection.
- Get a homeowner’s insurance policy.
- Determine who your closing agent will be.
- Review the Closing Disclosure and make sure any errors are corrected.
- Ask your lender for a copy of your other closing documents so you can review them in advance.
- Find out how much money will be needed to close and how to transfer payment.
- Do a final walk-through of the home to ensure all repairs have been made.
Once you’ve closed on your home it means you’re officially a homeowner! Don’t forget to store your paperwork, complete change of address forms with the post office, update your ID, and update your bills to your new address.
Through our versatile home loan options, Choice can help you capture the pride of a new home. Our team of experienced home lenders specializes in everything from pre-qualification to your final payment. We’re here for you every step of the way.
Talk to a home loan expert!