Buying your First Home in 10 Simple Steps
Step 1: Getting Pre-approved
Knowing where you stand with your credit history is the first step to a pre-approval. The higher your score, typically the more favorable lending terms you will be able to secure. Sometimes the difference of 10-20 points on your FICO score can be the difference of tens of thousands of dollars in interest savings over the life of the loan.
In the past home buyers traditionally had to put down a 20% down payment. This would be equal to 20% of the purchase price of the home. Now it’s could be as little as 05-3.5% down for FHA loans and VA loans.
As a buyer, you also need to keep in mind that closing costs can be a part of the equation. Closing costs vary depending on your individual situation.
Step 2: Calculating how much house you can afford
Consider your entire budget: how large are your credit card bills? Will you need to plan to pay tuition in the future? How much will your new palace cost to maintain? Will you get a break on your taxes from the mortgage interest rate deduction?
Step 3: Determine the most beneficial loan program for you and your family
New loan programs make it easier to buy a home, but more difficult to decide what mortgage is right for you. The standard 30-year fixed rate mortgage allows predictable payments. If you’re planning on moving after a few years, consider an adjustable rate mortgage, which has lower interest initially, keeping your payments lower for the first few years.
Step 4: Shopping for a home
Finding the right realtor is key. Make sure you find a person that you feel comfortable with and who will work to find you the right home.
Make a list of the things that you want in your dream home such as: number of bedrooms, lot size, location, style of home, the future growth of your family, and then sit down with your realtor to discuss them.
Step 5: Make an offer
An experienced real estate agent will be well versed in the art of negotiation and how to present the most attractive offer.
Should you ask for the seller to pay for closing costs? How much did similar homes sell for nearby? How long has this house been on the market? Your realtor can evaluate market conditions and help you make a reasonable offer.
Step 6: Sign a contract
You sign and will have to pay an earnest money deposit that shows you are serious in your offer and is typically held by the real estate company. In some states, you will want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can’t find financing or acceptable homeowners insurance.
Step 7: Completing your loan application
Now is the time that you and your loan officer will finalize the loan program that will be most beneficial to you financially.
You will sign an initial set of application documents to start the process and lock in an interest rate.
Step 8: Take a Close Look at Your House
Make sure your contract is contingent on a home inspection for a detailed, objective evaluation of your home’s interior and exterior. A good inspection will look for mechanical issues, mold and water damage, and any other issues that may be costly to you in the future. After, negotiate with the seller over needed repairs. Be sure the title of the house is free of any liens.
Step 9: Obtain Home Owners Insurance
Homeowners insurance is required for all mortgages.
Typically one year’s home owners insurance premium will be paid at or before closing.
Step 10: Sign your closing documents
This is the time where you meet at your agents office or title company location to sign your loan documents and the new deed to your dream home. Depending on where you live the keys may be given to you that day or within the next 48 business hours.
You are now the proud owner of your dream home!