Home Buying Process

For many of us, buying a home is the biggest purchase of our lives. Buying a home requires a lot of time and effort, it can be one of the most stressful moments of your life.  Here is a guide that will help make the home buying process less stressful and assist you with making the best decisions.

Can you afford a home

One of the many steps of buying a home is saving for a down payment. Most lenders recommend for buyers to look for homes that cost no more than three to five times their annual household income. Lenders also require ideally a 20 % down payment, but of course, your down payment can range from  3.5% to 20%  of the home purchase price.But anything lower than 20% the buyer will have to pay for private mortgage insurance (PMI), which is a policy that protects the lender from losing money if you stop making payments on your home. Depending on your down payment and credit score your PMI can cost between  0.3%-1.50% of your mortgage.

Credit and Pre-Approval 

A good credit score will help you obtain a mortgage. Check your credit report for any errors. If you need to repair your credit take a few months to clean up your report. To improve your score you can dispute errors and pay down your loan balances. Also, avoid applying for credit until after you closed on your home. Once your finances are in order you can select a lender either from the bank or a mortgage broker to apply for pre-qualification. 

To get pre-qualified you will need to provide some financial information and the lender will review the information and tell you how much they can lend. The lending amount will show you the price range for the purchase of your home. Before settling compare offers from a few mortgage brokers and the bank. Later, you can get pre-approved for credit, which involves providing your financial documents to your lender for verification of financial status and credit. The lender also looks at any owed debt and also takes into consideration the amount of the available down payment. The lender results will provide you with an estimated pre-approved amount which is favored over pre-qualification. 

Select your loan program and secure your mortgage once you have selected a home and your offer has been accepted. The three main kinds of loans are Conventional, FHA, and VA. It is your lender responsibility to pick the best loan for your needs and qualifications. 

Select a Real Estate Agent 

A real estate agent is a necessity when buying a home. One of the main advantages of using an agent is that they have access to the MLS ( multiple listings service), a database of all the houses for sale that are listed by other real estate agents. The recommendation of family members and friends is one of the best ways to select a real estate agent. The agent can provide you with helpful information on homes and neighborhoods that are not accessible to the public. They also understand the real estate market and have knowledge of the home buying process and negotiating skills. 

Make an Offer

Take as much time as you need to find your dream home. Once you have located your perfect home and visited the neighborhood a few times, it is time to make an offer. Your real estate agent will base the offer price off of comparable homes that have sold recently in the area. Also, it is normal for a seller to send a counter offer. But, once you and the seller have reached an agreement on a price the house will go into escrow. Escrow (escrow officer) is a neutral third party that processes your transaction, record documents, obtain signatures, prepare documents and disburse funds.

Get an Inspection

Your real estate agent will arrange for a home inspector to look over the property within a few days of your offer being accepted by the seller. In most states, purchase contracts are contingent on a home inspection of the property. The inspector checks for any signs of structural damage and things that may need to be repaired. The buyer should attend the inspection so the inspector can explain and show you any problems. A home inspection contingency protects the buyer if the inspection reveals significant material damage to the property. The contingency gives the buyer a chance to renegotiate the offer or withdraw it without penalty. 

Obtain an Appraisal/Homeowner's Insurance

The lender you selected wants to make sure the house you want is worth the amount you're paying for it. The lender does not want to loan you $150,000  and the house you want o buy is actually worth $110,000.  In order to have the home appraised, you will order an appraisal from your lender, which you will pay for. The lender then hires an appraiser to analyze the house worth and give a professional opinion about its value. If you receive a low appraisal, discuss options with your real estate agent. Some options are to have the seller lower the price, pay the difference in cash, or start the process over with a new home. Most purchase contracts also have an appraisal contingency, which means if the home does not appraise for the offered amount you are not obligated to complete the transaction. But, most likely the appraisal says the house is worth the amount and you are now ready to buy.

Also, the buyer will need to purchase homeowner's insurance for their home. The insurance will protect the property in the event of a fire, theft, and potential liabilities. Most, lenders generally want you to carry enough coverage to pay for the cost of rebuilding your home from the ground up if a disaster occurs.

Closing!

The buyer has verified that all necessary documents have been signed. On the closing date, your transaction will be processed at a title company, where closing costs and fees will be paid. Those costs and fees typically include discount points, origination fees, title searches, title insurance, taxes, deed- recording fees and much more. Most buyers will pay between 2%-5% of their home in closing fees. You will also need to bring bank checks (not a personal check) for your down payment and closing costs. When the transaction has been recorded you are now able to move into your new home.