Buying a home can be a very intimidating process, especially if you’ve never done it before. So the first thing you should do before you start the home buying process is to figure out whether owning a home is right for you. It may or may not be and this decision depends on you and what your circumstances are. Take into account that if you do buy a home, there are extra responsibilities and costs that go along with owning a home-such as lawn care, home maintenance and repairs, etc.
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.
2. Determine What You Can Truly Afford
“As a general rule of thumb, you should be looking at home prices that are two to three times your annual income,” says Tom Gilmour, a CFP® at LearnVest Planning Services. “This helps ensure that you’re not taking on a larger mortgage commitment than you can afford.” Gilmour recommends that payments generally not exceed 28% of your monthly gross income.
Cash on hand is needed to buy a house. Minimum = $1500
- Earnest money – Submitted with offer to purchase. Usually $500 – $1000. This applies to your purchase price.
- Home Inspection – $450 approx. This is optional and up to each buyer.
- Appraisal Fee – Paid to the lender. Approximately $500
Closing Costs – This includes the costs to get your loan including prepaids (interest, taxes, insurance, etc.), closing agent fees, and other costs incurred while getting the home purchase finalized. Typically 3 – 6% of the sales price. The buyers may ask the seller to pay for closing costs in their offer to purchase.
Down Payment – You will need 3 – 20% of the sales price if you don’t get 100% financing.
3. Select a Lender
Different lenders offer different types of loans. You may want to talk to several lenders to find the one that’s right for you. The realtor will work with your lender by providing necessary information.
When you talk with a lender, he/she should be able to give you an idea of what they can offer you. When you decide on a lender, they will do an in-depth credit history that requires a good deal of financial information from you.
When meeting with your lender, be prepared by having the following information:
- Two forms of identification; one should be a current driver’s license
- Most recent paystub(s) that covers the most recent 30 day period; must have year-to-date earnings, name of borrower, and employer
- Current social security award letter if social security income is used to qualify; all pages of SSA-1099
- Most recent two years W-2’s
- Most recent two years federal tax return
- Most recent two month’s bank/investment statements; all pages
- Copy of complete divorce decree (if applicable)
- Check for the credit report ($50)
During this process, any change to your credit score or credit history could stop progress and necessitate starting over or losing final approval. Don’t make large purchases. Don’t make any unexplainable deposits into your accounts. Don’t apply for credit of any kind.
4. Find the Right Home for You and Your Family
The realtor will help you find homes that meet the requirements you and your family have such as number of rooms, location, and price range. The realtor will also know which homes will qualify for your type of loan.
5. Make an Offer
The realtor will work with you to write up an Offer to Purchase that includes your offer price and other provisions. You will need to give the realtor a check for the earnest money when you sign the offer. The seller will accept your offer “as is” or counter with an amended offer. The earnest check will be deposited into the company’s trust account when agreement is reached, and your offer is accepted. The accepted offer will be sent to your lender. The earnest money will be returned to you if you are unable to get financing or the earnest money will be applied to your funds at closing.
6. Waiting Period
Typically it takes 30 – 45 or sometimes even 60 days for your loan to be processed. The realtor will stay in touch with your lender to be sure the process moves forward. Please make sure your lender knows that you approve of this communication with the realtor.
If you have chosen to have a Home Inspection, you will need to select an inspector from the list provided and contact them directly to schedule the inspection within the time specified in the Offer to Purchase (typically within 10 days). They will tell you the exact cost and how you should pay them. You will give them your realtor’s name and contact information to schedule the inspection and get access to the house.
If you are renting, be sure you take care of notifying your landlord that you are moving. Keep in mind that closing dates are not definite until the end of the process. Don’t move out too soon.
You should contact Home Owner’s Insurance providers to begin the process of selecting insurance. This will be paid through your mortgage, but it is your responsibility to set it up.
Your lender will contact you periodically. Please try to provide needed documents in a timely manner as this will affect how long the process will last. Your lender will ask for a check for the Credit Report and a check for the Appraisal. Your lender will set up the appraisal. The home must appraise for at least the full sales price in order for you to get the loan.
Your lender and the realtor will set up the closing date once the lender has completed underwriting your loan.
Contact utility companies and advise them that you are taking over or starting service at your new address. In addition, cancel any utilities at your old address.
7. Closing
At least three days before closing, you should receive from your lender a closing statement showing all costs and payments for closing. Look it over and discuss any questions with your lender or the realtor. If you need to pay at closing, you must have a cashier’s check made out to the closing agent/company. The amount you need to pay will be on your closing statement.
You will sign all of the documents associated with your home loan at closing, and the sellers will sign documents transferring title to you.
Depending on what was agreed upon in the Offer to Purchase, you will receive keys at closing or at a time agreed upon later.
