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There are many steps to buying a house, and it can be overwhelming for first-time homebuyers. Here is a guide that will walk you through the process step by step. By following these guidelines, you’ll be on your way to homeownership in no time!
Money Matters
If you’re applying for a conventional home mortgage loan, which is the most popular, you’ll have to pay a 20 percent down payment, closing costs, and an earnest money deposit.
The closing costs often range from two to three percent of the mortgage amount, depending on your location. Mortgage lenders usually give you a break on the interest rate if you pay these fees yourself instead of tacking them onto your loan.
The earnest money deposit is an amount of cash that’s given to the seller as a good faith down payment. This deposit is generally equal to one to three percent of the home’s selling price.
The Numbers Game
To qualify for a home mortgage loan, you need to have a healthy credit score of 620 or higher and a debt-to-income ratio (DTI) no higher than 47 percent but 36 percent or lower at best.
The higher your credit score and the lower your DTI, the better the chances of getting approved and also of getting better interest rates.
To improve your credit score or debt-to-income ratio, make sure there are no derogatory marks on your credit report and pay down your debts as much as possible.
Get Pre-Approved for Your Loan
Before you start looking for residential real estate, you should get pre-approved for your loan. That way you’ll know how much you can afford to spend on a house. There are other benefits to pre-approval, too.
When you do find a house you love, you’ll be strategically positioned to move swiftly and make an offer knowing you’re financially empowered.
Your offer may not be the only one the seller receives. In a situation where there are competing offers that are not pre-approved, your offer may stand above the rest since the other buyers aren’t guaranteed to get funding and may take weeks to apply for their mortgages.
Shop lenders before applying so that you know which ones offer the best rates and terms and if they’re willing to negotiate on any of their closing costs.
Find the Best Agent
Choosing the right real estate agent is important because they can make or break your deal. Look for someone who specializes in selling homes similar to the one you’ve chosen. Not all agents are equally skilled, so choose one that has excellent reviews, a history of selling homes quickly, and ample marketing materials.
You will need your agent’s help throughout the buying process, including searching for properties, submitting offers on your behalf, negotiating with sellers on price and terms, overseeing inspections of the property before closing day, attending settlement at the county offices where you’ll put ink to paper.
The House Hunt, Offers, and Negotiations
When you find a house you want to buy, it’s normal to feel exhilarated – but don’t emotionally attach yet. A lot can happen that could cause the deal to fall through, even up until the closing day.
Make a fair offer so that it’s competitive from the start. If you underbid and there are other offers, you’ll lose the house.
Avoid contingencies, if possible, such as needing approval for a home loan or that the seller pays closing costs. You may be able to ask for those things in a buyer’s market, but in a seller’s market, those could be deal-breakers.
Your agent will do the negotiating on your behalf. Once you come to an agreement with a seller, you’re ready to move on to the closing process.
The Closing Process
The closing process entails having the house appraised, inspected, possibly surveyed, and the title has to be checked to make sure there are no claims.
The appraisal and inspection protect the buyer and seller in the transaction. The appraisal ensures that there is a fair price for the house based on recent home sales, while an inspection protects you from any unexpected issues with the property, such as faulty wiring or mold.
A survey determines your property boundaries and where to place walls, fences, etc., while a title search verifies who currently owns the house depending on how many years it’s been owned by people other than the sellers.
If there are problems discovered during the appraisal or inspection, then you have the right to either negotiate a lower price or renegotiate any terms such as repairs or closing costs. But this could also be one of those points where the contract falls through if the problems discovered are insurmountable.
It’s also important during this time that you don’t make any large purchases or finance anything until after you get your keys. The lender will run your credit and check your bank balances before closing. If there are any significant changes, your deal could be in jeopardy.
On closing day, you’ll pay buyer closing costs, sign final documents, and get the keys to your new home.
Conclusion
When you know what to expect from the home buying process, you’re less likely to get blindsided by unexpected hurdles.
Get your finances in order to cover the down payment, closing costs, earnest money deposit, and your moving expenses. Make sure your DTI and credit score are squeaky clean and well balanced. Get pre-approved for your mortgage.
Find the right real estate agent who can help you along with every step in the process of buying your first home.
