Buying your home is a big deal and a serious investment in your future. Chances are, you’re going to have many questions, so here are some tips that you may find useful in the home buying process.
1. Examine your finances
It’s important to consider your income and the total of your other debt payments (like credit card or car payments) when deciding if you can afford to purchase your own home. Use an affordability calculator to get an idea of how much you can afford.
Little Tip – Many financial experts recommend spending no more than 28 percent of your gross monthly income on a mortgage, property insurance and taxes.
2. Find an experienced REALTOR®
A REALTOR® is a real estate professional who is a member of the NATIONAL ASSOCIATION OF REALTORS®. They abide by a Code of Ethics that include honest and ethical treatment for all parties in transaction-related matters. Be aware that not all real estate agents are REALTORS. REALTORS® provide expertise on market trends, property conditions, subdivisions, property taxes, local amenities, and many other aspects of a real estate transaction.
Little Tip – Interview several professionals to ensure that the REALTOR® you choose is knowledgeable about the area in which you want to purchase. Make sure the professional you select is someone with whom you are comfortable sharing personal information.
3. Shop for a mortgage and get pre-approved
After determining a ballpark figure of how much you can afford, start talking to different lenders and request quotes. Check with your REALTOR® for a list of lenders in your area. You should talk to several lenders so you can compare closing costs, interest rates, and service.
Here is a list of questions you should consider asking lenders:
- What is the interest rate? How long is that rate available?
- Are the rates fixed or adjustable?
- If it is adjustable, how will the rate and loan payment vary?
- What is the length of the loan?
- What are your requirements for down payments? Are there any special programs available?
- Is PMI (private mortgage insurance) required?
Once you have the right mortgage lender, make sure to get pre-approved. Your lender will run a credit check and get more financial information including proof of income and reviewing outstanding debts to ensure you are able to purchase a home.
Little Tip – A pre-approval signals to a seller that you are in a strong financial position when making an offer.
Be sure you talk to your mortgage banker to understand all the costs that will be involved with the closing so there are no surprises. Closing costs will likely include (but aren’t necessarily limited to) your down payment, title fees, appraisal fees, inspection fees, and points you may have bought to buy down your interest rate.
4. Look for the right home
Make a list of the things you’ll need in your home. How many bedrooms and bathrooms will you need? How big do you want the kitchen to be? Do you need lots of closets and cabinet space? What about a big yard for your kids and/or pets to play in? Decide which home features you feel are essential and which are optional.
Once you’ve made a list of your must-have’s, don’t forget to think about the kind of neighborhood you want, types of schools in the area, the length of your commute to and from work, and the convenience of local shopping. Take into account your safety concerns as well as how good the rate of home appreciation is in the area. Your REALTOR will use all of this information to streamline your home search.
Little Tip – It’s important to keep an open mind when visiting homes your REALTOR® feels may work well for you, and it’s also important to be upfront and honest with your REALTOR® about your preferences and financial situation to ensure that you purchase the best home for your needs.
5. Make an offer
Now that you’ve found the home you want, you can make an offer. Your REALTOR should provide information showing what comparable homes have sold for recently. This information will help you make an appropriate offer. Make sure to include inspection and mortgage contingencies in your written offer.
Once your offer has been submitted to the seller, there may be a bit of back-and-forth until there is a meeting of the minds on price and terms. After you and the seller agree, the home will be under contract, and you’ll make an earnest money deposit, which is money that goes in escrow to give the seller a sign of good faith.
Little Tip – Set aside approximately an hour or two when writing an offer with your REALTOR. You want allow enough time to address all of your questions or concerns prior to submitting it to the seller.
6. Get a home inspection
A home inspection will identify physical or environmental defects. It’s good to know what issues a home may have before committing to that big purchase. Here are some questions you may ask the home inspector:
- What does the inspection cover?
- How much will the inspection cost?
- How long have you been inspecting residential buildings?
- What can I expect when you review the inspection results with me?
Little Tip – If you don’t have a preferred home inspector, ask your REALTOR for a list of qualified inspectors to work with.
Once you have selected a home inspector, he / she will inspect the home for defects and provide a written report. Discuss the results with your REALTOR to see if you’d like any of the defects to be repaired by the seller prior to closing. The seller will review your request and decide if they are willing to make those repairs. After an agreement is reached, the sale can move to the appraisal process.
7. Have your lender order the appraisal
The worth, or value of the home, will determine how much money a lender is willing to give you to buy it. This important step in getting the financing you need is the home appraisal, a part of the mortgage process in which both buyer and seller must depend on the expert opinion of a certified, state-licensed professional who determines the value of a piece of property.
A home appraisal also protects the bank from getting stuck with a house that is worth less than they’ve invested. It also protects you from paying too much for a house simply because it was love at first sight.
Little Tip – Your lender will probably require a deposit to pay for the appraisal prior to closing.
8. Understand the escrow period
You can think of escrow as the Switzerland of the transaction: a neutral party who takes in the buyer’s money and distributes the seller’s money at the end. Escrow works equally for the buyer and seller.
The escrow company, or title company, verify the seller is the rightful owner and has the legal right to sell the property. They also obtain documentation to remove any liens recorded on the property, so the buyer won’t inherit those liens along with the house. About midway through the escrow period, the title company begins to receive inquiries from your lender, which alerts the escrow officer that loan documents are pending and the buyer needs to have several items in place.
Little Tip – During the escrow period, your responsibility is to supply your lender with any paperwork they may need and secure homeowners insurance. Your REALTOR should inform you of all details during this process.
9. Shop for homeowner’s insurance
Your lender won’t send any money until they are sure their investment, meaning your house, is protected from fire or damage. By shopping early for bids, you can make an educated choice for coverage. The one-year premium is typically collected through escrow so the bank can see it is paid and in place.
Little Tip – Just as you shopped around for a loan, it is important to do the same for homeowner’s insurance. As soon as you have signed a contract for your home purchase, you should begin shopping for homeowner’s insurance. Your mortgage lender will require that such insurance be in place at the time of closing.
10. Close on your new home
After finding your new home, making the offer, securing a mortgage, and taking care of insurance and the inspection, you’ll be ready for the closing. At this stage of the home buying process, you will sign all mortgage documents and any other paperwork needed to complete the transaction. The title of the home, in the form of a deed, will also be transferred to you at this time.
You’ve closed the deal, and now it’s time to move in! Buying a home doesn’t have to be a hassle if you’re prepared and you know what to do and when to do it. Choose an experienced lender and a friendly, knowledgeable REALTOR. They are the key to helping you have a smooth home buying experience.