The pride of homeownership is the fulfillment of the American Dream. When someone is ready to make this dream come true there are some basic steps that must be taken to make sure they are ready for homeownership, that they have chosen the right home in a location that will work for them, and that the transaction moves along as smoothly as possible. The entire process can be quite complex, even for people who have navigated this territory before, having owned one or two homes previously. This guide will help homebuyers through all the steps in the process.
First Figure Out What You Can Afford In A House And What Will Be Needed For The Down Payment
To buy a home people need to have a certain amount of cash on hand for the down payment. The truth is that most people have many other financial obligations and bills to pay that make it hard to save up enough money to buy a house. Saving enough for a down payment is the first in a long list of steps in the process. Lenders for the most part usually require 20% down. Buyers usually deposit money in a savings account well in advance, setting money aside for the down payment. Otherwise the money for the down payment can come from a family member in the form of a monetary gift. A reputable lender will advise people to consider homes that fall into a price range of three to five times their yearly household income. This usually works well if the buyers are able to come up with a down payment of 20% and are not carrying more than a moderate debt load.
However, everyone needs to figure this out for him or herself based on their own finances. We have a convenient Mortgage Calculator to help you determine what you can and cannot afford in a house.
In some cases a minimum down payment of 5% will qualify, but when you pay less than 20% down you will be required to pay an additional payment for mortgage insurance, which runs .5% to .8%, which you would divide by 12 to determine the monthly amount.
Decide on a Mortgage Lender And Have Them Get You
Pre-Qualified Or Pre-Approved
Most people take a look at the going mortgage rate for a loan today and select the lender offering the lowest rate. Lenders that offer rock-bottom rates are running their business on volume like a factory and this can cause havoc throughout the loan process. Topnotch lenders normally charge .125% more due to the extensive service they provide getting your loan through. With home mortgage rates being so low these days, to pay an extra .125% to ensure that your loan will be properly and quickly processed seems like an easy call. Just by watching the news we all know that there are huge differences among lenders and the big banks are often the worst. In order to determine how much house you can afford you will have to know how much money you are able to borrow.
One way to go about this is to get yourself pre-qualified by a lender. This process involves going to a mortgage company and being interviewed about your financial situation, including your debts. By the end of the interview you will have an estimate of how much you can afford in a home.
Another way to proceed would be to get pre-approval from a lender. This process involves having your credit checked, with the lender looking at any debt you owe and calculating the amount you have set aside for a down payment. The lender is also going to take into consideration whether or not you are a first-time buyer. The end result will be an estimated amount that you are pre-approved to borrow for the purpose of buying a home. Because this is a more thorough process, being pre-approved is usually looked on more favorably than just being pre-qualified.
Choose A Licensed Realtor To Work With
It may not be an absolute necessity to have a Realtor when you buy a home, but having an experienced real estate agent by your side throughout this process is certainly an advantage. A local Realtor will have a good understanding of the homes on the market in your price range and will know your needs so that a lot of time won’t be wasted with you traipsing to one property after another without finding anything you like that you can afford. The best way to find a good real estate agent is through referrals, specifically from friends and family. If you don’t get any good referrals, find a real estate agent through a reputable broker in the area. Your agent should be one that specializes in serving buyers, someone who will represent you and is used to working on behalf of buyers. The best agents are good listeners and will discuss with you at length what your needs are in terms of a home and a neighborhood. A good Realtor will be well informed and be able to answer all your questions.
Start Looking At Homes
Once you have determined how much you can afford, have a good idea of the type of home you want, what neighborhood(s) will work for you, and have a good Realtor lined up to take you around, it’s time for you to take a look at homes in the areas that might meet your needs. This is usually the part that people like best. Your Realtor’s job is to locate and screen possible homes for you to look at, presenting you will the options that have a good chance of meeting your needs. Your agent can then schedule showings and take you out to see these homes in person. Throughout this process you should not feel any pressure to make a quick decision.
Your Realtor Will Present Your Offer To The Seller’s Agent
When you’ve finally found the home you want, you need to make an offer. This is the area where your Realtor will be an invaluable asset. He or she will know what comparable homes have recently sold for in the area. Your agent will advise you on what you should initially offer and draw up a contract that protects your interests. This contract will include a lot more than just the price you are offering. It will list all the terms that you will need to protect your interests, as well as what you have already learned the seller requires in order to successfully get through this transaction. Your Realtor will make sure that the contract that is ultimately agreed upon between you and the seller meets all the legal requirements.
Secure Your Home Mortgage
Once the deal has been successfully negotiated and you get your offer approved, you must now secure your home mortgage. You will need to complete an application process. If you have not yet been pre-qualified or pre-approved, this will probably take longer. Once you have secured your loan you need to request a lock on the loan amount with your lender and get them a fully signed sales contract for the home.
If you are working with a topnotch lender, they’ll know what they are doing and provide you with a checklist of all the items you need to provide them with in order to close on the loan and the house. The sooner you get all these things to your lender, the sooner you can close. This usually takes 25 days, but for lenders who are uninformed and disorganized it could take as long as 40 days or more.