Looking to buy your first home? There are a number of simple steps to help make sure you are ready.
- Be credit worthy. When purchasing a home, you will need to apply for a mortgage loan unless you have all of the nesessary funds to purchase the home. You can monitor your credit score with a third party product such as KreditKarma, through some banks like Chase and other providers. Having good credit will ensure you get the best rates for a loan.
- Prepare a Down Payment. Most loans will require you put down a specified amount of money in order to secure your loan. This can range from 3.5% for a federally backed loan such as an FHA loan, or an average mortgage will require around 5-10% of the homes purchase price. So for a $300,000 home, you would need between $10,000-30,000 as a down payment to purchase.
- Prepare for closing costs. When you purchase the home and have a closing costs. Some people prefer to have the seller pay them (which can be negotiated some of the time) or you can also pay a higher interest rate in order to “roll them into the loan.” These costs can be origination fees for the mortgage, escrow payments to help you prepare for annual property taxes, home insurance premiums and title fees. This cost is something you will want to speak to your loan officer about when preparing to purchase a home.
- Pre-Approval Letter. When you work with a loan officer to establish credit worthiness and start the home buying process, you will need to first be pre-approved up to a specified amount. Typically this is around 35% of your monthly income. So if you bring home $3,500 per month, you would most likely be approved for a mortgage up to around $1,225 per month. The pre-approval letter will state that you have met with the loan officer and they have checked your credit and that you are pre-approved for a loan of up to some specified amount. This letter is quite often sent along with a home purchase offer as many sellers want to know that you are qualified to purchase before they will go under contract to sell their home to you.
- Search for a home. This is the step most people associate with home buying. During this process you can work on your own or with a licensed professional to find the homes you want. It is generally recommended that you research areas you are interested in living as well as the size of home, number of bedrooms and any other options you would like in your home. An licensed real estate agent can assist you in finding this out as well as providing information of homes that are currently available to purchase or build.
- Make an offer. One of the most anxiety causing steps of the home buying process is making an offer. You want to get the most for your money, but you also want a specific home in the right price range and in the right location. Working with an agent will help ensure you are making an offer that will be in the realm of acceptability to the seller while protecting your interests.
- Negotiations. Once an offer is made, the seller can accept, reject, or make a counter-offer. During this phase it is very common to negotiate the sales price, included/excluded items from the sale, terms of the sale etc. This phase can take as long as necessary for both parties to come to an agreement or decide not to enter into the transaction.
- Going under contract. When both parties agree to the terms of the sale, the home is considered Under Contract. This phase will generally stop the seller from showing the property to other parties and you will work to perform the requirements of the agreement including due diligence and securing your loan.
- Due Diligence. During this phase, you are able to inspect the home. It is recommended to use a licensed inspector who will check for safety issues and proper functioning of the homes various components such as the foundation, construction, plumbing, electrical, and heating/cooling systems. This phase is for you to understand the condition of the home you are purchasing and typically you will have options to ask for repairs or the ability to leave the transaction if something is overly concerning for you.
- Closing. This is the stage in which you sign all of the paperwork for your transaction both for the mortgage and to properly file the paperwork with the local government to show the transfer of property. Typically you will also have all funds sent to a third party who will act as an escrow agent ensuring the funds are sent and then the paperwork is filed in order to facilitate a smooth transaction.
- Recording. In most areas, the county will record the transfer of property and save it in a public registry. This changes the records for the owner of the home.
- Welcome to your new home! Its time to make sure you have transferred the utilities and other services into your name and move in to your new home!