When you hear the phrase “The American Dream,” what do you think of? Most people imagine a pretty house with a beautiful yard, picture-perfect landscaping, and a white picket fence. Perhaps there’s a flag blowing in the wind and a sweet family standing in front looking towards their new home.
Buying your first home can be full of excitement and wonder, but it can also be overwhelming and stressful. Having the right tools and information can help you navigate the process with confidence.
#1: Understanding your financial position
The first thing you need to do is determine if you are ready, financially, to purchase a home. Keep track of your credit score and try to improve it. Your credit score will affect your financing later on down the road.
You should also determine how much you have saved up for a down payment. Generally, homebuyers are expected to pay between 5 and 20 percent of the price of a property as a down payment. There are first time home buyer products available, along with VA loans, that are 100% financing, if the customer qualifies.
Aside from your down payment, buying a home includes other expenses. You will also have property tax, insurance, maintenance costs, and utilities. You want your house payment to be under 30 percent of your gross monthly income to allow you room to save and cover other monthly expenses.
Purchasing a home is a big investment. If the home and its additional costs put a strain on your budget, you may decide to rent rather than buy in order to save money and get your finances in order.
#2: The Pre-Approval Process
Now that you have familiarized yourself with your finances, it is time to begin the pre-approval process. Your lender will pre-qualify you based on your income and your credit score. There’s that number again!. You will have a general idea of what your house budget will be, but your mortgage lender will determine a specific number.
While gathering your financials, the magic number to remember is “2”. During this process you will be asked by your lender where you have lived for the past 2 years and who your landlord was. You will also need to provide your previous 2 years of employment information. Once you have provided your lender with your income information, they will be able to calculate how much house you can afford.
After you find the property you want to purchase and make application for financing, the following will be needed during the application review process. The lender will need your most recent 2 months of paystubs and your most recent 2 months of bank statements. They will also require your most recent full tax return and W-2s. If you have investment accounts, you will also need to provide the previous 2 months information on those. For individuals who are self-employed, you will need your last 2 years tax returns with all schedules. If you are divorced, please bring your petition, parenting plan, and final recorded decree.
Your lender will then review different mortgage program options with you. We will be sharing a post later on discussing the different mortgage programs available.
During the home purchase process, you will also be required to obtain homeowners insurance. You need to make a decision early on, with the company you choose, and provide their information to your lender. We will also discuss homeowners insurance in a separate blog.
#3: Finding the Home of Your Dreams
Your real estate agent will provide you with helpful information, facilitate negotiations, and show you properties within your budget.
With your agent, you will be able to start viewing homes in your price range. Remember to make a list of things you want in your future home & take notes when you visit. Knowing what you are looking for will provide mental checklist when you are touring different homes.
Once you find the home you like, your agent will then negotiate an offer based on the comparable homes in the area until you and the seller reach an agreement.
Often times, offers include a contingency clause relating to the home inspection of the property. The inspection is an important part of the home buying process. Inspectors check for any damages or signs of structural concerns. It could reveal issues that may have gone unnoticed by the current owners.
The contingency gives you the opportunity to renegotiate if the inspector finds anything. You and the seller both receive a report on the findings.
#5: Secure the Loan & Home Appraisal
Once you have approved the inspector’s findings and addressed any repairs required, your lender will assist you in securing a competitively priced loan program.
There are many variations of criteria when purchasing a mortgage and they differ by every home buyer. Whether you are interested in keeping your monthly payments low or a monthly payment that never increase, your lender will be assist you and make the process easier.
The lender will arranged to have the home appraised. The appraiser is a third-party individual who will calculate the value of the home. This ensures that the price of the home is fair to all parties involved. You will work with your lender and agent to ensure that all the proper paperwork is being submitted.
#6: Close the Sale
Purchasing a home requires a lot paperwork. You will sign all the documents at closing. Subject to the contract terms, you will be able to move into your new home as soon as all of the paperwork has been completed and the seller of the house has been paid. You are now officially a homeowner!
**All loan applications are subject to credit underwriting approval.**
Future Blogs: Types of Mortgages | Homeowners Insurance
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