After your offer has been accepted, splurge for a home inspection. Spending even $500 can educate you about the house and help you decide if you really want to pay for necessary repairs. You can also leverage your offer depending on the results of the inspection report and make the seller financially responsible for all or some of the repairs. For more on what to look for, see 10 Reasons You Shouldn't Skip a Home Inspection.
Interest rates are the term used to describe the percentage you'll pay your lender to borrow the money you'll need to buy your home. By and large, your mortgage will be paid off either at a 15-year or 30-year timetable. As far as interest rates go, the shorter the time you'll need to pay off the mortgage, the more favorable your interest rate. The lower your interest rate, the less your monthly mortgage payment will be. Consequently, job one when you go shopping for a mortgage lender is to compare interest rates -- and choose the loan where those rates are the lowest you can find.
One of the ways your lender makes sure you and your house are a good bet is with a home appraisal. This is when someone does a professional evaluation of how much your home is worth. If the appraisal ends up higher than your offer, go celebrate. If it’s not, you may either have to make a larger down payment, get a second opinion, or renegotiate the price. Or you may decide to walk away from the deal.
Next, decide which mortgage makes the most sense for you. There are plenty of different options to consider. Although Gilmour advises choosing one of the most common two: a fixed-rate mortgage, in which your interest rate remains steady for the duration of the loan, or an adjustable rate mortgage (ARM), in which your rate fluctuates to reflect market changes.
As a first-time home buyer, you probably don’t have a ton of money saved up for the down payment and closing costs. But don’t make the error of assuming that you have to delay homeownership while saving for a huge down payment. There are plenty of low-down-payment loan programs out there, including state programs that offer down payment assistance and competitive mortgage rates for first-time home buyers.
Before you close on your new house, your lender will require you to buy homeowners insurance. Shop around and compare insurance rates to find the best price. Look closely at what’s covered in the policies; going with a less-expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. Also, flood damage isn’t covered by homeowners insurance, so if your new home is in a flood-prone area, you may need to buy separate flood insurance.
Down payment: Unless you’re getting a loan backed by the U.S. Department of Veterans Affairs or U.S. Department of Agriculture, you’ll probably need to put some money down. While there are benefits to putting down at least the old standard of 20% of the home’s purchase price — one of them often being a lower interest rate — some lenders now offer conventional loans for as little as 3% down, and Federal Housing Administration (or FHA) loans allow as little as 3.5% down.
2. How much house can you afford? How good your finances look from a mortgage lender’s perspective isn’t the only thing to examine. You should also look at savings that can be used toward a down payment and determine how much you’d be able to afford on a monthly basis for your principal mortgage payment, interest, taxes and insurance, which Dabit recommends calculating as 28 percent of your gross income. “That’ll help you figure out how much you can borrow and sustain long-term,” he says.
One of the most crippling headaches to deal with is a monthly mortgage payment you find you can’t quite afford. Lysette Portales, a real estate agent with Century 21 Jim White & Associates in Treasure Island, Florida, says she stresses to clients that they should shop around for a mortgage with multiple lenders and inquire with each about different program options. “A lot of them might be able to do 100 percent [financing],” she says, noting that many homebuyers typically only know about a couple mortgage programs and settle for one without considering what would be most affordable option both now and down the line.
What to consider instead: You can put as little as 3 percent down for a conventional mortgage (note: you’ll pay mortgage insurance). Some government-insured loans require 3.5 percent down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.
Qualifying for a loan isn’t a guarantee your loan will eventually be funded: Underwriting guidelines shift, lender risk-analysis changes and investor markets can alter. “I have had clients who signed loan and escrow documents, and 24 to 48 hours before they were supposed to close were notified the lender froze funding on their loan program,” says Recchia. Having a second lender that has already qualified you for a mortgage gives you an alternate way to keep the process on, or close to, schedule
Prior to the closing date, the buyer will want to verify with his or her agent, lender, and escrow company that all of the necessary documents have been signed and terms met. If they have not this should be taken care of immediately to ensure that there are no last-minute problems. The buyer will also want to verify what forms of payment are acceptable. On the closing date, closing costs and fees will be paid.
First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.
Approach the process as assembling a team of people who will help you achieve homeownership. With each person, you want to feel confident that the professional will work in your best interests. Heyer recommends not just speaking with multiple professionals regarding your mortgage and home inspection, but also interviewing several agents at the start.
Throughout the process, your mortgage lender will likely request various documents from you, such as updated pay stubs, current tax records, and other items that may have changed since pre-approval, as well as information about the home insurance policy you plan to purchase. Try to respond as quickly and accurately as you can, providing the needed information as soon as possible. Your promptness will help move your loan through the process faster and help ensure you can close on time.
“Transfer documents” refers to the documents relating to the transfer of ownership from the seller to the buyer. Most documents will be signed by the seller and delivered to the buyer for your review. Documents include: 1) deed, 2) bill of sale, 3) affidavit of title (or seller’s affidavit), 4) transfer tax declaration, 5) transfer tax declaration, and 6) buyer / seller settlement statement. It’s important that you do your due diligence and read through the transfer documents to make sure everything says what it should say.
Getting prequalified is the first step in the mortgage process (it’s usually pretty simple). You give your lender your overall financial picture, the lender evaluates your information, and then the lender gives you an idea of the mortgage amount that you will qualify for. Note, that prequalification is not a done deal – you may not in fact qualify for the loan for which you are preapproved (it’s a general idea).
You might have some empty rooms for a little while, but your budget and your future selves will thank you! And if you find yourself thinking, Oh well, I’ll just put it on credit—stop right there! Debt is dumb. Plus, taking on new debt in the middle of buying a house could delay your approval for a mortgage and make you miss out on the perfect home. Don’t do it!
Realize it will be an emotional process. This tip goes for first-time homebuyers especially, Lewis said. Your emotions in the process can range from the excitement of finding a home, the anxiety tied to making an offer or the disappointment of not getting that house. "When you go into the process knowing that you're going to have these huge emotional ups and downs, you can weather them more easily," Lewis said.
Here’s why: The lender’s mortgage decision is based on your credit score and your debt-to-income ratio, which is the percentage of your income that goes toward monthly debt payments. Applying for credit can reduce your credit score a few points. Getting a new loan, or adding to your monthly debt payments, will increase your debt-to-income ratio. Neither of those is good from the mortgage lender’s perspective.
Want a trusty home-buying guide by your side? Most first-timers will want a great real estate agent—specifically a buyer's agent, who will help you find the right houses, negotiate a great real estate deal, and explain all the nuances of home buying along the way. The best part? Their services are free to first-time home buyers (since the seller pays the sales commission). Here's how to find a real estate agent in your area.
Williams got his start working in entertainment reporting in 1993, as an associate editor at "BOP," a teen entertainment magazine, and freelancing for publications, including Entertainment Weekly. He later moved to Ohio and worked for several years as a part-time features reporter at The Cincinnati Post and continued freelancing. His articles have been featured in outlets such as Life magazine, Ladies’ Home Journal, Cincinnati Magazine and Ohio Magazine.
In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. You can also defray costs by asking the seller to pay for a portion of your closing costs or negotiating your real estate agent's commission. Calculate your expected closing costs to help you set your budget.
"Building equity in a home can be a good way to grow your wealth, but it's important that you do so in a way that doesn't stretch your finances too thin," he cautions. "Things can get really ugly when the housing market declines, so it may be a good idea to take out a 30-year mortgage but accelerate your monthly payments as if you had a 15-year mortgage. If you ever need to lower your payment in the future, you'll still have that option."
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Your agent can put you in contact with Coldwell Banker Home Loans so you can be pre-approved for a mortgage even before starting the house hunting process. Although the pre-approval is not a final loan commitment, the pre-approval letter will demonstrate your financial strength and ability to go through with the purchase when you are ready to make an offer on a home.
Wouldn't it be great if buying a home were as simple as it is in a game of Monopoly? All you'd have to do is find a desirable neighborhood, hand the bank a few bucks, and you'd receive a house. Of course, the home-buying process is a bit more complicated in real life (especially for first-time home buyers), but it's not impossible. Competition among buyers in many markets has gotten intense, so if you're serious about homeownership, you'd better get your act together. To point you in the right direction, we've prepared a road map of the home-buying process. From choosing the right professionals to signing that final contract, here are the typical steps you need to be aware of.
Now that a the home buyer has determined the type of home that he or she is most interested in, the location, and has obtained the services of a real estate agent, it is time to view available homes in the area. Of the steps to buy a house, this is often one of the most enjoyable. The real estate agent will locate and screen homes for the buyer and present him or her with the options that best match the established criteria. The agent can set up a date and time to visit potential homes. During this time the buyer should not feel pressured or make hasty decisions.
Now you're getting into serious home buying territory. Once a bank or mortgage lender gives you a price range for a home mortgage, you can go ahead and attempt to get pre-approved for a home loan. In a pre-approval scenario, a mortgage lender will dig deeper into your personal finances. You'll fill out a mortgage application (and pay a fee to do so), undergo an extensive credit check and answer any questions a mortgage lender may have about your ability to repay a mortgage on time, and in full. If you're approved, you'll receive a conditional commitment from a mortgage lender to green light a home loan for a specific loan amount and with a specific interest rate range. A pre-approval document from a lender is pure gold for a home buyer, as it shows a demonstrated ability to procure an actual mortgage, and shows a home seller that you're a serious buyer.