If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Use our calculator to determine whether a 15-year or 30-year fixed mortgage is a better fit for you. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.
Homeownership is one of the core concepts of the American Dream. When a person is ready to make that dream a reality there are certain steps to buying a home that must be followed. These steps ensure that the person is prepared to actually own his or her own home, that the right location and home are selected, and that the actual purchase of the house proceeds with as few problems as possible. The process of buying a house can be complicated, even for those who have previously owned a home. The following guide will help navigate home buyers through the necessary steps.
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This is the fun part! As a buyer, you can peruse thousands of real estate listings on sites such as realtor.com, then ask your agent to set up appointments to see your favorites in person. Since the sheer number of homes can become overwhelming, it's best to separate your must-haves from those features you'd like, but don't really need. Do you really want a new home or do you prefer a fixer-upper? Make a list of your wants and needs to get started, and whittle down your options.
The home buying process can take anywhere from one month to a few years, depending on the unique experience and expectations of the home buyer. On average, a home buyer can spend one to two months searching listings, several weeks to negotiate and close a deal, and then make the first mortgage payment several weeks after that. With these variations in mind, a home buyer can realistically expect for the home buying process to take roughly three months.
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.
Your mortgage loan provider will want you to get your home fully appraised by a professional home appraiser. That's because the mortgage provider wants to make sure the home is valued near or above the sale price, thus ensuring a better chance that the loan will be repaid. You'll also want to get a home inspection, to ensure there are no defects like a leaky roof, mold in the home, or cracks in the infrastructure, among other cost-prohibitive issues.
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.
That is, you need to be thinking about how much it'll set you back when you buy a lawn mower or pay a service to cut your grass. You'll want to keep in mind that when you buy a home, you'll soon be making the owner of a local furniture store very happy. If you plan on having kids, someday you'll be begging them to turn off the lights and asking, "Do you think I'm made of money?"
Once you’re ready to start home buying, it’s offer time. Here’s where you’ll thank yourself for working with a real estate agent. They’ll help you determine the right offer to make for a particular house, including things that go beyond the dollar amount. For instance, offering an accelerated closing date or to buy and lease back to the buyer if they can’t move right away may be a smart move in some situations. When you make an offer on a house, the seller may accept it or counter-offer, and then your agent will help you decide how and if to negotiate. Once you arrive at a deal everyone likes, you’re considered under contract to buy the house.
You can get approved for a home loan by completing a mortgage application. Be prepared to provide proof of your financial data, such as your monthly income, total debt payments, and your credit score. Also, have an idea of how much house you can afford, as well as how much cash you have available for a down payment. Meeting with a mortgage lender before you are ready to purchase a home can also help you set financial goals, such as knowing how much to save up for a down payment, or improving your credit score.
What to do instead: Don’t open new credit cards, close existing accounts, take out new loans or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30 percent of your available credit limit, and pay your bills on time and in full every month.
For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America"
“Realtors do a lot of your groundwork up front for you by contacting listing agents to set up showings and help you negotiate the purchase,” says Brandon Gentile, CEO of the Legacy Group Real Estate Team in Clarkston, Mich. “The best part is, a buyer doesn’t pay for working with a realtor. The service is free for a buyer, as sellers pay all the commission.” For more, see How to Find the Best Real Estate Agent.
As you save money for your down payment, avoid the temptation to invest in the volatile stock market with money you hope to use in the next year or two. While you might be tempted to try to earn a greater return on your money than an online saving account paying one percent, the greatest risk is not having your money available when you’re ready to buy a house.
In a perfect world, I would love to get a 15 year fixed rate mortgage using a conventional loan where I put down 20% (avoiding PMI altogether) in a great neighborhood close to the city (but not too close) with a white picket fence, red door, and black shutters with a boatload of money in the bank to go with it. But here I am, writing about the process and not buying any homes – I’m just trying to pay off my student loans.
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.
Closing is a formal process where all parties sign the necessary paperwork to complete the transaction and transfer the property’s title from the seller to you. The seller receives payment for the home, and you receive the house keys! From the amount credited to the seller, the title representative subtracts the funds to pay off the existing mortgage and other transaction costs. Deeds, loan papers and other documents are prepared, signed, and ultimately filed with local property record office.
In any case, consider picking a mortgage with a fixed rate for the longest time that you think you'll be keeping the home. That's because you could see your monthly payments jump up on a variable rate mortgage if interest rates keep climbing. On the other hand, fixed rate mortgages start with higher interest rates so it may not make sense to pay more to lock in a fixed rate for longer than you need it.
Pride of ownership is the number one reason why people yearn to own their home. It means you can paint the walls any color you desire, turn your music up, attach permanent fixtures, and decorate your home according to your own taste. Home ownership gives you and your family a sense of stability and security. It's making an investment in your future.
Owing to the high costs, property purchase often remains once-in-a-lifetime activity for many individuals. It may seem like the closing process is a lot of complex work, it is worth the time and effort to get things right instead of hurrying up and signing a deal that you don’t understand. Be wary of the pressure created to close the deal fast by the involved agents and entities who are there to help you for their cut, but may not be really responsible for the problems you may face in the long run from a bad deal.
A title search and title insurance provide peace of mind and a legal safeguard so that when you buy a property, no one else can try to claim it as theirs later, be it a spurned relative who was left out of a will or a tax collecting agency which wasn't paid its dues. A title search is an examination of public records to determine and confirm a property's legal ownership, and find out what claims, if any, are on the property. If there are any claims, those may need to be resolved before the buyer gets the property. Title insurance is indemnity insurance that protects the holder from financial loss sustained from defects in a title to a property, and protects both real estate owners and lenders against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property.
In a seller’s market, experts advise buyers to overlook cosmetic issues, such as loose fixtures, water stains (as long as it’s not the symptom of a larger problem), failed window seals and cracked tiles. However, some buyers might be in the position to negotiate these repairs with the seller. One option is to ask for a cash-back credit at the close of escrow. This will save you some money and you can oversee the repairs yourself.