If you’re like most people, home ownership is a goal you are striving for to reach the American Dream. You work hard, pinch your pennies and save your money to put toward your dream home. Chances are you’ll require the assistance of a lender to help you with the financing and a Realtor to help you find the perfect home. To guide you through this process we’ve put together 8 Tips to help you succeed.
Tip #1. On your Mark, Get set, Go…
Get Pre-qualified with a mortgage broker. Before starting your search for the right home you are going to need to get preapproved for a loan. This way you are searching within your budget. If you are working with a Realtor (which we really hope you do :)) they should have a list of preferred lenders that they do business with.
Give the lenders a call and speak to them about your goal of home ownership. They’ll ask you a bunch of questions such as how much you make, what are your expenses and they will help you calculate how much home you can afford and guide you to the best financing products they have available, especially if you’re a first time home buyer.
Speak to different lenders to see which one you feel more comfortable with or who is giving you the best rates. Shopping around now for their best lender will save you a lot of money on the long run. The two biggest things they will need to figure out are your credit scores and your debt/income ratio. This will ultimately determine the amount of money they will lend you and at what interest rate.
Typically there are 3 loan types you will find. Federal Housing Administration (FHA), Conventional financing or Veterans Administration (VA) Loans. With FHA financing you only need a 3.5% down payment. So for example you would need $7,000 down payment for a $200,000 home.
With Conventional financing you will need considerably more (usually 10-20% or $20,000 – $40,000) than FHA. This will reduce your loan amount and your monthly payment. Typically anything less than 20% will require you to purchase principle mortgage insurance (PMI) which will increase your monthly payment.
With VA loans, borrowers could receive up to 100% financing and would only need closing costs. Your lender will be able to help you select the best financing options around.
Tip #2. Fix Your Credit.
After speaking with a lender you should have a good idea where you stand with your credit and if you need to work on improving it. The lender can help you determine which debts to pay down to bring your credit scores up. This can help you qualify for more money to buy your home. It’s always a good idea to get a copy of your credit report to see if there are any mistakes or items that have surpassed the statute of limitations that could be removed.
Tip #3. Save for your down payment and closing costs.
Hopefully you’ve been saving your money for your down payment and closing costs. These can add up quickly and can be a bit overwhelming. Besides the money for the down payment you will need approximately 2% of the sales price for closing costs. This will include inspections, appraisals, title fees, County taxes and lender fees.
Speak to your lender and he can give you an idea of what to expect. They can also guide you in case you’re receiving some funds as gifts from family and friends to use for your home purchase.
Tip #4. Searching for and finding the right home for you.
Now that you know how much you can afford it’s time to find your new home. What do you want” What features or amenities do you desire? Make a list such as number of bedrooms, bathrooms, a garage, one story or two, a pool, fenced yard, gourmet kitchen etc. Next comes the desired location. Which neighborhood do you prefer? Do you need to be in a specific school zone? Close to the freeway? Close to shopping? Close to your job.
Your Realtor can help you make all these decisions. They can show you all the best neighborhoods to live in within your budget. Ask your realtor if they can set you up to search the Multiple Listing Service (MLS). These days most Realtors can give you free access to their MLS, Just ask. They can also set up email alerts to let you know when a new home comes on the market.
Tip # 5. Making your Offers.
After previewing a bunch of homes with your realtor, you’ve finally found the right home to buy. Ask your Realtor to do a Comparative Market Analysis (CMA) to help you determine the value of the house your interested in to guide you in making an offer to the seller. By comparing similar types of homes you will arrive at a good offer price to the seller.
Your Realtor will prepare the sales contract that will include the names of both buyers and sellers, your offer price, closing date and type of financing along with any other terms and conditions you might require. Your Realtor will then present this offer to the listing agent along with a pre-approval letter from your lender to show the seller you’re ready willing and able to buy the house. In addition, you will need to start the escrow process by putting your deposit into your broker’s escrow account or with the Title company’s escrow account.
Tip # 6. Offer Accepted, Now What?
Congratulations, the seller has accepted your offer, Now what? Well, the clock starts ticking and you need to do a few things. First on the list is to get an inspection on the house to see if there are any issues you need to deal with within a certain time limit, usually about 15 days. After that your lender will order an appraisal on the property to ensure the value of the home.
These are two things you may be able to negotiate later on with the seller. These costs are typically paid outside of closing and are the buyer’s responsibility. If there are maintenance issues you may be able to get a credit from the seller for repairs. Also, if the appraisal comes in lower you might be able to get the seller to reduce the purchase price based on the appraisal price.
During this time, the Title company doing the closing will do a municipal lien search and Title search to ensure there are no open permits or violations on the property. They will also get payoff figures from the sellers lender, order estoppel letters from any homeowner associations and work with your lender to prepare the closing package.
Tip # 7. The Closing Day is finally here.
All the inspections, appraisals and lien searches have been completed. You’ve finalized any further negotiations with the seller and the Title company has prepared the closing package with the lender. The Title company will inform you of how much you need to bring to the closing table. Most likely this amount will need to be wired into their escrow account prior to closing. Now all that’s left to do is sign the paperwork and call the movers.
Tip #8. Don’t forget to Ask A LOT of Questions.
Buying a home is a significantly large purchase that home buyers make. Therefore, you shouldn’t be afraid to ask all of your questions, and ask again until you’re comfortable with the answer. Don’t ever feel like you’re bugging your realtor or broker — they’re getting paid to help you!
We hope these tips will help you in purchasing your new home. If you have any questions, please feel free to send us a message. We will answer you asap.