Buying a home can come with a whole set of emotions-that is why we put this article together for you to understand the home buying process.
1. Be Mentally and Financially Ready
2. Get Pre-Approved for a Mortgage
5. Negotiate Terms of The Purchase
7. You Hand Over Earnest Money
9. You Need to Get a Mortgage Loan
11. Choose Your Insurance Company
Committing to buying a house it’s a huge responsibility. It means that you have been saving money or know how to come up with a large amount of money for a down payment. If you don’t have money for a down payment, there are programs for first-time home buyers that help with the down payment and closing costs. If you have been saving, it’s always good to have extra money for unexpected expenses. You may also have to pay a little extra to get that home if you are in a competitive market.
For example, during the coronavirus pandemic, homes were getting up to forty offers at one time. The market was highly competitive and homebuyers had less chances of getting their home offer accepted. Keep in mind that sellers don’t always accept the highest offer. Still, you should be ready to negotiate and be prepared to make a higher offer if you really love the home.
Mentally Ready
There are many reasons why people buy a home, but emotions such as excitement, anxiety, anger, and happiness may surface simultaneously. Some people may be tired of renting or feel crammed in a small place. Others may want to buy a house to have an investment. This is why it is essential to be mentally ready to buy a home. What is your vision for buying a home? Is it a starter home or is this a forever home? Think about your reason and have a plan for your future.
Think about the neighborhood:
Do you see yourself living in that neighborhood? Buying a home is a long-term investment for some and knowing that you will be there for a long time is essential because moving may not be as easy.
Questions to consider when choosing a neighborhood.
New Responsibilities:
You don’t have to worry about home repairs when renting a home or apartment. When you’re a homeowner, you have to make any repairs that are needed in the home like water leaks, replacement of air filters, yard maintenance, roof and gutter maintenance, etc.
Financially Ready
The credit score you need to buy a house:
Lenders look at your credit score to determine if they want to work with you. The higher the credit score, the better it is for you because you have more favorable loan terms.
The three major credit bureaus are Equifax, Experian, and Transunion. These companies use a formula to calculate your credit score, which lenders use to determine if you are able to pay a mortgage loan. To get your free credit report go to the annual credit report website.
How much money have you saved:
Most experts recommend that you save at least twenty percent of the home’s value for the down payment. According to Mint, it takes 4.25 years for an American household to save a 20 percent down payment. Unless someone is going to help you with the down payment, it is best to start sooner rather than later.
Pay your bills on time:
Paying your bills on time gives creditors confidence that you are ready to buy a house. Also, since most payment information is shared with the credit bureaus, your payment history can help increase your credit when you’re on time to pay your bills. If you’re the type of person that forgets to pay bills, maybe it’s time to consider automatic payments. The choice is yours.
Pay off any outstanding debt:
Paying off your debt before buying a home is important because you will be able to apply for a mortgage loan easier because you can afford it. To give you some perspective, most lenders will not qualify you for a mortgage if you have too much debt. Lenders will want a Debt-to-Income (DTI) ratio of about 35% or less. If you are above that, you may still qualify for a loan but the loan terms may not be as favorable and rates could possibly be higher. So, it’s important to come up with a plan to pay off your debt.
Realtors will ask you before taking you to see homes if you have been pre-approved for a mortgage. Some realtors may decline to help you find a home if you are not pre-approved. When you have a pre-approval letter, realtors will take you more seriously about buying a home. So, get pre-approved to see how much home you can afford. The last thing you want is to go see homes outside your purchasing capability.
Choosing a good realtor that knows the area you are buying is super important because they will know the prices in the area more than anyone else. Check out realtors reviews, current listings, flyers, market knowledge, and network to see how good they are at their job.
Here are some questions to ask realtors before hiring them to represent you.
Now that you are mentally and financially ready is time to view some properties. Your agent will most likely give you some direction and plan out all the home visits. When looking at homes, make sure you pay attention to detail. It is okay to ask questions like why are homeowners selling the home and how fast do they want to sell? As well as, how many offers have they received already?
Tips:
There are lots of ways to negotiate terms when purchasing a home. But usually, a buyer contracts with a Real Estate Agent who represents you to show you properties you may like and then negotiate on your behalf. Your agent will work to ensure all the contracts and other legal documents are delivered and signed.
Most home sellers price their homes higher with expectations that you will negotiate. What you should consider before you start negotiating a house price is the following.
An excellent way to understand escrow is to think of it as a financial middleman. With an escrow account, a third party holds onto funds from the first party for a second party. You might wonder why the first party doesn’t simply give the money to the second party, and that’s a good question.
When there’s a significant transaction, such as the purchase of a house, many things need to be done before the sale can be completed successfully. In the case of buying a home, during the time between the seller’s acceptance of the buyer’s offer and the transfer of ownership, deposit money and documents related to the sale are put into an escrow account, usually held by an attorney or a title company.
Earnest means “serious,” so when you hand over earnest money, you indicate that you’re serious about buying the house. Sellers need to have some assurance from you before they take the house off the market. They need to know that you really want the house and won’t just back out of the deal. It’s typical to put down between 1% and 3% of the home’s purchase price as earnest money. Your real estate agent can guide you on what would be applicable to your area. If you buy the house, you don’t lose your earnest money; it goes toward your down payment. You’ll probably lose your earnest money if you decide you don’t want the house. If you don’t get a mortgage loan after being pre-approved for one and, therefore, can’t buy the home, you might get your earnest money back. If you discover major problems with the house that the seller didn’t disclose, you’ll likely get your deposit back after canceling the deal.
A house inspection is optional, but it’s highly recommended to have the home inspected by a professional inspector before you buy it. Otherwise, you might unknowingly buy a money pit. The seller is supposed to disclose any known issues with the house, but there could be issues that the seller doesn’t know about or doesn’t disclose. Your home inspector can give you a general overview of the house. Sometimes, the inspector might recommend you get another professional opinion, such as one from a licensed contractor, an exterminator who can spot pests or an environmental inspector who can check for mold or radon issues.
Here are some questions to ask the home inspector if you decide to hire one.
You might have been pre-approved for a loan, but that isn’t the same as actually getting the loan. A pre-approval is simply a letter from your mortgage lender saying that you qualify for a loan. You’ll likely get the loan, but as the saying goes, “It ain’t over till it’s over.” In other words, you don’t have the loan just yet. Your loan goes through an underwriting process after appraisal, and this process, depending on your lender, could take a few days or a few weeks. Once the underwriter approves the loan, you can proceed.
The type of loans you qualify for will be completely based on your financial situation and credit score.
Here are some loans to get you to familiarize yourself with:
| Mortgage Loans | ||||
| Loan Type | CONVENTIONAL | FHA | USDA | VA LOAN |
| Homebuyer Profile | Good credit | Low credit score options | Good credit | Fair credit |
| Downpayment | 10% to 20% | 3.5%-10% | Low down payment | Small down payment |
If you take out a mortgage to buy a house, your lender will usually order an appraisal, which is a valuation of the property. (If you’re paying cash for the house, this step doesn’t apply.) Lenders loan a certain percentage of the appraised value of the home. But the appraised value could be quite different from the price you and the seller agreed on. If the house appraised for more than the deal you struck, that’s good news for you; it means you’re getting a good deal. It’s also good if the house appraises for around the same price as the one you and the seller agreed on. Your deal with the lender should go through in both of those cases. But if the house appraises for lower than the price you agreed to pay, you won’t get the full loan you were counting on the lender’s loan money based on the appraised price, not the agreed-on price. So, you would either need to come up with more money to put down on the house or try to renegotiate the price with the seller. In all cases, lenders will lend based on the lower appraised value or purchase price. It’s a good idea to have a contingency clause attached to your offer that lets you out of the deal if the house appraises low.
When you get a mortgage loan, you must have homeowners insurance. If you don’t pick a company, your lender will choose one for you. That might work out fine for you, but it’s better if you shop around to get the best rate. For example, you might wish to bundle your homeowner’s insurance with your auto insurance to save some money.
When selecting homeowners insurance, make sure you understand the following:
Make sure you ask the agent anything you don’t understand about homeowners insurance.
Your lender also requires you to have title insurance. If a lien on the house was discovered after you bought the house, your title insurance, not you, would pay it. Title insurance basically will cover any undiscovered liens against the property that occurred before you closed and gives you “clear title/ownership” of the home, less any new loans you took out to buy the property.
The actual buying of the house is called the closing. You’ll sign all the legal documents at closing. You then transfer (usually cashier’s check or wire) any funds to escrow required to pay your balance of the down payment owed and closing costs. The borrower funds plus the mortgage monies from your Lender give escrow the correct amount to close the transaction. Once the file is “balanced,” escrow sends funds to pay off seller liens (such as a mortgage), with any leftover funds going to the seller as proceeds of the sale. At this point, you are a new homeowner. Congratulations!
Tip: make sure you save your closing packet. In your closing packet, you should have your closing disclosure, promissory note, and deed of trust.
You’re excited that you closed on your home, and now it’s time to prepare to move. Moving can be a lot of work, and it can also be very stressful. Hopefully, your realtor gave you a moving checklist or a referral to a moving company. But whether you’re deciding on hiring movers or doing it yourself is best to create a checklist of the things you need to get done. Here is a moving checklist that may help you stay organized.
Once you have moved, it’s time to get settled into your new home.
Plan to Unpack:
If your moving boxes are labeled by room, you can make sure those boxes are placed inside those rooms so you can unbox them in sections. Maybe you start unpacking the kitchen items first, then unpack items in the living room, and so on. Think about the priority.
Decide how you want to arrange your furniture:
Arranging furniture is a task of its own because there are things to consider, like how to set the furniture to have the best traffic flow or what will be a focal point in the living room. If you have kids, you may have to make the house kid-friendly and childproof any dangerous areas to give your kids a safe place to explore.
Change address checklist:
You will need to notify many parties of your new address. You can do this online or go to the local post office.
Here is a list to get you started in your new address notification notice.
Schedule a Housewarming Party:
Buying a home is an American dream and a big accomplishment. So, invite your friends, family, and neighbors to celebrate.
Start your home journey and get pre-approved today.
Photo credit: istockphoto.com/Povozniuk
