Purchasing your new home, whether it’s your first or fourth, can be an overwhelming task. Here is a step-by-step guide to help you along the way:
Click on any highlighted word for definitions and further details!
1. Know What You Want
The five most important criteria for my new home are:
2. Know What You Can Afford
There are three key factors to consider:
1) The down payment:
Most loans today require a down payment of between 5-10% depending on the type and terms of the loan. If you are able to come up with a 20-25% down payment, you may be eligible to take advantage of special fast-track programs and eliminate mortgage insurance.
2) Your ability to qualify for a mortgage:
First Time Home Buyers (FTHBs) get special perks! Many credit unions offer unbeatable financing for first-time buyers. My favorite loan product available for FTHBs is Coastal Federal Credit Union’s FTHB loan – $0 Down and No PMI!
3) The closing costs associated with your transaction
You will be required to pay fees for loan processing and other closing costs. These fees must be paid in full at the final settlement unless you are able to include them in your financing. Typically, total closing costs will range between 2-3% of your mortgage loan.
Typical Closing Costs:
- Origination fees (the lender’s compensation)
- Flood Determination fees
- Attorney fees
- Title Insurance
- Pre-Paids like Homeowners’ Insurance, Mortgage Insurance and Interest
- Interim Interest
- Pro-rated property taxes
- Home warranty fees
Pre-qualification and pre-approval are two separate steps in buying a home. Just because you are pre-qualified for your mortgage, does not mean you are pre-approved for a loan. The amount for which you are pre-qualified is not guaranteed, either, it’s just a prediction. First, buyers are required to apply for a loan from their bank or mortgage lender and pre-qualify for that mortgage before they find the home they want to buy.
Pre-qualifying will help you in the following ways:
- You won’t waste time considering homes you cannot afford.
- Generally, interest rates are locked in for a set period of time. You will know in advance exactly what your payments will be on offers you choose to make. To pre-qualify, call your lender and tell them you’d like to buy a house. This can sometimes be done over the phone or internet. Typically the lender will look at your debt and assets, but not your credit score.
Next, you will get pre-approval. For this you will fill out an official mortgage application with your lender. This is when they will investigate your financial status more thoroughly, including your credit score. At this time your lender will inform you of the current interest rates for your loan, and whatever the rate is that day, it will be locked on your application for the duration of your home buying experience.
Most lenders require that your monthly payment will range between 25-28% of your gross monthly income. Your monthly mortgage payment to the lender includes the following items:
- The principal on the loan (P)
- The interest on the loan (I)
- Property taxes (T),
- The homeowner’s insurance (I).
Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. These key factors determine your ability to secure a home loan: Credit Report, Assets, Income, and Property Value.
Pre-approval will help you in the following ways:
- A seller may choose to make concessions if they know that your financing is secured. You are like a cash buyer, and this will make your offer more competitive.
- You can select the best loan package without being under pressure.
Cash buyers must have proof of funds ready to begin.
4. Go Shopping!
This is the most exciting part of your home buying experience! I can create a personalized MLS search which matches all of your criteria, sent to your email daily.
5. Submit an Offer
Once you find a home that meets your needs, we will submit an offer to the seller’s agent. Depending of the home, we may submit at their asking price, below it, or above it. Each offer is different, depending on the home, market conditions, and an array of other factors.
Next, the seller’s agent may reply to your offer with a counter offer. The negotiation process is precisely why hiring me as your agent is so important. We will outline your options, discuss pros and cons, and find a negotiation strategy that gives YOU the best outcome possible.
9. Final Mortgage Approval