Fabi R. Gomes | May 15th, 2019
The first step in buying a home is understanding the process. Whether you’re a first-time homebuyer or an experienced homeowner, this guide will make your experience much easier. Below are 12 essential steps to follow when purchasing a home.
1. Are you ready to buy?
As part of understanding the home buying process, it’s important to determine if you are ready to apply for a loan. How is your credit? Are you financially stable? In order to get the best interest rates and results from lenders, you will need to meet some requirements. Banks use your credit rating to decide whether to lend you money or not, as well as how much you can afford. A higher credit score increases your chances of getting approved for a loan and obtaining a lower interest rate.
2. Understand the costs of homeownership
From lender fees and closing costs to monthly and annual expenses, there are a lot of expenses homeowners face that renters don’t. You may be eligible for down payment assistance, but do you have money saved for closing costs on the loan? You may also face new costs in addition to your mortgage payment. With a fixed-rate mortgage, you’ll be able to predict your monthly principal and interest payment amount. Property taxes and insurance are the primary things that can affect your monthly payment for your home.
3. Know how much house you can afford
Before you look at houses, find out how much you can borrow. The best way to do that is to get prequalified by a lender. You’ll also want to consider how much of your monthly income you are comfortable dedicating to a house payment. Buyers often save for years by reducing expenses, taking a second job, or getting a smaller apartment if they are renting. State and local governments, as well as many non-profit organizations, offer down payment assistance to eligible homebuyers. Prior to choosing your lender, you’ll want to compare rates and fees. The best way to compare rates among lenders is to look at the Annual Percentage Rate (APR) they charge—not just the interest rate. A higher APR could mean higher fees, but it could also mean high rates and lower fees.
4. Hire an experienced real estate agent
The right agent is your partner in the home buying process and will help you find the right home and negotiate a good price for it. He or she will also make your home search more efficient by narrowing down your choices based on your preferences, as well as using his or her knowledge on neighborhoods, pricing, local schools, and public safety to assist you in negotiating a fair price, answering your questions, and providing guidance throughout the process. You may be working with them for several months, so it’s important to find someone with whom you’re comfortable. Personally interview each agent to make sure it’s a proper fit. As a buyer, you don’t pay a commission (in Texas, that is typically a seller’s cost), so it’s in your best interest to find an agent you trust before you start looking.
5. Go house hunting
The first step here is to know what you want in a house. Single-family home, condo, or a gated community? How much privacy do you want? Do you prefer to have neighbors nearby or to have more distance between homes? If you have children, or hope to in the future, then the local public schools near your home will be important to you; how are the those schools rated? What is the neighborhood crime rate? Consider all the factors that will make you satisfied when you make a house your home. You need to know if you can afford to buy in the neighborhood you want, or if you’re willing to make sacrifices, such as having a longer commute, for something more affordable. How busy are the streets around your house? How much noise does the traffic make? How easy is it to run errands like grocery shopping?
6. Make an Offer
The price of a home depends on many ever-changing factors. Your initial offer should be based on prices of similar homes in the same neighborhood, condition of the house, and what you can comfortably afford based on your pre-qualification from your lender. Your real estate agent will help you prepare your offer to the seller indicating how much you are willing to pay. The seller will likely come back with a counter-offer and you can work with your real estate agent to decide whether you can accept that offer, or if you want to make a new offer. You can strengthen your offer by considering what concessions you’d be willing to make in order to close the deal. Negotiations can continue as you learn more about the home. If the home inspection reveals significant water damage or a faulty heating system, for instance, you may choose to lower your offer to make up for that, or require that the problem be repaired.
7. Understand the home appraisal process and how it can impact your mortgage process
A home appraisal is an impartial third party assessment of the value of a home for the purposes of either purchase or refinancing. Lenders use the appraisal to ensure they are not lending too much money to the buyer that it couldn’t recoup through a sale if the buyer defaults. To determine a home’s value, the appraiser will consider a wide range of factors, including the home’s location, size, amenities, condition, and any new features that the owner has added. The appraiser will then use the price of comparable homes to determine the free-market value of the property. Keep in mind that cosmetic features like a renovated kitchen or exterior molding do not have a significant impact on value.
8. Get ready for home inspections
A home inspection will reveal whether there are any significant defects in the construction of the house or any major repairs required. The lender may require this, but if not, you may want to make it a condition of your offer so you’ll know what you’re getting into. Separate from the home inspection, a pest inspector needs to evaluate the level of damage caused by or conducive conditions for termites and other organisms, such as mold. If the inspector finds a significant infestation, he or she could recommend extermination, which can be an added expense. You can negotiate with the seller regarding whose responsibility that cost will be.
9. Understand your mortgage terms
While the details of each loan are different, lenders have a variety of mortgage options. You’ll want to ask each lender you contact what special loan programs they offer for which you may qualify. Most mortgages fall into two categories: fixed-rate and adjustable-rate. Fixed-rate mortgages provide a constant interest rate and monthly principal and interest payment for the life of the loan. Most mortgage loans are 30-year loan, but there are also 15- and 20-year options. If you choose conventional financing and put less than 20% down, private mortgage insurance (PMI) will be required. The insurance covers the lender in the case of default. PMI generally costs less than 1% of the outstanding loan balance, and it’s usually combined with your monthly mortgage payment. When you’ve paid enough principal to have more than 20% equity, you are no longer required to pay the insurance on your loan. Some lenders also offer low down payment loans, in some cases as low as 3.5%. However, if you choose FHA financing, an up-front mortgage insurance premium (MIP) and monthly MIPs are required; that amount is typically 1.75% of the loan amount. Your bank will require that you get lender’s title insurance, which protects the bank in case someone else turns out to have a legitimate claim to the property, or if there are other defects, liens, or claims against the property. Your lender can explain the details of loan programs available and help you decide which one is best for you.
10. Comprehend your closing costs
If your loan is approved, your loan processor will schedule your closing. “Closing” refers to the actual transfer of the title of the house from the seller, to you, the buyer. It can also be called “settlement.” A good faith estimate will be emailed to you within three business days of your loan application. A day before your closing, you’ll receive an itemized list of exact costs. Your itemized list of exact costs should only vary slightly from your original estimate. You’ll likely need to wire funds or bring a cashier’s check or bank check to pay for the charges due at closing.
11. Prepare for your final walk-through
Your next step is a final walk-through, arranged through your real estate agent, a few days before closing. The goal here is to ensure the property’s condition hasn’t changed since your last visit, that any agreed-upon repairs have sufficiently been made, and that the terms of your contract will be met. Taking an hour for one last inspection is a good investment in your time. After all, you don’t want to spend the first weeks in your new home cleaning up or making unexpected repairs.
12. It’s moving time!
Before you attend the closing and get the keys to your new home, ensure that you plan for costs associated with the move to your new home. You also may have to rent a place if you move before you find a new home, so consider these costs as well. Keep in mind that you can deduct mortgage interest and your local property taxes at tax time. That could save you a lot, especially in the early years of your mortgage, when your payments will be primarily comprised of interest. Depending on where your house is located, what kind of house you have, and economic conditions, your house may become worth more than you paid for it. Work with your agent and use information on comparable homes to determine a selling price for your home when it’s time to sell it.
Coldwell Banker D’Ann Harper, REALTORS® can be reached at (210) 483-7581 or firstname.lastname@example.org and has been an affiliate of the Coldwell Banker franchise system for over 30 years. Visit our Facebook page, Blog, and YouTube channel for supportive content and articles.
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