If you have questions about the homebuying process, look no further. We’ve compiled a comprehensive guide detailing what first-time homebuyers can expect as they negotiate the real estate market. Use this as a resource, and before you know it you’ll be sending out change of address cards.
Before You Start Looking for your First Home
Take a Look at Your Finances
You’ll need to examine your finances and get them in the best shape possible before applying for a loan. Remember, the better you look financially, the better position you’ll be in when it comes to having your offer accepted. Here’s what you can do:
- Develop a budget. Make a list of your monthly expenses, even the little ones. Create a budget that allows you to live below your means, and stick to it.
- Reduce your debt. Banks understand that everyone carries debt, but in order to be seen as readily financeable, they prefer that cost take up no more than 10 percent of your monthly income.
- Build your savings. When you buy a house, you’ll be expected to make a down payment on the property (typically 20 percent of the purchase price). There are also initial deposits, inspection fees and closing costs to consider.
- Pay your bills on time. You should also pay as far above the minimum payment as possible. It’s a red flag to banks if they feel you are inconsistent when paying smaller bills.
Getting your finances in good shape may take some time and effort, but it’ll be worth it when you and your family are able to finance your dream home.
The idea of applying for a mortgage, especially if you’re a first-time homebuyer, can be overwhelming. There are so many types to consider. http://www.bhdleon.com.do outlines the most common ones:
- Fixed-rate mortgage. The interest rate will stay the same for the entire length of the loan, meaning that your payments will be consistent no matter how the market fluctuates.
- Adjustable-rate mortgage. This type of loan has a lower initial interest rate than a fixed-rate mortgage, meaning that buyers may get approved for a larger sale price. After a few years, however, your loan will be subject to periodic adjustments based on the current market.
- Government loan. These loans are offered by private lenders but insured by the federal government.
- FHA loan: The Federal Housing Administration aims to help low- to moderate-income buyers by offering low down-payment requirements and flexible qualifying guidelines.
- VA loan: This has many of the benefits of an FHA loan but is backed by the Department of Veterans Affairs. It is available only to veterans or active-duty military personnel and their spouses.
In addition to the type of loan you prefer, you’ll want to have an idea of the length of loan that will work for you. Typically, mortgage terms are 30 years, but there are options available ranging from 1 to 20 years. Longer-term loans often come with lower monthly payments, whereas shorter-term ones will likely offer better interest rates.
Don’t worry too much about deciding upon the exact type of loan that you’d prefer. A qualified loan officer should be able to make recommendations for you after reviewing your financial information. Just focus on familiarizing yourself with the options available so that you can make educated decisions when the time comes.
Get Preapproved For a Loan
The next step is to bring your financial information to a mortgage company and ask for a preapproval. Keep in mind that a preapproval is not the same thing as a prequalification, which generally only estimates what you can borrow. In contrast, a preapproval involves a thorough credit check and in-depth look into your finances.
In the end, you’ll get a written commitment letter with the amount that the mortgage company is willing to lend you. It will give you a much more accurate picture of what you can afford.
It’s also important to remember that your preapproval will show the maximum amount that you can borrow based on your finances. You do not have to buy a house at that price point. Instead, we recommend that you look at your budget and decide upon a monthly mortgage payment range that will allow you to comfortably afford your other monthly expenses.
Hire a Real Estate Agent
At the end of the day, buying a home is a legally binding transaction. While hiring an agent is not required, it only makes sense that you would want someone on your side of the settlement table who is invested in representing your interests. A qualified agent will also take care of coordinating any logistics during the showing process and guiding you through paperwork so that you’re able to focus on identifying your new home.
By no means should you choose just any agent. Do your research and interview a few with good reputations in your area. Before signing a contract, you should feel confident that you’ve found a real estate agent who will be able to listen to your needs and translate them into results.
Finding Your First Home
Set Search Parameters
One of the first things you’ll do with your agent is sit down together and talk about the type of home you’d like to buy. This will help both you and your agent focus on what’s most important to you in a property. We recommend coming to this meeting with two lists in hand: a must-have list and a wish list.
As the name suggests, your must-have list should be comprised of the non-negotiable features that need to be present in order for you to buy a property. These are typically things like location, price point or the number of bedrooms and bathrooms. Meanwhile, your wish list should include the features that you’d like to see in your home, such as a pool, an updated kitchen or a finished basement.
Sift Through Listings
Using your parameters, your agent will likely set you up on an automated listing search, which will regularly send you information regarding the available houses in your area that meet your criteria. Each listing should contain photographs of the property as well as information on its price, location and features. Look through them carefully before deciding which ones you’d like to see in person.
Keep in mind that not every listing is going to match your wish list perfectly. You never know where you’ll find your new home, so be willing to look at those that fall outside of your desired aesthetic but still fit your needs. At the same time, it’s perfectly fine to pass on any property that you know won’t work for you.
Go On Showings
After you’ve found a few homes you’re excited about, your agent will set up showings. As you walk through the homes, keep in mind that it’s easy to get caught up in small details like paint color, but most cosmetic changes can easily be made. Do your best to focus on big-picture items such as the size, layout and condition of the home.
You may receive a Seller’s Property Disclosure for each listing; this document details the condition of the home, including any known problems and repairs. If you’re interested in a particular home, read this over carefully to understand the scope of the work that may be required if you were to purchase it.
Negotiating an Offer
Submit an Agreement of Sale
Once you’ve finally found your dream home, it’s time to submit an offer. You’ll sit down with your real estate agent and draw up an Agreement of Sale, or your formal offer to purchase the home. In this document, you’ll propose a potential transaction to the seller.
The agreement includes information such as sale price, settlement date, your financial information, time frames for performing an inspection and clearing the title, as well as the allotment of closing costs. If the seller is open to your offer, the two of you will negotiate details until you reach mutual acceptance.
It can be tempting to submit a low offer in an attempt to score a deal, but we recommend this only if you’re OK with the possibility that the seller could reject the offer without a chance for negotiation. If, however, you’ve fallen in love with a property, aim for an offer that’s within a realistic range of the list price. Especially if multiple offers are on the table, always go in with your best foot forward.
Get a Home Inspection
As the buyer, inspections are optional, but they are for your benefit. They’re essentially to make sure that you go into the transaction knowing what to expect from your new home. Consult your real estate agent on which inspections are appropriate for your particular property; agents typically have a list of certified professions who they would recommend to do the work.
After the inspection is complete, you’ll have an opportunity to review a thorough report that details any problems with the property, as well as recommendations for repair. If you’re unhappy with the results, as long as you’ve completed your inspections within the time frame outlined in the Agreement of Sale, you’re entitled to walk away from the transaction. Otherwise, you and the seller will move forward by negotiating who will shoulder the cost of repairs.
Apply For a Mortgage
If you’re planning on receiving any financing to buy your new home, you’ll need to submit a mortgage application and have it approved before you can move forward to settlement. To do so, financial institute says, you’ll need to work with these people:
- Loan officer. Reviews your financials, helps you decide which type of loan is appropriate for you and helps you complete the application.
- Loan processor. Collects the documents necessary to verify the information given in your loan application (bills, income statements, etc.) and packages them for easy review by the underwriter.
- Mortgage underwriter. Approves or rejects your mortgage loan application based on information such as credit history, employment history, assets and debts.
- Appraiser. Reviews the property to make sure it’s priced fairly at its current market value.
Overall, mortgage approval involves a lot of waiting; it can be one of the longest components of the home-buying process. But there are a few things that you can do to help it along. Respond to requests for information or clarification as quickly and thoroughly as possible, and avoid making any major changes in your finances during the review. For example, it’s best to wait to buy new furniture or appliances until after your loan has been approved.
Close the Sale
Once your loan has been approved, you can look forward to closing day. On the day of settlement, you and your agent will complete a pre-settlement walk-through, wherein you’ll walk through the property and make sure it is in acceptable condition.
This is also your opportunity to ask the seller any last questions you have about the property. From there, it’s just a matter of signing paperwork and settling finances before you get the keys to your new home.
The idea of finding your dream home amid a sea of properties can be overwhelming, let alone negotiating an offer afterward. However, when you understand the individual steps it takes to buy a house, the whole process will seem more manageable.
Use this homebuyer guide as a resource. We hope to show you that anyone can achieve their dreams of finding a home that is a perfect match. Are you interested in buying a home? If so, feel free to post your questions in the comments below.