Home buying can be stressful, especially as a first-time home buyer. With the current housing market in 2021, home buying can be a challenge. However, if you go into the home buy process prepared, you will be successful.
- See if you’re ready to buy a home
You need to make sure you’re ready to purchase a home before you look at homes and start looking at mortgage options. Some factors lenders take into consideration are income & employment status, debt to income ratio, liquid assets, and credit score. Lenders will want to see two years of employment history to ensure you have reliable income. Having a debt-to-income ratio below 50% can qualify you for a mortgage. You will need liquid assets to be your down payment and closing costs funds. When it comes to credit score, you will need at least a 620 to qualify, but a 720 to get the best loan terms.
Buying a home is a long-term commitment. You need to be sure that you are ready to live in the same area for several years. Home buying also depends on timing. You should ask yourself “Am I financially ready to buy a home, am I personally ready to buy a home, is it a good time in the market to buy a home?” Overall, it is up to you if you’re in a place to purchase a home, but it can be helpful to connect with a financial advisor.
- Decide how much house you can afford
Having a reasonable budget is important when buying a home. Using your debt-to-income ratio to decide who much you can afford monthly is a great place to start. You do need to take into account the cost of property taxes, homeowners insurance, and mortgage insurance if necessary. Look into a home affordability calculator to assist you on this step.
- Prepare for a down payment and closing costs
A down payment is a one-time payment toward the purchase of a home, which most lenders require. If you are a first-time home buyer, you can get a conventional loan with just 3% down or an FHA loan for 3.5% down. A few advantages to a larger down payment include a smaller monthly payment, lower interest rate, and no private mortgage insurance if you put 20% down.
Closing costs are fees paid to receive the mortgage loan. A common rule of thumb is to save 3-6% of the home value for closing costs. Specific closing costs will depend on the type of loan you have, your lender, and where you live.
- Receive pre-approval for a mortgage
When you have your finances in order, it is time to start applying to lenders. After applying, the lender will provide a pre-approval letter that shows how much you are approved to purchase. The pre-approval process consists of several questions about your income, assets, & the home you’re looking to buy and a credit check.
- Find the real estate agent right for you
Your real estate agent will have your best interest in mind when finding homes for you, setting up showings, writing offers, negotiation, and finalizing your home purchase. To find your ideal real estate agent, start by asking friends, family, and coworkers if there is anyone they recommend. This will help you find reliable and helpful agents.
- Start the hunt!
Before house shopping you need to decide on several things including your price range, square footage, number of bedrooms, number of bathrooms, home condition, and location. Ranking your priorities will help in your search for the perfect home. Your agent will be able to show you homes that fit your criteria, so you do not waste time looking at homes you’re not interested in.
- Make an offer
Once you find your perfect home, you need to make an offer. You will need an offer letter that includes information about yourself, the price you’re willing to pay, and the deadline for the seller to respond. Your agent will write and submit the offer letter for you and get in contact with the seller’s agent. After submitting, the seller can either accept the offer, reject the offer, and counteroffer. Negotiations can last a while, but if an agreement is reached, it’s time to move to the inspection and appraisal.
- Get a home inspection & appraisal
Lenders normally do not require an inspection, but it is smart to get one before finalizing your home purchase. For the home inspection, the inspector will look for any issues in the home that may need a repair. After the inspection, you’ll receive a list describing each issue. If there is a major issue, you can ask the seller to fix it before moving in or cover the cost of the repair. After the sale is final, you are now held liable for any major repairs.
A home appraisal will give you the current value of the property you want to purchase. You are required to get an appraisal before purchasing a home with a mortgage. Lenders require an appraisal because they cannot lend out more money than the home is worth.
- Ask for repairs/credits
After reviewing your inspection, you can ask the seller to fix some of the issues found. There are three ways to do this: ask for a lower purchase price, request the seller provide credits to cover closing costs, or ask the seller to have the problems repaired before closing.
- Do a final walk through and close on your home!
Do a final walkthrough of your new home before closing to check and make sure the seller has fixed any repairs and cleared the home. Make sure everything looks correct, everything works, and the sellers have not left any of their belongings.
Your lender will provide a closing disclosure that tells you what you need to pay at closing and your loan details three days before the closing date. For your closing meeting, bring a valid ID, a copy of your closing disclosure, and proof of funds for the closing costs. A settlement statement will be signed that explains all costs associated with the sale of the home. You will pay the down payment and closing costs. A mortgage note will be signed, stating you promise to repay the loan. Then you will sign the deed to secure the mortgage note, and you’re finally a homeowner!
While home buying is a long process, it will be worth it to be a homeowner. If you need help guiding you through the financial aspect of the process, please reach out to us at Lifebridge Financial Group. We can help you prepare for a steady home buying process. Give us a call today to get started!