Buying a home is a big financial decision – you need to give it a serious thought. To be specific, you need to spend months before you can move in to new home, planning your budget, completing the mortgage process, meeting a whole lot of different sorts of people and signing an overwhelming number of documents.
To cut the long story short, here is a step-by-step guide to the homebuying process.
Prepare to Buy
- You may want to consider if buying is a better option than renting, especially when you are a first time homebuyer. Being a homeowner is like a dream and can be advantageous, too. However, you must be prepared to face extra responsibilities of homeownership.
- Not many people are able to buy without some sort of financial assistance. You must analyze your assets, liabilities, income and expenditure to determine your budget. You must be able to pay upfront costs, such as down payment and closing costs, and continue making payments for the term of the home mortgage.
- Learn as much as you can. Reach out a housing counseling agency in your neighborhood and get preliminary education on the complete homebuying process. You must understand various mortgage terms and find out ways to handle your typical homebuying needs.
- Since your ability to qualify for a mortgage loan is very much dependent on your credit report, you need to have a look at it for any possible errors. Contact the three credit reporting agencies and order a free credit report. A 620+ credit score is sufficient to begin mortgage shopping. People with no credit history may want to seek advice from a qualified housing counselor.
- You may want to seek advice from a qualified mortgage professional, such as a real estate agent, mortgage broker or loan officer. You may find it worthwhile to pay for the valuable services they offer.
Shop for a Mortgage Loan
- Begin by playing number games. Determine how much you can afford to buy using an affordability calculator available online. Determine the amount of monthly payment you are comfortable with. You also need to know how much you can afford to pay down at closing and whether you have sufficient savings to pay for closing costs and other fees.
- You may seek the advice of a real estate agent, if you have hired one, to find a lender that you can work with. Alternatively, you can approach a mortgage broker and work with several lenders simultaneously. In any case, it is worth talking to more than one lender and comparing their offers.
- Getting prequalified is often the first step of mortgage process. You may want to do it with several lenders so that you can get an idea of how much they are willing to offer you and at what cost.
- Meet a loan officer, who usually represents a particularly lender, and discuss various mortgage options available to you. You may want to talk to several loan officers representing different lenders, but apply at only two or three of them. Applying at too many lenders can affect your credit report adversely.
- A loan originator must offer you the Good Faith Estimate (GFE) and Truth-in-Lending Disclosure Statement within three business days of completing the application, if your application is not denied by the lender.
- If your application is approved, you will receive a pre-approval letter, which reflects the willingness of the lender to lend you a specific amount of money for buying a home subject to some conditions. Although preapproval is not the same as final approval, it helps in many ways and keeps your interest alive during the long, tedious homebuying process.
- The Good Faith Estimate and Truth-in-Lending Disclosure Statement that you receive from a lender following your application can help you compare closing costs and other fees charged by different lenders. Choose the one that offers you the lowest and seems the best.
Find a Home
- If you are already pre-approved, you may have an edge while shopping for a home. However, it is also possible to find a home first and then obtain a mortgage approval. In either way, you may find it helpful to hire a real estate agent, also known as buyer’s agent.
- Before you can begin home hunting, you must set some criteria, such as the location, neighborhood, property type, and number of bedrooms and bathrooms. The most important thing to consider, however, is your budget, which you already know if you have been pre-approved.
- Get a copy of MLS that lists properties in your targeted neighborhood, search online at realty websites or browse through newspapers and magazines to find your dream home. You may also want to consider reo properties, foreclosures and short sales.
- Make an offer to purchase if you find home that meets your specifications. Your agent will be particularly helpful in writing a purchase offer based on the value of comparable homes in the same neighborhood. You may need to negotiate and make counter offers before entering into a contract and making an earnest money deposit through an escrow company or an appropriate third party.
- Home inspection is often a requirement, especially when you are buying a property that is being resold. You need to make sure that you won’t have to spend too much on repair work after you go on to buy the home with an intention to live in it for a long time. You need to pay upfront the fees of a home inspector.
Complete Mortgage Application
- Your mortgage application has a section where you need to fill out property information. A mortgage underwriter must have complete application before making a decision. Also, there must not be a change in your credit report since it was first used by the lender during pre-approval.
- Home appraisal is, thus, an integral part of the mortgage underwriting process. Your lender will order home appraisal and flood certification to be able to finally approve your mortgage application.
- A real estate attorney will order title search and escrow, and the report will be sent to the lender. You will be paying the attorney’s fee.
- You will receive a commitment letter from your lender after loan approval. In case of rejection, you will receive a denial letter explaining the reasons of denial. You may have to work with your agent to explore alternatives in such a situation.
- If your loan is approved with certain condition or your lender asks for additional information, you must comply with such requirements.
- Your lender may also want you to buy homeowner insurance and title insurance. If your property lies in flood hazard zone, then you also need flood hazard insurance.
- Do a final walk-through before closing to see if the home you are going to buy is still in good condition.
Close on your Home
- Your loan officer will offer you a copy of HUD-1 Settlement Statement at least a day before the closing. It contains all details of fees and charges that you must pay at closing. Known as closing costs, these can typically range from 3 to 7 percent of the amount you borrow.
- The HUD-1 Settlement Statement also contains the date and time of closing, which happens generally within 30 to 60 days after you signed the sales contract.
- The closing usually takes place at a title company or an escrow office. The closing agent, escrow officer, seller’s real estate agent and your real estate agent must be present at closing besides you and the co-borrower, it any.
- The most important document you will sign is a mortgage or deed of trust. The seller will sign the deed, transferring ownership of the property to you. Other important documents include the mortgage note and a number of affidavits and declarations.
- You will get the key of your new home after signing all necessary documents at the closing.
- You may want to reserve movers or a mover truck several days before closing.
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