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First Things First
Basic Steps to Home Ownership
First and foremost are you ready for this commitment? You will have to access your wants vs. needs when looking for a home and stay within your budget. Planning is a major key in a successful home purchase. Do you have the money to purchase home? The days of no money down home purchases are long gone. You will need a down payment to get into a home. You are going to need to factor in closing costs. These costs are associated in closing your home loan. Are your finances in order? You will need good credit to purchase a home. For at least one year prior to purchasing a home you need to assure on time payment for every credit card bill, rent check, car payments, and all other debt is paid on time.
Work with a professional.
You need to work with a professional real estate agent. You might think that this is an easy process. It changes on a daily basis and you don’t want to find out after the fact you could have done something different. The business is a very competitive business and has an extremely high dropout rate. With the internet you might think you have all the information you need right? Wrong. You need to work with an agent to make sure you have proper representation in a transaction.
Get pre-approved
Nine out of 10 people will require financing for their new home. This means obtaining a loan for a reputable lender. You need the loan that is right for you meaning the lowest cost and the best terms available. Meeting with a lender will help you determine which loan best suits your needs. Getting a pre-approval means your credit has been reviewed and the lender believes you qualify for the loan. Based on this information a pre-approval letter is written for you. Having this document strengthens any offer that is written for your behalf. Sellers want to know that you can obtain financing for the purchase of their home.
Search for your home
Next you will want to start looking for homes. A wants vs. needs list will be made and has to be realistic according to your financial situation. How many bedrooms do you want/need, bathrooms, yard, what city or school, what is my commute time going to be? When you find your home you will need to decide if that extra garage stall is worth the extra 30 minutes in the car everyday. The market changes on a daily basis and the good homes move quickly.
Choose a home
You have now found your dream home and a purchase agreement is written. You go back to you financing and determine can you afford this home? With your offer one of three things will happen; accept, reject, or counter your offer. If a counter is given from the seller to you, now you determine if that works for you. The process continues until you have an agreement or an impasse. This is where the seller wants to know that you can close on this home and your pre-approval letter comes into the picture. This is where you need a professional in your corner.
Obtain funding
You now go back to your lender and obtain a loan. To obtain a loan you will need to provide supporting documentation to complete your loan application. You will need recent paystubs, rental checks, and tax returns for two years or three years if self-employed and other information the lender will need. The lender will determine which loan product will be best for you. Will you obtain a Federal Housing Administration (FHA) loan, Veterans Administration (VA) loan, or a conventional loan? How much will your down payment be? What is your interest rate going to be? How is your credit? Do you qualify for a first time home buyers program? This is all answered in this step.
Making an offer
Now you make your offer. A comparative market analysis is done on the home you want to purchase. You want to look at what homes have sold for usually within a half a mile and the same style (footprint) of home. All terms are negotiable in the offer. You will want to get a home inspection. This is a inexpensive insurance policy against buying a home with major defects. You are not concerned that the basement walls have been dinged up, you want to know is there major structural defects, are there water issues, etc. If the home passes inspection it is on to the next step.
Get insurance
There are several kinds of insurance you will need on your new home. A home owner’s policy (binder) will be required at closing to insure the lender that the home will be replaced/repaired if damaged. Title insurance will be required by the lender. This is called a lenders policy. This protects buyers up to the mortgage value of the property. An owner’s policy is optional and protects the owners up to the purchase price. Owner’s coverage protects both the mortgage amount and the value of the down payment. You will want to consider a home warranty for your home. These policies protect the owner of major repair items in the first year. It usually requires a per trip fee per items fixed. You could possibly need flood or hurricane insurance depending on what part of the country you live in.
Closing time
Now you close on your home. The sellers, buyers, sellers’ agent, buyer’s agent, and a closer are present at the closing. Closings typically happen at a title company and it does vary with different parts of the country. Closings tend to be a smooth process and very few don’t close. Communication between the parties before this point assures there will be no surprises.
What's next?
You now get to move into you home. Sellers usually leave homes clean and you can start your painting or cleaning process. This is going to be your biggest asset so take good care of it. Congratulations.
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