Guide to Buying a Home
Congratulations, you are looking to buy a home! Understandably, it can be hard to know where to start and unsure of the process. Keep reading this guide to learn where to start and what to expect throughout the homebuying process.
Get Your Financial Ducks In a Row
Purchasing a home is the largest financial investment most people ever make. So, before you take the plunge, you want to be sure your finances are in order.
How Much Home Can You Afford?
Determine how much money you are comfortable spending on a home. How much of a mortgage can you afford? Using our instant mortgage calculator, you can experiment with interest rates, loan terms, down payment, and home prices to figure out your ideal price range.
How much money are you willing to put down on a home? There are several mortgage loans options with varying down payment requirements. Lenders of conventional loans typically prefer a 20% down payment. There are other options that require a lower down payment or no down payment. Learn more about mortgage types here.
Choose a Lender and Receive a Pre-Approval
Take your time shopping for the best rates with lenders. Once you've chosen a lender, receive a pre-approval letter. The pre-approval letter does a couple of different things. First, it lets sellers know you are serious and have been pre-approved for a loan by a lender. This reduces the risk that a seller accepts an offer, takes the home off the market, and the buyer can't get approved for a loan. A pre-approval tells the seller that the buyer has a good chance of getting approved for a loan.
Prepare to Not Make Any Large Financial Purchases
It is crucial to not make any large financial purchases such as a car. Doing so, could put you in jeopardy of not being able to secure a home loan. Making another purchase will change your debt-to-income ratio and could impact your credit score. Both of these are factors lenders look at when approving a loan.
Do Not Change Jobs
In addition to not making any large purchases, you should also refrain from changing jobs. Stable employment and consistent income are criteria lenders look. Interruption of either may prevent you from getting the loan you need.
Find the Right Real Estate Agent
After your finances are in order, it's time to find the right real estate agent. You want an agent who will leave no stone unturned to find you the perfect home. They should have excellent negotiation skills to help you get the best price possible.
Looking at Homes
Once you've chosen a real estate agent, your agent will notify you of homes on the market that fit your criteria and schedule showings for the ones you are interested in. Real estate agents have access to homes that are about to hit the market and private listings. Of course, you can also look up listings yourself and request your agent schedule a showing.
Making an Offer
Once you find a home you love, it is time to make an offer. Your real estate agent will prepare the offer on your behalf and submit it to the listing agent. The seller will do one of the three things. They will either accept the offer, counteroffer, or reject the offer. A counteroffer and negotiations are common during this phase. Once a seller has accepted your offer and the paperwork is signed, you are under contract.
Make an Earnest Money Deposit
In the purchase agreement, the amount of earnest money and time frame it must be paid to the seller is clearly stated. Ensure the earnest money is paid in a timely manner. Failure to do so, voids the contract. The seller is free to move on to the next buyer, and you will lose the home.
Submit Loan Documents
Stay in touch with your lender and make sure you submit all the documents required to begin the loan process. Otherwise, the entire process may be delayed, which will push your closing date further out. Underwriting takes time, so submit your documents as soon as possible and double check with your lender and verify that they have everything they need.
Title Company Runs Title Report
The listing agent typically provides a preliminary title report to show there aren't any additional liens on the property. During the underwriting process, a title report is run to verify this information.
Conduct Home Inspections
After your offer is accepted, paperwork is signed, and earnest money is deposited, you enter the due diligence period. It is during this time that you conduct any home inspections that you wish to. Now, keep in mind that you don't have to if you don't want to, but it is strongly advised to do so. If you find an issue, that is unacceptable, you can pull out of the contract without any penalty. This means you receive your earnest money back in full and can walk away.
However, if you still want the home despite the issues found, you can negotiate with the seller.
Negotiate the Repairs
If any issues are found during the home inspections, you can negotiate the repairs with the seller. You can ask for a reduction in purchase price, request the seller pay more of the closing cost, or ask the seller to make the repairs before closing. If an agreement can't be reached, you can walk away from the deal penalty free and receive your earnest money back in full.
Stay in touch with your lender to ensure an appraisal has been ordered. An appraisal is conducted by a licensed appraiser, who determines the fair market value of the home. If the appraisal comes in at the purchase price or above, the lender is satisfied. If the appraisal comes in below the purchase price, the lender will not want to loan more money than the house is worth. So, there are a couple of options. You, the buyer, can make up the difference with a larger down payment, or you can negotiate with the seller to drop the purchase price.
Get Utilities in Your Name
Coordinate with the sellers to transfer or turn on the utilities in your name right before closing. It can take a few days to get utilities turned on, so be sure to leave yourself enough time.
Conduct a Final Walkthrough
Chances are you haven't seen the home since the due diligence period. So, you want to make sure the home is in the condition you expect it to be. For example, make sure a back porch hasn't been removed, or a wall hasn't been knocked out. In most cases, you don't have anything to worry about, but you should always check to be on the safe side.
This is the day you receive ownership of the property. You and the seller will meet with the closing attorney. At this time, you and the seller will sign the necessary documents, and you will pay the agreed upon down payment. Keep in mind that escrow goes towards your down payment. After the paperwork is signed, you will receive the keys to your new home!
Congratulations, you own your dream home!