10 Steps in Buying Your Home
Buying a home isn’t a complicated or stressful experience when working with a good Realtor. Michelle will guide you through the process from beginning to end. And when you’re ready to make an offer, she will walk you through inspections, appraisals, and the closing process. And because commissions come from the Seller, there is no cost to you to utilize her services.
Read through the buying process and FAQ section.
1. Figure Out How Much You Can Afford.
You’ll soon work with a Loan Officer to get the exact figures. But it’s a good idea to get a rough estimate of how much you can afford to frame your mind for what’s to come. Figure out your Debt-to-Income Ratio (all your monthly debt payments divided by your gross monthly income). For example, if your gross income is $6,000 per month and your total monthly debt is $2,000 per month, then your Debt-to-Income ratio is 33%. In other words, a third of your income will go to your debt. The lower your Debt-to-Income, the better. Each Lender will have their own requirements and limits. Generally, 43% is the highest debt-to-income ratio that a homebuyer can have. It’s best if your ratio can be at or below 36%. Borrowers with low debt-to-income ratios also are offered lower interest rates on their loans.
To figure out your monthly Loan Payments, you’ll want to take into consideration:
- Principle & Interest (Use the mortgage calculator on this page)
- County Property Tax
- Home Insurance
- Private Mortgage Insurance (PMI) if necessary
Don’t get discouraged at this stage. There may be a certain type of loan than can work for you including, first-time home buyer programs, Veteran loans, Teacher programs, etc. Your Loan Officer can tell you more. In the meantime, you can find a more advanced mortgage calculator here.
2. Find a Loan Officer and Get Pre-Arroved.
Unless you can buy a home outright by paying cash, you’ll need to work with a Loan Officer to get a pre-approved letter. Note that a pre-approved letter is different than a pre-qualified letter. A pre-approved letter says that when you make an offer, the loan is all but guaranteed to come through. A pre-qualified letter is only a preliminary qualification and the Underwriter (the person who actually makes a final decision) may find additional snags which can hold up the loan or have it disqualified altogether.
This is a big step in the buying process and there are lots of documents to wrangle. A good Loan Officer will walk you through the process and also explain the types of loans available for you. It’s a bit of work to gather all the necessary materials, but hang in there. It’ll all be worth it. The fun will begin soon!
There are basically 5 steps to getting your pre-approved letter.
- You’ll need proof of income.
- Proof of assets.
- Show good credit.
- Employment verification.
- Documentation.
When you get your Pre-Approved letter, you’ll want to show that to your Real Estate Agent.
3. Find a Good Real Estate Agent.
Real Estate Agents not only help you to find your dream home, they are also advocates for your purchase. They will negotiate, find pitfalls, and ultimately get you the home that you’re looking for. They understand trends in neighborhoods and nuances in home styles. In addition to connections to Loan Officers, Contractors and Escrow companies, they’ll put your mind at ease through all the various contracts and paperwork. If you want a “turn-key” solution in buying your home, you’ll want to work with a Real Estate Agent.
Based on your parameters, your Agent will start sending you listings. You may also search for properties through the internet or driving by. It’ll give you a good idea of neighborhoods and possible places you’d like to live.
5. Visit Homes and Open Houses.
There is nothing more thrilling than imagining yourself in your new home. But don’t get too attached to one…just yet. On average, it takes about 10 homes over the course of 10 weeks (according to the National Association of Realtors) before making a purchase. Shopping around will also give you a better idea of what’s available as well as what’s important to you.
You found the home you like. Make an offer! Your Agent will write up the offer, check for contingencies, obtain disclosures and set a timeline for closing. The Seller may accept the offer or return a counter-offer. Negotiate further until you reach an agreement.
7. Get a Proper Home Inspections.
Do not skip this and don’t ask Uncle Bob to do it because he’s handy. A proper home inspection will not only give you ease of mind before moving in, you can use any found necessary repairs as additional negotiation leverage. You can then either determine whether you’ll want to fix it later and negotiate a lower price, or ask the seller to fix it prior to making the purchase.
8. Get an Appraisal on the Home.
In order to approve the loan, the Lender will send out an Appraiser to get a proper value of the home.
If the home requires repairs you can negotiate the selling price. If that is not an option, you can accept it if the repairs are minor or ask for it to be repaired to a good working condition. If the seller does not budge, you can simply walk away.
All parties will sign the deal making it official. The ownership of the property is transferred to you. These documents include the Settlement Statement which gives you a summary of all the charges, The Deed which transfers the ownership to you, The Promissory Note which details where and how the loan payments will be made, and The Deed of Trust or Mortgage in which you agree to a lien on your property in case you can’t pay it back.
Then you get the keys.
Frequently Asked Questions (FAQ)
What’s the difference between Pre-Approved and Pre-Qualified?
If you’re prequalified it means that you POTENTIALLY could get a loan for the amount stated to you, assuming that all of the information you provide to the bank is accurate and true. This is not as strong as a preapproval.
If you’re preapproved, it means that you have undergone the extensive financial background check, which includes looking at your credit history, previous tax returns and verifying your employment – and the lender is willing to give you a loan, basically meaning you’re approved!
You will usually be provided an accurate figure which shows the maximum amount that you are approved for. Most sellers prefer buyers that have been preapproved because they know that there will not be any problems with the purchase of their home.
Can I avoid paying Private Mortgage Insurance (PMI)?
The easiest way to avoid PMI is by putting 20% down payment; however, PMI can also be avoided if you only have 5% or 10% for the down payment. The way to accomplish this is via a first and second mortgage combination commonly referred to as 80/10/10 or 80/15/5.
These two methods combine a first mortgage lien for 80% of the home price with a second mortgage lien for either 10% or 15% of the home price leaving the remaining 5% or 10% as the down payment. Because the first lien is at the magical 80% loan=to-value, there is no PMI required, even though a second mortgage is being |piggybacked| onto the financing thus allowing for the lessor down payment.
While the second lien terms are not as attractive as first lien rates, the second mortgage is still home mortgage interest and thus deductible as such on your federal tax return where PMI is insurance and offers no deduction.
Is there a minimum credit score?
It depends on the type of loan. In general, if your credit score is on the lower end, you will likely be using an FHA loan which have a lower downpayment requirement of 3.5%. The Federal Housing Administration, or FHA, requires a credit score of at least 500 to buy a home with an FHA loan. A minimum of 580 is needed to make the minimum down payment of 3.5%. However, many lenders require a score of 620 to 640 to qualify.
How long does the loan process take?
About 30 days on average in a normal market. But it can take longer depending on the volume of loans being processed and other factors.
Is an older home as good a value as a new home?
This is really just a matter of preference, but both newer and older homes offer distinct advantages, depending upon your unique taste and lifestyle.
Older homes can generally cost less than new homes, however, there are many cases where new homes can also cost less then older homes. Most new homes will not have any backyard landscaping and some don”t include any front landscaping either. With an older home, the landscaping is normally already completed and could have 10”s of thousands of dollars in landscaping done, which is included in the purchase price.
Taxes on some older homes may also be lower. Some people are charmed by the elegance of an older home but shy away because they”re concerned about potential maintenance costs. Consider a home warranty to get the peace of mind you deserve. A good Home Warranty plan protects you against unexpected repairs on many home systems and appliances for a full year or more after you move in.
In a new house, you can pick your own color schemes, flooring, kitchen cabinets, appliances, custom wiring for TV”s, electrical, computers, phones and speakers, etc., as well as have more upgrade options. Modern features like media rooms, extra-large closets and extra-large bathrooms and tubs are also more attainable in ground-up construction. In a used home, you rely largely on the previous resident”s tastes and technological whims, unless you plan to farm thousands into a remodeling and rewiring.
New-home designers can use new building materials such as glazed Energy Star windows, thicker insulation and other technology that will lower future energy costs for the owner. Most states now have minimum energy-efficiency requirements for new construction. Kitchens and laundry areas in new homes are designed to house more efficient energy-saving appliances. Older homes, unless they have undergone an energy retrofit, usually cost much more per square foot to air-condition and heat.
Builders have to follow very strict guidelines in new-homes and additions, especially in the West and Northwest, where earthquake safety standards must be observed. In general, new homes are usually more fire-safe and better accommodating of new security and garage-door systems.
Older homes can be better judged for their quality and timeless beauty. New homes that now possess a smooth veneer might reveal the use of substandard building materials or shoddy workmanship over time.
As you can see there are advantages and dis-advantages to each, but it really comes down to what fits you and what you are looking for in a home.
Can a home depreciate in value?
Generally, real property never depreciates in value, or more so, it is not very common for property to depreciate. This is why it’s a great investment. Make sure you carefully consider location and community when choosing a home, it can effect the homes future value greatly.
If you are in a newly developed area, do some research on the construction of the surrounding areas being developed to determine if they may effect your homes value.
More Questions?
Call Michelle at (323) 440-6773 or fill out an enquiry form here.
