Buying a home is the largest investment most people will make in their lives. It is an exciting and exhilarating experience, especially if you have experts to help you along the way. Here are a few things you’ll need to know.
ONE: DECIDING WHAT IS BEST
Taking the first step towards buying your home is both exhilarating and overwhelming. Before you dive in too deep into the process, it is important to consider several factors. Buying a home will be one of the largest financial investments you make in your life, so you want to be well prepared for the adventure ahead.
What’s the best scenario for you? Renting or owning?
While it may seem that owning a home is the best choice, that might not necessarily be the case for everyone. The key is to consider all the factors, good and bad, that come with owning a home. Once you compare renting versus owning, then you are ready to make the best decision for your current situation.
How much house can you afford?
If after considering all the contributing factors you conclude that owning a home is the best decision, you next will want to think about how much home you want to own. How much space will you need? How much space can you afford? Knowing what you can afford in a home will help drive your search in a focused direction.
What type of housing suits you best?
When you determine how much home you can afford, you next can consider what type of home and neighborhood best fits your needs. Before you begin looking, if you start considering the differences between a single-family home, a condo and the other housing options that exist, you’ll save a lot of time and frustration in your search.
Who do you need on your team?
Buying a home can be a strenuous process. You’ll want to be sure to surround yourself with a team of professionals who can assist you towards reaching your dream of homeownership.
TWO: LAYING THE FOUNDATION
After deciding that buying a home is the best decision for you, what’s next?
It will be good for you to evaluate how prepared you currently are to buy a home. Perhaps you have been making steps towards this goal for a while or maybe this is all new to you. Either way, the ways you have equipped yourself for this venture will be major determining factors on which loan program you choose. Do you have an amount for a down payment? What is your income to debt ratio? How is your credit status? There are a number of ways you can be prepared for this process.
YOUR MONTHLY PAYMENT
Your next concern starts to be which loan program fits your needs and how to structure your monthly mortgage payments. Before moving forward, you’ll want to consider those items that make up your monthly payment and the factors that influence them.
Typically referenced as PITI, your monthly mortgage payment is comprised of Principal, Interest, Taxes and Insurance.
-The initial amount you borrow to purchase the home and the remaining outstanding balance throughout the life of the loan is the PRINCIPAL.
– The charge for borrowing money is the INTEREST.
– Collected in an escrow account, your TAXES are assessed by your local government and typically paid to your lender as a portion of your payment. The lender will then pay them to the government upon their due date.
– Established in a similar fashion as your taxes, INSURANCE is collected by the lender and put into an escrow account. Your insurance is composed of two prominent types of coverage. Homeowner’s insurance provides you coverage for damages inflicted by hazards such as (but not limited to) wind and fire. Mortgage insurance typically is required for those making a smaller down payment on their loan; it provides protection for your lender in the instance that you are not able to fulfill the mortgage requirements and repay your loan.
One of the issues that most concerns homeowners is their mortgage interest rate. This is for good reason as the interest rate directly affects the monthly payments for the life of the loan. Because of this, homebuyers search for steps they can take to obtain the lowest rate available.
Contributing factors to the interest rate include whether the homebuyer decides to:
select a fixed or adjustable rate
pay discount points
choose a short or long term loan
There are other special considerations that you may want to consider as you evaluate your mortgage options.
THREE: PUTTING IT TOGETHER
With your decision made and the groundwork laid, it’s time to put all the pieces of documentation needed to move forward into closing.
Getting the ‘green light’
Just like you wouldn’t dive into a pool without knowing how deep it is, you wouldn’t want to house hunt without knowing how much you could afford. That’s why once you have decided buying a home is your best option and you’ve examined what your finances will allow, it’s a good time to talk with your Bank Of England Loan Officer about being prequalified or preapproved.
In a prequalification letter, the lender has been provided the buyer’s financial details and, based on verification of these details, agrees to give a loan to the buyer. A credit report is not required at this point.
Knowing how excited many homebuyers can be, it can seem frustrating to add a step before the house hunt. However, there are several advantages to being prequalified/preapproved that can make it worthwhile.
Credit challenges or problems that might prevent qualification are discovered and addressed early in the process.
You will be able to house hunt with confidence knowing that the financial backing that is available to you.
Home sellers typically see more strength in offers from prequalified buyers.
For self-employed or commission-based buyers, a prequalification letter can demonstrate financial backing for buyers whose incomes may fluctuate more than those of salaried buyers and therefore possibly demonstrate more risk.
Prequalification letters show that the lender is willing to move forward with the loan for first-time homebuyers even though they may lack a credit history that demonstrates their ability to make monthly mortgage payments. It helps equalize their offer with similar offers made by previous homeowners.
FOUR: FINDING YOUR HOME
With the groundwork laid and the financial backing that comes from being prequalified in place, you can begin the house hunt with confidence. One thing to decide early on is if you would prefer to do this search alone or with the benefits that come from working with a licensed REALTOR.
Now is also a good time to come up with a wish list for your home. When you do, consider the following:
Type of Neighborhood: No matter how much you love the home you end up buying, you have to remember that it is not isolated from the rest of the world. Is it near areas of the city that are important to you and your family? Is it in the school district you desire for your children? Does the neighborhood appear to be a good fit for you and your family today and in the future?
Types of Homes: As discussed earlier, there are several types of homes out there, each one providing different options in terms of space, responsibilities, upkeep, and ownership. Consider the different factors that would make either a single-family home, a condominium, a townhome or a co-op the best choice for you.
Features of the Home: What do you need in a home and what do you want in a home? Would you like a one-story or two-story home? How many bedrooms and bathrooms would you need? Would you like an at home office? What type of backyard would you like? Consider all the different features and prioritize the features of the home you’d like to have.
FIVE: BUYING AND CLOSING
At some point of your search, you’ll know. You’ll know when you find the home that best fits you and your needs. When you find a great match, you’ll want to take those next steps that can make that home yours.
EXTENDING AN OFFER
Purchasing a home is one of the few transactions that involves heavy negotiations. A REALTOR is a valuable resource to have on your side as you determine the appropriate initial offer to extend. During this portion of the process, you’ll want to consider the following:
– To demonstrate the strong financial backing and genuineness of your offer, you’ll want to have the pre-approval letter from your Bank Of England Loan Officer ready. An offer with financial security obviously is preferred by sellers.
– Facilitate all your negotiations in writing. This will provide a record of deals and decisions made as well as help clarify any misunderstandings.
– To demonstrate the seriousness of your offer, you’ll want to have money ready to use as an earnest money (or “good faith”) deposit. While the amount varies depending on your location, all of it will be placed into an escrow account until the purchase transaction is complete.
As you come to the closing stage, you’ve entered the final stretch. At this point, you’ll want to be sure to you cover a few things:
– Go over the loan commitment with your Bank Of England Loan Officer and be sure you understand your loan’s rate terms and the additionally established requirements and details.
– Obtain homeowners’ insurance and, if required flood insurance.
– Using your loan commitment and purchase agreement as guides, set a closing date and time.
– Verify with the closing agent or attorney that a property survey was ordered.
– Prepare to move
– Do a final inspection of the home you are about to purchase.
– Confirm that you have met all the guidelines and conditions in the purchase agreement established by the seller.
– Bring the total you owe in closing costs in the form of a certified or cashiers’ check to your closing appointment. Typically, personal checks and/or cash are not accepted.
THE PURCHASE AGREEMENT
A legally binding contract between the buyer and the seller of the property, the purchase agreement outlines all terms and features of the final transaction. This can include:
– The property address and legal description
– The sales price, the loan amount, the down payment and deposit
– The names of all parties involved including the buyer, the seller, the buyer’s agent, the seller’s agent, the mortgage broker/banker and any attorneys
– Time limits that might apply to the transaction
– Any contingencies that must be addressed prior to the deal being complete and finalized (such as the sale of the buyer’s present home, issues from the home inspection that might need to be repaired, etc…)
Because of special and unique features of every home transaction and the varying needs of each home buyer and home seller, purchase contracts are not exactly the same. A REALTOR, a title company or an attorney may assist in the negotiations and execution of a purchase contract; this is dependent on the state in which the transaction is being conducted.
The closer you get to the appointment, the more you will want to know what to expect at closing.