Buying a new home is an important decision. Making the right decisions involves a good amount of time and a clear understanding of the process. Typically, the home buying process has several stages and takes time. Having a good Realtor that will educate you throughout the process is important.
When hiring a Realtor, do your due diligence and make sure you are 100 percent satisfied with the person you choose. Prepare interview questions and interview all prospective Realtors. Below are a few questions to ask a Realtor during the interview process.
With so many mortgage loan options available, finding the right loan to fit your needs is very important. In order to determine which loan programs fit your needs, you must get prequalified or preapproved. It is the first step in the home buying process. To get qualified, you will have to provide certain financial details and documentation to your lender. These financial documents will help your lender qualify you for a home loan. How much you can qualify for depends on three things:
Getting prequalified versus preapproved is very different.
Getting prequalified requires a basic overview of your financial history. The lender will pull your credit, look at the credit score, pay stubs, and ask some questions about your financial history. The lender will then issue a prequalification letter based on that information.
Getting pre-approved is a complete evaluation of your financial history. The lender will have you fill out an application and provide much more documentation. This documentation will include two years of tax returns, 2 years w-2 statements, assets, debts, etc. A preapproval is better because there is no question that you are approved for a loan. They have reviewed your financial history.
Below is a checklist of items that your lender will ask you for when you are applying for a loan:
One thing to remember, a lender will always approve you for higher than what you might want. This happens because the lender uses your gross income (before any deductions like income tax) instead of your net. Look at your budget and decide how much you want your monthly mortgage payment to be and that will determine your loan amount.
Look for the Best Neighborhood
Choosing the right neighborhood is very important when buying a home. Do you choose a neighborhood that has older homes or newer? Do you want a Homeowner’s Association? Is the location good? Is it close to the thing you need most, like doctors, grocery stores, etc.? Having a list of your priorities and requirements is a must. Let the top priorities be the must-haves, followed by the ‘like to haves’. Here are some ideas to help you get started:
When you are buying a home there are some costs that you will incur. Being financially prepared is very important. Below are some costs that you will incur.
Earnest Money Deposit: Earnest Money Deposit is a good faith deposit toward the purchase of the home. It represents the commitment of the buyer. This money becomes a part of your down payment once you accept the offer. The earnest money deposit is applied to either the down payment or any closing costs which have not been paid for. Earnest money is negotiable and there is no set price.
Most earnest money deposits are typically $1000 up to 1% of the purchase price
Inspection Fee: Inspections are essential to any home purchase. You do not want to be surprised by problems down the road. There is a typical range in pricing but homes that are much larger or farther away could cost more.
Home Inspection Fees Range from $300 to $500
Appraisal: The appraisal is an unbiased statistical opinion of the value of the home. For any buyer that is getting a home loan, a bank will always complete an appraisal. This is done to protect the lender from lending money for a home that is overpriced.
Price of an Appraisal can range from $350-$450
Down Payment: A down payment is the amount of money you spend upfront to buy a home. The down payment is based on the overall purchase price of the home. Typical down payments can range from 3.5% – 20%. The type of loan that you can qualify for is determined by your overall financial history.
Down Payment can range anywhere between 3.5% to 20% of the home price
Home Insurance: When you are buying a home you will have to have homeowner’s insurance. The cost of homeowners insurance is based on the value of the home. Homeowner’s insurance is designed in order to protect your property from any kind of damages. There are several standardized options for home insurance based on protection plans and coverage. Choose one that suits your budget with all the essentials covered. Lenders will ask for a year of homeowner’s insurance upfront. The year upfront is to help start the escrow account. We will talk more about escrows account later
Annual Home Insurance Costs typically range from $800 to $1200 and could be higher depending on the value of the home
Closing Costs: There are two types of closing costs. They are closing costs and prepaids.
Closing costs – Costs that are charged from the lender and the closing attorney to originate and finalized the mortgage.
Prepaids – Costs that are charged to set up the escrow account. These costs include homeowner's insurance and property taxes.
Typical Closing Costs and Prepaids range from 3%-4.5% of the loan amount
An escrow account is an account set up, by the lender, to collect and pay property taxes, homeowner’s insurance, and mortgage insurance (if applicable). The lenders use an escrow calendar to determine how many months you will initially need, in your escrow account, to have enough money to pay the taxes and insurance for the next year. Your mortgage payment will include the additional money needed for your escrow account each month
There are lots of things to think about when buying a home. For more information read my blog articles for buyers.