Congratulations! You have made a great decision.
For those of us pursuing the American dream of home ownership, be prepared, it can be a daunting task. It undoubtedly will be the biggest purchase most of us will make over the course of our lives. Therefore, the more knowledgeable you are with the process of purchasing your home the more at ease you will be when that time arrives. Homeownership is a rewarding decision that carries many benefits both emotional and financial. As with all big decisions you want to make sure you are prepared. Where to begin? Excellent question, one thing you must remember as you speak with realtors, mortgage brokers, bankers, attorneys, home sellers, etc is that there is no such thing as a dumb question. Don't be afraid to ask questions, it is incumbent upon all parties involved in the process to answer your questions truthfully. Make sure you have all necessary paperwork and documents prepared as to lessen the amount of delays throughout the process. Pull all three credit bureau reports to ensure that items are true and accurate. Should any errors need to be addressed make sure you allow yourself ample time to clear things up. The last thing you want to deal with is attempting to correct inaccurate credit bureau information during the application process. You can access a free copy of your credit report each year for free.
Who should I contact to start the process?
First you will need to decide who will help throughout your home purchasing experience. Below is a list of parties traditionally involved in the home purchase process. Make sure you research each party to ensure you are working with a reputable and accountable professional. Ask for credentials and references before starting.
Purchasing a home is a big move and requires entering into agreements and signing documents you may not fully understand. A qualified attorney experienced in real estate transactions will help you understand the process and advise you on what is required. Make sure you keep the lines of communication open and also make them aware of everything you're doing with other parties involved.
Real Estate Broker
The most effective way to locate the home of your dreams is with the help of a real estate professional. Certainly, you can attempt to locate a home on your own, however the process may be very time consuming and chances are you will eventually need to speak with the seller real estate broker. So why not select a broker from the area you wish to purchase in and let them do the hard work for you. He/she will have an extensive listing of homes for sale both exclusively and non exclusively. Additionally, they will contact potential sellers and make appointments to view the property. When you are ready to make an offer they will present your offer to the seller. A knowledgeable and assertive broker can make your search and purchase seamless. How much does a broker charge? If you are purchasing a home for the first time the seller is responsible to pay the broker's fee, not you. If you are buying and selling a home, as the seller you will be responsible to compensate the broker when the sale of your home is final. Generally, the fee/commission is a percentage of the sale price of the home. Don't be afraid to negotiate with the broker for a lesser commission.
You will need to select a mortgage professional to secure a loan for your new home. Make sure to exercise due diligence before making your selection. Make sure you verify that they have a valid license and are bonded. Check to see if they have any complaints with the department responsible for licensing mortgage professionals in your state. Also, check the local Better Business Bureau (BBB) to see if they have any complaints logged against them. Ask family and friends for recommendations.
How much house can I afford?
Another excellent question, I'm glad you asked. Before you go home shopping you will need to know your price range. The fact that a lender will lend you enough to purchase the home of your dreams is not an indication that you can afford it. You will need to create a budget that will include your newly acquired mortgage payment, property taxes, hazard insurance and private mortgage insurance(PMI) if applicable. In addition, you will need to factor in your monthly expenses, which are outside of your mortgage payment; things like food, utilities, automobile expenses, credit cards, student loan, savings, etc. All of this hard work will pay off through peace of mind knowing that you have planned wisely and are prepared for the uncertainties you may encounter once you become a home owner.
Will I be approved for a mortgage?
The first step is to understand the impact your credit score will have on your eligibility for loan approval. Your credit history and score allow lenders to see what type of risk you will be. Your credit history is a snap shot of how you have responded to borrowing and repaying credit over a period of time. Lenders want to explore the likelihood of you paying them as outlined in their loan agreement. The lower your score the more risk you present to lenders. This can have a profound impact on lending conditions, interest rates, points, and decrease the number of lenders that will even entertain reviewing your application.
What is a pre-approval?
After you have determined a price range and have created your budget to accommodate your new home you should get pre-approved for the desired amount before shopping for a home. Basically, a pre-approval means that you have reviewed, with a mortgage banker or broker, the amount to be borrowed, your income, and debt load. This is more of an estimate rather than a guarantee and serves as a guide for the broker/banker which will ultimately lead to a pre-qualification. Some sellers will not even entertain your offer if you have not received a pre-approval from a lender. Your mortgage representative will provide you with a pre-approval letter to present to the seller along with your offer. The pre-approval should not be confused with a pre-qualification. A pre-qualification happens after you make an actual application with a lender. At this point items are verified by the lender and are reviewed by an Underwriter for final loan approval. You may be asked to provide personal information to verify what you completed on the original loan application. As mentioned earlier, make sure you have gathered all documents supporting your answers. This will allow underwriting to continue processing your application without delay.
Which loan is right for me?
There are many loan options for potential home buyers. Your mortgage representative should help you find the loan that's right for you. After a review of your circumstances he/she will make a recommendation. You may find that you are eligible for only a limited number of loan products offered by a few lenders. This may be due to credit history, loan size, downpayment, etc. Conversely, your situation may allow you to choose from many loan options from a wide variety of lenders. What ever your situation make sure you ask your mortgage professional to explain each product available to you.
Shopping for a home
Make a checklist of items you are looking for in your new home. This will allow your real estate professional to limit their search criteria saving time and resources. A good starting list should include the more important items when defining your search.
Keep in mind owners are selling their homes for a variety of different reasons. You may be able to uncover that reason and use it to your advantage. For example, and in most cases, they have found another home and the purchase of their new home may be contingent upon finalizing the sale of their existing home. This scenario may allow you some bargaining leverage in terms of asking price or condition enhancements. Other important questions are how long do you intend on staying in your new home? Will this be your forever house or will this be a starter home? Can you expand the existing layout and increase the size if need be? Will your family be growing in the near future? How many years do you plan on staying? So now you have a starting point in your quest for home ownership. You will enter a new realm of responsibility that will prove to be a true learning experience. With the right tools, I'm confident you will survive and prosper. Good Luck! For more information regarding home purchase our office provides a number of publications that will assist you along the path to home ownership. Also, you may speak to an ADR Counselor and receive a budget or housing counseling session. Call us toll free at 800-498-0766 ext 190 or email us.