You’ve decided to take the leap toward homeownership, an exciting and often intimidating process for many first-time homebuyers.
Before starting the house hunt, you should first boost your credit, begin saving for a down payment and decide on your ideal home location and type. This will help you in assessing your finances and getting preapproved for a home loan, which will in turn influence the loan options available to you and how long the homebuying process will take.
You can seek professional assistance from lenders and real estate agents to help you approach this important purchase with confidence and close on the right home at the right price.
620 or higher (lower may qualify)
About 6% (paid by the seller)
Up to 30% of monthly income
Pay off any outstanding credit card balances, ensure that all your bill payments are on time and get a copy of your credit report to check for errors. It is also wise to begin setting aside as much money as possible for your future down payment.
Consider your lifestyle, career and family plans when deciding on your ideal city and neighborhood.
Government-backed loan programs can assist in securing a mortgage for those with bad credit, so even small improvements in credit scores are worth pursuing. Get started early, because time is the most powerful tool for improving credit.
Size, investment and independence are the major factors to think about when deciding on the type of residence you’d like to purchase.
Affordability is typically calculated as a residence that costs two to three times your gross annual salary, with mortgage payments that do not exceed 30 percent of monthly income. A good start is to ensure that you have saved enough to pay a down payment and closing costs. Although a 20 percent down payment is typically required, many loan programs offer mortgages with much lower down payments. Closing costs may range between 3 percent and 5 percent of the home price and include appraisal, legal and home inspection fees.
Before starting to view homes, get concrete confirmation of what mortgage options are available to you through a lender.
You are not obligated to take out a loan after going through the prequalification or preapproval process.
With so much information available at your fingertips, you may consider buying a home without paying for the services of a real estate agent — aka, Realtor. A well-selected agent can streamline the homebuying process and potentially save you more money than you would going it alone.
You’ve found a house you love and you’re ready to proceed. Here are the next steps.
Your offer should be fair and competitive.
Once your offer on the home is accepted by the seller, your home inspection is completed, and you have obtained homeowners insurance, you will submit your mortgage application. You should already have a good understanding of what loan option is best for you and the likelihood of approval from the preapproval process taken before house hunting.
Prior to closing on the home, you will take a walk-through of your new residence and review a document called the Closing Disclosure. Your lender is required to provide you with the Closing Disclosure three business days prior to signing. Compare the costs in the disclosure to the loan estimate your lender provided during prequalification or preapproval. This is your last opportunity to check for inconsistencies or unnecessary fees. The final costs should not exceed 10 percent of the original estimate.
Once all of the closing paperwork is in order and the final physical evaluation of the property is complete, you will sign the contract and receive the keys to your new home. Before picking out drapery colors, however, remember to check what date your first mortgage payment will come due. Typically, it is the first day of the month following your close date.