Step by Step to Buying a Home
/With mortgage rates at an all time low, it’s a great time to buy. What’s even better for buyers and sellers is that because of the low mortgage rates, banks can approve higher loan amounts due to the decreased monthly mortgage payments. You follow? So it’s a win-win for both parties. If this is your first time in the market, how do you know where do you start? The market is competitive right now so you’ll want to have all your ducks in a row, here’s where to start.
1. Before you even start looking at homes, create an income and expense sheet. Create an excel book and input all your monthly expenses and deduct that from your income. Include a general expense for things like groceries, gas, eating out, or getting your hair cut. All these things add up and you want to make sure you have a realistic idea of what you can afford. Creating the income and expense sheet will help you determine how much money you can feasibly spend on a mortgage plus taxes, utilities and maintenance each month.
2. Once you have created your income and expense sheet, determine where you can save money. Whatever extra money you may have, start putting that into another account to begin building up a savings for a down payment. There are many different loan options out there to help reduce your down payment, especially for first time home buyers, but its always good to have extra cash on hand.
3. Next before you go for your preapproval, make sure your credit score is where it needs to be. Your credit score plays a large part in the interest rate you get for your mortgage, so its important to do your best to have it as high as you can. You can improve your score a couple ways such as:
Correct mistakes or errors
Ask for a goodwill adjustment (if you were late just one time, companies may be willing to overlook so it wont hurt your credit)
Leave older accounts open (closing older accounts can hurt your credit because they take into consideration credit history, so it’s a good idea to leave older credit cards open
Make payments on time, every time
Pay down revolving debt (your debt to income ratio is used to help determine your mortgage interest rate so its good to pay off as much outstanding debt as you can)
Use credit wisely (its always best to pay your card off each month)
4. Check out multiple banks and see what loan programs they have. Its always smart to shop a couple banks to see what kind of rates they are offering or what they can do for first time home buyers. Once you have found one or two banks you like, get a preapproval. A preapproval will be a soft credit check and will have minimal affect if any on your credit score. It’s good to be able to have a comparison and it will help with negotiating mortgage rates.
5. Now its time for the fun part. Once you know what you can afford and have the preapproval in hand you can start looking at homes! You’ll want to find an agent who you are comfortable with and understands your wants and needs. Keep in mind, just because your preapproval says you can afford a certain amount doesn’t mean you need to spend up to that amount. Download the Zillow mortgage app to get an idea of what a home mortgage would be for different priced homes. You can input your down payment as well as your taxes to get a realistic monthly mortgage. This way you can input the estimated monthly mortgage into your income and expense sheet and see what number you are truly comfortable with. The last thing you want to be is house poor, where all your money goes into your home each month.
6. Once you find a home that you really like and decide this is the home for you, you’ll want to let your agent know that you would like to place an offer on the home. Your agent will work with you to write the offer and then present it to the sellers. I would recommend having your offer contingent on a home and pest inspection. This will help protect you in the event there are any issues with the home that weren’t seen during the walk throughs. You will also typically provide $1000 upfront as good faith of your offer. If it is a competitive market with multiple offers, you may want to offer more. Basically, this is an upfront offer that goes towards the total cost of the home.
7. Once the offer is accepted and the closing process begins, there are a couple things you will want to do. First, you will want to chose a closing company. Typically the buyer is given the option of where they would like to close. Next your inspections will be scheduled. As the buyer, you can be present during the home inspection if you like. I always think it’s a good idea to pop in at some point during the inspection just to talk to the inspector to get their feedback on the home. If everything comes back positive with the home and pest inspection, you’ll want to start shopping for home insurance. You will need to have home insurance secured before you close on the home. You can also start to set up utilities for your move in date as well as switch your mailing address. Typically the day before closing, your bank will notify you of the exact amount you need to bring to closing. This will likely be for your closing costs as well as you down payment. You will have to either hard wire the funds or get a certified check to bring to the closing table. It will depend on the settlement company you chose, and they will let you know which they prefer.
8. Closing day! You made it. On closing day you will basically sign all the paperwork with the seller and bank. Here checks will be distributed between you, the seller, the bank, and realtors. You’ll get the keys to the property and you are officially a homeowner. Congrats!
Buying a home may seem overwhelming, but when you break it down it really isn’t all that difficult. It is the job of your realtor to help walk you through the process and make sure everything is going smoothly. If you have any questions feel free to shoot me a message! I’d love to offer my insights. Best of luck!
