Purchasing a home intimates a lot of people for some reason. While going so far as to say that purchasing a home is seamless would be the furthest thing from the truth, purchasing a home can become less nerve-wracking when you understand the home buying process.
Use this guide to help ease any anxiety about purchasing real estate.
- | Get Pre – Approved / Pre – Qualified
You want to know how much house you can actually afford. Setting your goals too high will lead to disappointment. Setting your goals too low may have you miss out on a great home because you underestimated your purchasing power short.
To get pre-approved you work with a mortgage broker. The mortgage broker will ask you to provide some basic information about your current income, they will run your credit, and analyze your debt-to-income ratio to determine how much you of a loan you can afford.
TIP – A pre-approval is less through than a pre-qualification.
- | Begin working with a Realtor
While in some cases this step comes before the first step, of being pre-approved for a loan. However, you want to be able to let your Realtor know the general price range that you are approved for. In addition to knowing how much home you can afford, you want to be able to articulate what you are looking for in a home. This will help narrow down your search. A couple of factors to consider when communicating your desires to your Realtor are:
- How many bedrooms and bathrooms do you want?
- What type of property are you looking for? (e.g. single-family home, townhome, condo)
- What area are you looking to live?
- Are there specific neighborhood amenities you want? (e.g. pool, tennis courts, gated community)
- How close do you want to be to the highway?
- | Submit an Offer on a Home
Once you find the home that you want to purchase, your Realtor will ask you what you want to submit your offer for. Typically, buyers will come in lower than the asking price, but this is not always the case. In a seller’s market, some buyers find themselves offering over the listing price because they are in competition with other buyers. If you decide to offer less than the asking price, then you could begin to negotiate with the seller and there may be a few counteroffers before a final deal is made.
- | Enter into the Due Diligence Period
Once you and the seller have come to a mutual agreement on the terms of the sale, you will have a specified amount of time to determine if you still want the house, which is called the due diligence period. During this period you want to have the home inspected by a licensed inspector to determine if there are any unseen issues with the home. If the inspector discovers a significant amount of issues and you feel as if you are no longer interested in purchasing the home then you can back out of the deal during this period without any implications.
- | Pay Earnest Money
Earnest money is a way to communicate to the seller that you are serious about purchasing their home. There is no formula to determine how much earnest money you should put up on a property, but it is a good idea to plan for it when purchasing a home. Typically, one of the brokers involved in the transaction will hold the earnest money until the deal closes, or the closing attorney can hold it. If you decide during the due diligence period that you do not want to purchase the property any longer, then you can get your earnest money back without penalty. However, if you decide to back out of the deal after the due diligence period has passed, then you may be subject to the seller keeping your earnest money.
- | Apply for a Loan
Once you are past the due diligence period, it is now time for you to officially qualify for your loan to purchase the property. This process can take anywhere from 30 days to 60 days depending on the type of loan you are applying for (e.g. Conventional Loan, FHA Loan, VA Loan). The lender is going to ask you for several items. Some of those items include the following:
- Proof of Employment (from both current and previous employers, if necessary)
- Pay Check Stubs
- Tax Returns
- Bank Statements
Make sure you are timely in submitting the items requested by your lender. Otherwise, you may hold up the loan processing time.
Word to the Wise – After you have applied for your loan, do not make any large purchases (e.g. a car, furniture, a boat). This will change your debt-to-income ratio, and may affect your ability to qualify for your loan. Wait until after you have left the closing table to make such purchases.
- | Appraisal
The lender will schedule an appraisal on the property to determine the current value. You, as the buyer, are expected to pay the lender for the appraisal as well. The seller can pay for the appraisal too, if they agree to do so in your contract. Once you begin the loan process the lender will let you know how much the appraisal is (I would safely set aside $500 for the appraisal).
If the appraisal comes in at or higher than the purchase price, you are good to go to proceed with the transaction as is.
If the appraisal comes in lower than the agreed purchase price, the seller will need to either 1) drop the purchase price to the appraised value and continue with the transaction or 2) they can decide to back out the deal because they do not want to accept less than what the original agreement is for.
- | Apply for Homeowner’s Insurance
To close on your loan to purchase your home, you need to secure homeowner’s insurance. Inquire with a couple different companies to see which will provide you with the best rate. A good place to start is the same company who you have your car insurance and/or rental insurance (if you have a renter’s insurance policy).
- | Underwriting
Once you have made it past the appraisal, the lender will send your completed loan package to an underwriter. The underwriter will assess your risk and make the ultimate decision on approving the loan. . The underwriter may come back to your mortgage broker and request some additional information or documentation prior to approving your loan. Once you are approved, the underwriter will then prepare the loan package for closing.
- | Preparing for Closing
Once your loan has been approved, your lender should let you know what your financial responsibility is to close the deal. They will let you know if you are expected to bring any money with you to the closing. You should plan to get certified funds (money order if under $1,000, cashier’s check if over $1,000). Also, plan to bring your personal checkbook as well, just in case there are any additional charges that come up unexpectedly.
You may want to go by the property one last time to make sure that the home is still in good condition and to ensure any agreed-upon repairs have been made to your satisfaction.
- | Closing
The long awaited day has arrived. You have searched many homes, been approved for your loan, and are a few steps away from becoming a homeowner. The closing will be facilitated by an attorney. The attorney works on behalf of the lender. The attorney will work with your lender to get the closing package ready for you to execute. Be prepared to sign a large stack of papers in blue pen (signifies that the documents are original documents). Do not hesitate to ask questions if you do not understand something. You want to be clear on everything before you leave the closing table.
- | Enjoy Being a Homeowner
Congratulations! You are now officially a homeowner. You have stayed the course and it has paid off tremendously.
Enjoy the many benefits of being a homeowner. Some of those advantages are:
- Being able to write off the annual property taxes paid for the home on your income taxes
- Being able to write off the interest paid on the loan on your income taxes
- Being able to write off the expenses on energy efficient upgrades you make to your home on your income taxes
- Applying for homestead exemption, which lowers your assessed value of your home in turn reducing the amount of property taxes you have to pay
- Being able to capitalize on any equity you have in your home
- Being able to customize the home to your liking
Be sure to take good care of your property.
While there is no guarantee that there will not be any hurdles or road blocks that you have to overcome throughout the home purchasing process, I hope this guide helps you to understand the process of buying a home more and eases any apprehension anyone has about purchasing a home.Enjoy the read? Share this article with your friends: