First Time Home Buyer
The home buying process can be stressful and confusing. That's why we have created this step by step guide for first timers. Through out the guide you will learn the process, read important tips, and calculate your own situation. If you have any further questions, please contact us for additional information.
Step 1: Preparation-
Improve your Credit - New credit score guidelines continue to make it more and more difficult to obtain a mortgage with below average credit. Good credit however, can lower your mortgage's interest rate, potentially saving you hundreds of dollar each month. Ask your Loan Officer to order a credit report and make sure that there isn't anything reporting that you are not aware of and work to clear up any problems. You can dispute any mistakes, but the most important thing is to build and maintain an excellent credit portfolio moving forward.
Save for a down payment - Home buyers traditionally had to put up a 20% down payment. Now-a-days it's typically in the 5-10% range with the absolute minimum amount you can put down being 3.5%. You'll typically get a better loan if you make a larger down payment. Also making a down payment of 20% or greater will eliminate the need for mortgage insurance on the loan.
Calculate how much house you can afford - Housing eats up more of everyone's paycheck these days, but as a rule of thumb, buyers spend 25-30% of their pre-tax pay on housing. Consider your entire budget: How is your credit card bill, student loan or kids' tuition? How much will your new home cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction? Click here to see how much you can afford.
Organize your documents - A properly documented loan application makes your loan process go smoothly. Complete and sign the residential loan application, Form 1003, and the attached loan info sheet, credit authorization and fair lending notice. If you are salaried: provide W-2's for the previous two years and one month of pay stubs. If you are self-employed, provide tax returns for the previous two years, including all schedules, and a year to date profit and loss statement. (Note: provide copies of all requested documents. Do not provide original documents.) If you own rental property, provide recent rental agreements and tax returns for the previous two years, including all schedules. To speed up the approval process, provide bank statements for the most recent three months, and recent statements for stock, mutual funds and IRA/401K accounts. If applicable, provide a copy of your divorce decree and settlement agreement.
Step 2: Getting Qualified-
Work with your loan officer to find the loan program that best suits your short and long term needs. The standard 30-year fixed rate mortgage allows predictable payments. If you're planning on moving quickly, consider an adjustable rate mortgage, which has low interest and payments for the first few years. See our loan products page for additional information.
When buying a home, you may be pre-qualified or pre-approved. You can be pre-qualified over the phone in a few minutes. Pre-qualification is not as useful as pre-approval. Pre-approval requires a more rigorous process, including verification of your credit, income, assets and liabilities. It is highly recommended that you be pre-approved before you start looking for a home. This will put you in a better bargaining position and speed up the loan process.
We can calculate your monthly expenses including principal, interest, taxes and insurance. You'll pay a monthly bill into an escrow account instead of making large lump sum annual taxes. Compare different loan products by clicking here.
Step 3: The House-
Shop for a home - Make a list of the features you want or don't want. A realtor can be a great help, so much so that some start planning here months or years before they're ready to buy. The seller pays the sale commission, which typically runs 5-7%, split between the seller's agent and buyer's agent. So essentially, first time buyers get the service basically for free. Some also shop from people who are selling their own homes, figuring the lack of a commission means a lower price.
Make an offer - How much did similar homes sell for nearby? How long has this house been on the market? (Weary sellers may be more flexible.) Your realtor can evaluate market conditions and help you make a reasonable offer.
A common occurrence these days in negotiating the sale of a home are seller's concessions. Seller's concessions are a set dollar amount or percentage of the purchase price that a seller agrees to contribute to you, the buyer, towards your closing costs. This can help to either lower the amount of money you are required to bring to the closing table, or help you bring none at all. These contributions are financed over the life of the loan with the purchase price, so make sure to ask your loan officer if concessions would be a good decision for your situation and if they are allowed with the loan program you are using.
Sign a purchase agreement - You sign and pay a deposit that is held by a neutral third party. In some states, you'll want a real estate lawyer to go over the deal. Typically buyers can back out if the home inspector finds big trouble or if they can't find financing.
Step 4: Finalizing the Sale-
Complete Loan Process - Once your purchase agreement has been executed, we will finalize the loan process immediately. This may require gathering additional documents as well as determining the final loan amount and down payment requirement.
Home Inspection - Have the property inspected by a licensed home inspector, and make sure your contract is contingent on the home inspection for a detailed, objective evaluation of your home's infrastructure. Afterwards, negotiate with the seller over needed repairs. Be sure the title of the house is free of any liens. We will appraise the house, too.
Shop for homeowners insurance - Shop around, but your own car or life insurer will probably give you a good package deal. As always, a higher deductible saves you money. Don't wait until the closing to shop for the best rates.
Close on the purchase of your new home - You'll meet at a realtor's office or title company, bring a cashiers check or money order for your down payment and closing costs if required as personal checks are normally NOT accepted. Review the final loan documents. Make sure that the interest rate and loan terms are what you were promised. Also, verify the accuracy of the name and address on the loan documents. Sign the loan documents. The notary will require that you have your picture ID with you.