First time home buyers have no idea how good they've got it right now. Yeah, I know what you're thinking: "This guy gets paid to talk about how great buying a home is, blah blah blah". Fortunately, I'm not planning on waxing philosophic about the virtues of home ownership, I'm here to discuss what it takes in today's market to actually buy a home.
Step 1: Know Your Credit
Everyone should have some sort of idea of where their credit score sits. You may not know the exact number, but you should have a vague sense of whether it's close to 500 or 700. Lots of lenders talk about how a minimum score of 580+ may be strong enough to get a home loan, but at a minimum you want to have a score of AT LEAST 620in order to be able to qualify for an affordable loan.
Step 2: Find a Realtor
Finding a Realtor is easy. Just give me a call and I'll be happy to help! All kidding aside, finding a Realtor BEFOREyou find a lender is important because a good agent should be able to help you find a lender that specializes in the kind of loan that makes sense for you. For example, virtually any lender can do an FHA, Conventional, or VA loan. If you're looking for a loan that requires no down payment and you're not eligible for VA financing, you're going to need to find a lender that is qualified to do a specialized loan program, such as USDA Rural Development Loans or CDA loan programs. Many lenders don't offer that, so having an agent first allows you to help select the lender that is right for you.
Step 3: Get Prequalified
Once you've got a lender and Realtor working for you, it's time to get a pre-qualification. This is where the lender runs your credit to determine how much home you can afford and at what monthly cost. You shouldn't be paying any money out of pocket yet, so be wary if someone tries to tell you otherwise.
Step 4: Find a House
This is where the process starts to be come a lot of fun. Finding a house that you like and you can afford can be time consuming, and it's an important decision, so don't let anyone make you feel pressured to make a quick decision. You're the one that's going to be living their, not your agent or lender!
Step 5: Make an Offer
When you find a home you like, your Realtor is going to help you write the offer on your future home. It's essentially a tsunami of paperwork and it will include writing an earnest money deposit check as good faith. This should be the first time you start spending money out of pocket to buy a home.
Step 6: Start the Formal Loan Application
Once your offer is accepted you're going to have a limited amount of time to get your loan application made and the deal closed. Working with your lender is going to require them to complete a full loan application package with you, they will likely need to charge you to have an appraisal done on the home as well, so expect to spend more money here.
Step 7: Select a Title Company
As a buyer, you have the right to select your own title company to handle settlement. You can always use the title company your agent recommends, but ultimately the choice (by law) is yours. The title company review the contract, makes sure there are no hidden liens on the property, and conducts the document signing to transfer the property into your name. They also provide title insurance, which is required by your lender. Title insurance is basically a guarantee against any hidden liens or claims to your property by other parties. If a hidden lien is found later, the title insurance policy pays to fix the problem.
Step 8: Get A Home Inspection
Getting an inspection done is optional, but necessary, IMHO. The inspection can be arranged through your Realtor, but the responsibility for paying the home inspector for his services is your responsibility. This can range in cost for $300-$1000, depending on the scope of inspections.
Step 9: Get Your Loan Approved
Getting your final loan approval is necessary in order to actually go to closing on your home. The lender is responsible for this, but you may be required to supply additional documentation for final review by loan underwriters. Once you have final approval, you're ready for settlement!
Step 10: Going to Settlement
Settlement is when you finally get to say the home is yours. the buyer and seller sign the paperwork to transfer the title, and the buyer signs the loan documents acknowledging that they will repay the loan. Typically once they property goes to settlement, you as the buyer get the keys and you can move in whenever you want! Make sure that you don't forget to have all of the utilities changed over into your name; the seller will probably have them taken out of their name on that day, and you don't want to be left without power or water!
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