You’re Ready to Buy a Home, Now What?
Step #1: Get Pre-Approved
Most buyers will need to obtain a loan from a lender to purchase a home. Each back is required to follow federally mandated guidelines for your peace of mind. And depending if you will use a government backed loan (VA, FHA, USDA, etc.), there could be an additional set of requirements to qualify for a loan. It is very important to shop around for the best rates, terms and conditions within 30-days of actively pursuing a home. Ask for the best rates, special promotions (Appraisal fee waived, discount points) and their average closing duration. Once you have secured your pre-approval letter, you will know your budget and ability to purchase a home – effectively and efficiently. The pre-approval letter will be needed when drafting your purchase offer.
Step #2: Get a dedicated Realtor
Your Realtor will be your go-to professional in finding a home in an aggressive Seller’s housing market. A Professional Realtor will actively pursue new listings, networking with colleagues for additional properties that may become available in the near future and contact their client sellers for any possibilities of a home becoming available. While your Realtor is looking, there are a few things you could be preparing for when the time is right to submit an offer.
Step #3: Earnest Money Deposit
When you find your next home and you want to put an offer in, the sellers will expect an earnest money deposit. The deposit is expected to be 1% - 5% of the offer price. The larger the earnest money deposit, the better your chances will be in a multiple offer situation. The earnest money deposit is applied towards any closing cost & associated fees. The money is held in escrow by a third party, oftentimes the Realtor’s Broker, until the closing date.
Step #4: Offer Acceptance
Once the offer is accepted, the process can be a little more challenging during an already stressful situation. The closing process typically takes 45-50 days - when you take possession of your home. The first thing to do in this process is to schedule a home inspection. Inspections generally cost between $350-$450. That fee is paid at the completion of the inspection. The inspector works directly through you. At the end of the inspection, provide your lender with a copy of the paid invoice.
Depending on the program you will use (USDA, FHA, VA, etc.), government backed mortgage programs could require a water test, pest, and/or a sewer test. Prior to scheduling a home inspection, determine if any of these test(s) will be required of your lender. If so, instruct the home inspector. In many instances, the home inspector will perform the tests simultaneously with the home inspection.
Step #5: Closing Cost & Associated Fees
Appraisal will be a requirement for the lender. The purpose of the appraisal is to determine actual value of the home prior to the bank providing a mortgage. If the property appraises lower than the offer, the bank could reject the loan application, or the lender may request you or the seller to pay the difference between the appraisal and the offer price. The appraisal is a separate cost as well and is traditionally calculated in the closing cost of the loan. This cost could range from $300-$400.
The last of the fees to consider is other closing cost: bank fees, property taxes, credit report pulls, hazard insurance etc. These fees could account for approximately 4% of the offer price. Your Realtor may request the sellers to pay all or part of your closing cost. But there are times, sellers will refuse to pay closing cost from the buyers. This is a contingency you may want to account for in your budget.
Step #6: Be Careful
Although the banks have issued a pre-approval letter, the lender’s underwriter will pull another credit report 3-days prior to closing. The purpose of pulling the report prior to closing is to insure the original debt-to-income ratio has not changed or cannot support the current mortgage. The best thing to do is NOT use any credit during the closing process (45-50 Days). It is better to pay down the debt than to use the credit. Always make copies of any bills paid off before or during the closing process. The lender may ask for proof of satisfied accounts.
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