Basic Overview of the Home Buying Process
Shopping for a home can be an overwhelming task if you have never gone through the process. It all starts with the mortgage and determining what you can afford. Once your price range is determined, its time to start viewing homes to determine which ones are worthy of an offer.
Use our helpful checklist and follow the rest of these helpful tips:
When you apply for your home loan, a mortgage officer will look at your current employment history, salary, credit card payments, outstanding debts and assets. It’s crucial that you keep your spending habits down, pay your bills on time and make enough to qualify for a new loan. Your credit history will be pulled and needs to be excellent. If it is not, you may have a difficult time funding your home purchase. Mortgage lenders will take hardships such as illness, tragedy or small gaps of unemployment into consideration, but late payments due to laziness will be frowned upon and could disqualify you.
You can use either a mortgage broker or search for lenders on your own. A mortgage broker will search for lenders and then inform you about rates, but be aware that they may not give you the best deal if you haven’t signed a contract with them. The more information that you can collect, the better off you will be at understanding the process.
A Sequence of Events
When you meet with a mortgage lender, they will ask you for your prequalifying information. From there, they’ll discuss the amount of house that you can afford and different types of loan terms and rates. If your prequalification information looks healthy, you can lock in a rate and decide to pay a fee – called points – if you want to lock in a slightly lower interest rate. However, to keep that rate, closing usually needs to be completed in a specific timeframe such as a month.
The lender will have an appraiser determine the market value of the home you are buying to determine if it meets the sales price. Your loan will be based on the lower of the two. After that’s been completed, it is time to close the deal. If you have mediocre credit or a small down payment, the lender wants some insurance that they will be paid back on the loan. In this case, you will have an extra cost each month for private mortgage insurance (PMI).
You will also pay closing costs that equal anywhere from two to five percent of the purchase price. Closing costs typically include fees for the credit report, appraisal, pest inspection, underwriting, escrow, title insurance and search, points and loan processing. When you initially meet with a mortgage lender, they will inform you of these costs – it’s called a good faith estimate, and mortgage lenders are required by law to give you these estimates.
Take Your Time
While buying a home is exciting, it’s advisable to take your time when going over all of the different loan options that may be available to you. The more information that you arm yourself with, the better off you will be.