1. Get a Pre-Approval from a Lender
The first thing to do before buying a home is to get pre-approved by a mortgage lender. A pre-approval letter means a mortgage lender or bank has looked over your financial information you provide in an application to ensure you are qualified by the lender to purchase a home. The financial information they review is your gross monthly income (income before taxes), your FICO score, whether you have enough saved for a down payment and closing costs, and your DTI (debt-to-income ratio). Your DTI cannot exceed 50% of your gross monthly income in order to obtain a qualified mortgage. The debt-to-income ratio includes school loans, car loans, credit cards, and any other type of financial obligation where you agree to repay money borrowed.
You can apply for a pre-approval with Mortgage Craft by clicking here!
2. Pick a Real Estate Agent
Be careful to pick a realtor who fits your communication style. Do you want to text, email, or call them? Do you want them to be more aggressive or more patient? As you are searching for a realtor, get referrals from your friends, family, and co-workers!
Do some background research to ensure the realtor you are interested in is licensed in your state. Read their reviews on popular sites and check if they have any complaints filed against them with the Better Business Bureau. Ask the realtor for some recent clients as references so you can get a feel for how others liked their home purchase or sale process. Above all, make sure you choose someone who you think can best fit your home buying needs!
3. Begin House Hunting
A good real estate agent will help you hunt for houses within your budget. Make a list of your top priorities and features you would like in your new home.
Here is a list of things to consider when home shopping.
- Number of Bedrooms
- Number of Bathrooms
- Square Footage
- Home condition/repairs?
- Local school districts
- Nearby entertainment or restaurants
- Property value trends: up/down?
- Real estate and property taxes
Rank your priorities and communicate with your real estate agent on which are dealbreakers.
4. Make an Offer on a House
When making an offer on a house, you must submit an offer letter in writing. The letter includes your name, current address, and the price you are offering to pay for the home. Some offers include earnest money deposits which are typically 1-2% of the purchase price. The earnest money deposit goes toward your down payment and closing costs, but if you cancel the home sale after agreeing to purchase it, you typically will lose the deposit. Most real estate agents write the offer letter for you and contact the seller or seller’s agent to submit the offer.
A seller can respond in three ways:
- Accept the offer
- Reject the offer
- Provide a counteroffer
If a counteroffer is given, you have a choice whether to accept, reject, or make another offer.
5. Order a Home Inspection
Not all lenders require a home inspection before issuing a mortgage loan, but a home inspection is still beneficial for buyers deciding to purchase a property.
A home inspection involves an inspector who looks for problems like electrical issues, water leaks, and more. After the inspection, you receive a report detailing if any issues were found. Many homebuyers include a home inspection contingency when they make their purchase offer. This means that if problems are discovered by the home inspector, the contingency gives the buyer the opportunity to negotiate repairs or back out of the purchase.
6. Home Appraisal
A home appraisal is required by lenders because they do not lend more money than a home is worth. If the appraised value comes in lower than your offer, you may have trouble obtaining financing. This is why being thoughtful about how much you are offering and how much you can afford is so important.
Buyers can protect themselves by including an appraisal contingency in their offer. Appraisal contingencies allow buyers to back out of a purchase or negotiate a lower price if the home appraises for less than their offer amount.
7. The Closing Process and Your New Home
Lenders are required by law to give you a Closing Disclosure which details how much you need to pay at closing and provides a summary of your loan details. This is required three business days before closing. Review your closing documents and make sure they are similar to your original loan estimate.
At closing, you will need your ID and your payment method for the closing costs and down payment (usually detailed by the lender). Once you sign the mortgage note stating you are promising to repay the loan, you will sign the mortgage to secure the mortgage note.
Now you are officially a home owner!