Closets bigger than your average microwave. The freedom to decorate however you darn well please! Making the switch from renting to owning is exhilarating, but many rookie homebuyers find the process trickier to navigate than they expected. The month timeline will help you sidestep common mistakes, like paying too much interest or getting stuck with the wrong house. Yep, it happens! Check your credit score. Avoid last-minute bombshells by checking your score long before you're ready to make an offer.
And work diligently to correct any mistakes. Determine how much you can afford. This figure includes your future mortgage and any other debts, such as a car loan, student loan, or revolving credit cards. There are plenty of calculators on the web to help you determine what you can afford. If you're pushing the limits, start reducing your debt-to-income ratio now. Make a down payment plan. If you can swing it, do it. Your loan costs will be much less, and you'll get a better interest rate.
If, however, you're not quite able to save the full amount, there are many programs that can help. FHA offers loans with only a 3. But they require mortgage insurance premiums, which will drive up your monthly payments. The U. As you're planning your savings strategy, keep in mind that banks like you to "season" your money. That is, they like to see that you've had stable funds in your account for 60 to 90 days before applying for a loan. Don't worry: You can still use a financial gift from a family member or bonus received near the time you buy. Prioritize what you most want in your new home.
What's most important in your new home? Proximity to work? A big backyard? An open floor plan? Being on a quiet street? You'll make a much better decision on what home to buy if you focus on your priorities. If it's a joint decision, now is the time to work out any differences to avoid frustration and wasted time. Perhaps most important: Know what trade-offs you're willing to make. Research neighborhoods and start visiting open houses.
But now's when the fun begins, too. Start visiting open houses to get an idea of what kind of homes are in your price range and what neighborhoods appeal the most. Seeing potential homes will also keep you motivated to continue reducing your debts and saving for your down payment. Buying a home has some miscellaneous upfront costs. If you don't have the cash, start saving now. Start a home maintenance account. Speaking of saving, start the good habit now of putting a little aside each month to fund maintenance, repairs, and home emergencies.
It's bad enough to have to call a plumber. It's worse if you're paying credit card interest on that plumbing bill. Tip : You need to decide between a fixed and adjustable rate mortgage ARM. With a fixed mortgage, you have the same interest rate from year one to year 30, unless you move or refinance. It won't change, so the payments are predictable.
With a an ARM, you could probably get a lower interest rate than you would with a fixed - but you'd have to deal with the uncertainty of it changing over time. Within three business days of receiving your application, a lender will send you a loan estimate. This details the full estimated cost of your loan, including:. Monthly payment Interest rate Balloon payment if any Total closing costs.
The loan estimate also outlines any negative amortization and prepayment penalties. All lenders use the same standard loan estimate form. Remember: a pre-approval does not bind you to any particular lender. It's smart to shop around and see where you find the best rates and conditions. Now that you've done the hard work, you can finally start shopping for a home…which can also be hard work.
But with the proper preparation completed, you'll be able to stay focused and within your budget. Your lender will have provided you with a letter detailing the maximum amount you can borrow, the terms and the program you qualify for. Some sellers allow government-backed financing, such as FHA or VA loans, while others prefer to avoid them. You should just be upfront about your loan right to help prevent issues arising further down the road.
The amount on the pre-approval letter does NOT dictate your purchase price - that varies depending on how much you can put down. Add the amount you will use for the down payment to the pre-approval loan amount to come up with the maximum you can bid on a house. To be clear, you don't necessarily want to pay the maximum. The amount you can afford depends on you and the price you believe is fair for a particular house.
When you consider how much you will offer on a house, remember to factor in your closing and moving costs as well. You don't want to spend all of your savings on the down payment just to buy a more expensive home. If you value environmental sustainability, consider moving to a city that does the same. Check out this list from Commercial Cafe for the top 40 most sustainable cities in the U.
Typically closing costs are between 2 and 5 percent of the purchase price of the home. You may be able to roll those costs into the loan amount, depending on your lender and the type of loan.
Your pre-approval should state the down payment percentage the lender approved. For example, if you qualified for FHA financing, you need a minimum down payment of 3. This affects your monthly payment and debt ratio, so proceed carefully. Tip : In order to qualify for the low 3. All FHA loans charge annual mortgage insurance no matter how much you borrow. This insurance lasts for the term of the loan. Using your pre-approval as a guide, you and your realtor can shop within your budget to help you find a home.
Browse real estate websites offering MLS listings and For Sale by Owner properties Work with a realtor who can alert you of listings within your budget and desired area Attend open houses to get a feel for the type of houses that are available in your price range. Separate important home features into "must have's" and just "nice to have's".
You should also decide which factors are absolute deal breakers.
First-Time Home Buyer Tips
Tip : Don't fall in love with the first home you tour. Take your time when shopping and make sure to compare different properties, their costs and conditions. You'd be surprised how much your feelings will change the more you shop around. Keeping this list in mind or even in hand will help you remain objective. Remember: it's easy to get caught up in the emotion of buying a house. But that emotion can make overlook a problem that you'd otherwise consider a deal breaker. Once you find a home you love, it's time to place an offer. You'll need to have the offer written up in contract form.
Realtors do this for you as part of their service. Earnest money can vary from a flat amount to 1 percent of the purchase price.
8 Basic Steps to Buy Your First Home
It is paid to the realtor prior to presenting the written offer and is included in that offer. Earnest money must be deposited in an escrow account within three days. In some states, the remaining down payment is held in an escrow fund by an attorney who serves as the closing agent. With any escrow account, a check must be deposited within three days of being presented.
You may also want to include appropriate contingencies in your contract. A few of the most common contingencies for first-time homebuyers include:. Inspection contingency : This gives you time to pay for an inspection of the property. A home inspection is performed by a licensed home inspector and is usually paid for by the buyer. Tip : You should also consider if you need a termite inspection along with a general inspection. Including these contingencies in your contract protects your interests. Home inspections can give you more detailed information about the condition of the property and systems.
Once informed of any issues, you can determine if you still want to purchase the home. Some attorneys also view the home inspection contingency as an opportunity to negotiate more givebacks from the seller. Home inspections offer an objective idea of costly repairs which the seller may need to make. In general, you'll want to keep the deal on track unless the house is an absolute disaster. Financing contingency : This gives you a specific amount of time to secure your loan.
Even if you have a pre-approval, you still need an approval without conditions. An underwriter needs to evaluate your documents to make sure everything meets the program's requirements. If your financing falls through before the expiration date, you can back out of the purchase without penalty. Appraisal contingency : You have no control over the value of the property.
You also do not have control over the amount the seller asks for the home. An appraisal contingency gives you a way out. If the value does not meet or exceed the agreed upon sales price, you do not have to purchase the home. Once the seller accepts your offer along with your contingencies, all parties sign the sales contract. This point in the home-buying process is a good time to start thinking about movers.
10 Steps to Buying a Home
This blog from Gaby Creates Home Improvement explains how to make sure your belongings are in good hands during the move. With a signed purchase contract and all necessary documents with the lender, the waiting begins. If you have a pre-approval, your wait may be slightly shorter. The lender will go over your income documents again and might even re-verify your employment or income. Proof of income includes:. The real waiting pertains to the appraisal and title search. The underwriter needs both documents to proceed, as well as the home inspection report and the documentation from the appraiser.
Appraisal: This report shows the value and condition of the home. FHA loans require certain standards to be met to ensure the home is safe and sanitary. Without the right appraisal, the underwriter can't clear your loan to close no matter how qualified you are for the loan. Title search: This is an examination of the prior ownerships of the property. The examiner also looks for other liens on the property. All liens must be cleared before you can close on the loan.
Unpaid tax liens or unpaid contractors are common reasons for liens on a home. Once the underwriter approves the appraisal and clear title you are well on your way to the closing table. Does your dream home include some rooms that could use a makeover? These tips on how to liven up your space from Dainty Mom will help you make your new home welcoming and bright without major renovations. Closing the loan and taking possession of the home occurs after underwriting. When the underwriter clears everything, you'll receive a "clear to close" notice.
This means the closing agent, lender, and seller can arrange a closing date. At the closing, you sign the necessary documents that make you a first-time homebuyer with your first mortgage. You can expect to see your loan officer, the seller, your attorney, and real estate agent at the closing table. They all sit alongside the closing agent. The agent runs the show while the others provide support as needed.
The closing agent can be an attorney, or a title representative depending on the location and custom. Photo ID - At the closing table, you will need to provide proof of identity, such as a photo drivers license or military ID, green card, or passport and passport ID card. Cashier's check for the amount of your down payment and any closing costs. Closing costs generally range from 2 to 5 percent of the loan in some areas and include the following:. These costs are disclosed with a good faith estimate within three days of an application for a home loan.
Lenders may require funds to be held in reserve to ensure that taxes can be paid. These are calculated based on when the taxes are due and when the mortgage term begins. You should receive a closing statement at least three days before your closing date. This will tell you how much money you must bring to the closing. It also gives you a chance to go over the loan details to make sure they are what you agreed to at the start of the process.
You may choose to refinance your mortgage in a few years. This is a good idea if the interest rate drops, or if you have an opportunity to qualify for a loan program with fewer fees and lower overall cost. Refinancing comes with costs, as does obtaining a first mortgage when you buy a house.
There are application fees, and closing costs which include inspections, title searches and surveys.
- Buy Your First Home in One Year: A Step-by-Step Guide.
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Now that the house is finally yours, it's time to make it make it feel like a home! Check out this blog from Luxirare for 5 interior design tips to make the most of your new space. Every month, you'll pay down the interest and principal balance on your mortgage. The total amount of principal you have paid, added to your down payment equals the equity in your home. The value of your home increases—and sometimes decreases—over time. When you're ready to sell or refinance, you'll need to appraise the market value of your home.
If the value has increased or decreased, so has your equity. Did you know? BUT this figure can vary greatly based on a number of factors including your local market. Important note: Do NOT expect your home to double in value in five years. Buying your first home is equal parts exciting and overwhelming. You can make it easier on yourself by honestly assessing your readiness. Once you know it's the right time to buy, follow these simple steps to make the process as smooth and worry-free as possible.
9 Simple Steps to Buying Your First Home
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You should consult your own professional advisors for such advice. Read more about Mortgage. Here are 5 steps you must do to buy a house. Related : How to Save for a House. Stay informed with free money-saving tips, deals, and reviews from CreditDonkey. More Articles in Money Tips. Mortgage rates have seen major highs and lows since Freddie Mac started tracking them in Rates have gotten as high as