Thinking about purchasing a home? It’s a big investment and the undertaking that should not be taken lightly. It’s probably the largest financial transaction of your life and should be done with a professional that knows exactly what they’re doing. When you consider the fact that you can purchase a home and have a monthly payment equal to or even lower than your current rent payment, home buying begins to make a lot of sense.
Here’s are some things to consider when thinking about home buying:
- Do you have stability in your job?
- Is your income stable?
- Will your income increase decrease or remain constant?
- Do you have a history of employment and if not can you document what you were doing prior to becoming employed?
- What kind of monthly debt you have? Credit cards, auto loans, student loans? If yes, these will need to be kept in check when trying to qualify to purchase a home.
- What areas are you looking are you willing to consider?
- How about the location of schools and proximity to work and/or family?
- Have you given any consideration to what kind of total monthly house payment you think you can afford for the long haul?
- What are your savings habits like?
- Do you have money saved up for a down payment?
- Could you save up for a down payment if you had to?
- What’s your relationship like with your parents and/or grandparents? These could be wonderful sources for gift funds so it’s something to consider.
- Are you responsible and you pay your monthly bills on time?
- Do you know what your credit score is?
- Do you have previous credit lates, medical bills or previous collections of any kind? These will need to be looked at when trying to qualify for purchasing a home.
You will want to give yourself an idea of what kind of home buyer you were going to be by asking yourself these questions. Many of these questions are going to be coming up during initial conversations with your mortgage lender in trying to get pre-qualified to purchase a home. By giving yourself answers to these questions up front you will do some of the initial legwork the mortgage lender would otherwise be doing.
Some things you’ll need to be aware of before you contact a mortgage lender or real estate agent.
- Upfront fees-the only upfront fees you should have to pay are the following: an appraisal report which the lender needs in order to determine the value of the property you want to buy. The cost for this is approximately $500. The next few items are optional items in your home buying efforts. A home inspection report is $500. This is a report that you would pay to have a licensed home inspector inspect the property that you would like to purchase and provide you any and all information material to the home that you were buying. A pest report is also highly recommended and the cost for this report is also approximately $500. What you are paying for here for a licensed pest inspector to inspect the home for any termite related damage that might be beneath the home or in the surrounding areas.
- Do some research of the available homes online and get an idea how much house you can get for XYZ monthly payment. You can do this research online on virtually any real estate related website.
- Drive the neighborhoods that you think you might want to purchase a home in, get a feel for where you want to live or where you could see yourself living for the long haul.
- Get your finances together -following is a list of items that you will need to provide your mortgage lender because you’ll want to contact the lender before contacting a real estate agent or getting serious about home buying:
√ two years of tax returns and W-2’s
√ most recent pay stub’s the last 30 days
√ Two months bank statements on all bank accounts from which down payment funds might be coming from, if you don’t notice provide all bank statements
√ You also need to provide a copy of your driver’s license or Social Security card or both, if you don’t have the social security card don’t worry about it
Next- Find a mortgage lender by simply Googling one in your area or getting a recommendation from a friend or from a family member. If you have an agent already, you can also get a great recommendation to a lender from a trusted real estate professional.
You’ll want to contact a mortgage lender and get a feel for them. Are they helpful? What loan programs do they offer? Are they responsive? Do they answer all of your questions in detail and is the person you feel comfortable with to handle the largest financial transaction of your life? If yes, you’ll want to make sure to provide a mortgage lender all the documentation listed above and give them permission to pull a copy of your credit report. A good mortgage lender should be able to tell you right up front how much you qualify for based upon your credit, debt income and assets. Most mortgage lenders can do a pre-qualification and give you an idea of a monthly house payment and how much purchase price you might qualify for within 10 minutes on the telephone. Remember this is just an initial prequalification, pen to paper, it is by no means a guarantee that you’ll be able to get a mortgage loan to purchase a home. Ultimately you’ll need to give your lender at least one business day to do a full loan pre-approval so they can write you a letter to give to your realtor to make an offer to purchase a home.
Next- Find a real estate agent, by doing a Google search or by getting a recommendation from a friend or family member or even a coworker. You can also get a great recommendation from a mortgage lender if you’ve already been proactive in getting pre-approved topurchase a home. Your real estate agent should be someone that you mesh with, has experience and that is actually busy.
*Home Buying Tip- if you find a real estate agent who is willing to show you property on more than one occasion with out a preapproval letter in hand, they’re usually somebody not doing any business. A true professional will tell you that their time is being wasted by showing your property if there’s no guarantee do you can qualify to purchase a home. This is not meant to be offensive, but rather it’s in your best interest to work with an agent like that because it shows you they are busy and that their time is valuable. You don’t want to be working with a realtor and you are their only client for the next six months. That’s a big red flag because that person will be more motivated to sell you a home, than you are comfortable with.
Next- Get serious about your home buying efforts, make an offer to purchase a property
This goes without saying. You’ll want your realtor to make sure that you can put an offer in on the property and that the property is not already in contract with another buyer. Your real estate agent will easily be able to tell you this right up front. You make an offer to purchase a home and the seller of the property along with their listing agent will either agree to accept your offer, counter your offer or reject your offer. If they reject your offer, you can submit another one. If they counter your offer that’s when the purchase price might change or the contract shall time frame might change, example from 45 days to 30 days. Most contracts are written for 30 days, sometimes longer, but generally 30 days. If the seller of the property accepts your offer you’re now officially, “in contact” and you will have 30 days to purchase the property by securing mortgage loan financing and doing all of your initial inspections.
Some things to consider …
Will earnest money be required? 95% of purchase transactions, have earnest money used up front. This is sort of like putting in a security deposit on a lease for renting, where you put in a certain amount of dollars (which is negotiable) into escrow with a local title company such as something like First American Title Company. They will in turn, hold that money for you and that money will be applied towards your closing costs, or that money will be refunded back to you in full if the seller is paying your closing costs.
(Quick word on credits for closing costs-these are something that’s negotiated for right up front-we recommend a 3% credit for closing costs which would cover all the closing costs of the home that you’re buying- speak with your mortgage lender and realtor about the need for doing this)
Make sure your mortgage lender has all the information necessary to get your loan set up and into underwriting. Once once you are in contract it is simply a matter of closing escrow and going back and forth with a mortgage lender and agent about various transactional touch points. Another important thing to consider is your loan contingency removal -this usually happens 17 days after you get the contract at which point in time, you take your poker chips off the table and you fully commit yourself to purchasing the property you made an offer on. Your mortgage lender should have the loan approved by this time and the appraisal should be done by this time as well.
Some more information on the home buying process
Short Sales are properties where the seller is selling the house for less than what’s owed. Many times these transactions take anywhere from 4 to 6 months. The “Short” component of a short sale has nothing to do with the turn time, but refers to the fact that the original lender is being shorted their original dollars lent, giving seller permission to transfer the home to you as the home buyer. These transactions do offer an advantage over other homes for sale in the market because there is less competition because many other home buyers, are impatient.
Foreclosures are bank owned properties sometimes referred to as REO’s. A unique characteristic of these properties is having to obtain a second mortgage loan preapproval. For example Chase Bank, owns the house you want to make an offer on. In order for them to consider your offer, you must be a pre-approved with a Chase loan officer. It’s really a way for Chase to control the transaction on both ends and make dual profits (yes banks make money on foreclosures). You will not have to use this person for your mortgage home loan financing, but a second preapproval and/or a second credit check might be required. Foreclosures usually have multiple offers and the competition is pretty strong on these types of properties. Seller credits are also something that are very common, so it’s plausible that you could be making an offer to purchase a bank owned property and get the bank to give you a credit for closing costs.
Title/ Escrow– title is responsible for keeping track of the transaction from start to finish. They are also responsible for being the neutral third party in the transaction otherwise known as an intermediary. They will prepare the final loan documents for you to sign in the end and they will make sure that all the monies are properly dispersed to ensure a successful close of escrow.
There you have it, a simple breakdown of the process of buying a home. See this link for the step-by-step mortgage loan process.
If you are thinking about home buying and trying to get an idea of what it might take for you do successfully close escrow on a house that’s affordable. Feel free to contact us Scott.Sheldon@nafinc.com. Next, find more information on purchase loans. Use our Free Guide To Sonoma County Home Buying.