In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowners insurance, home inspections and title searches. You can also defray costs by asking the seller to pay for a portion of your closing costs or negotiating your real estate agent's commission. Calculate your expected closing costs to help you set your budget.
Many realtors will not spend time with clients who haven't clarified how much they can afford to spend. And in most instances, sellers will not even entertain an offer that’s not accompanied with a mortgage pre-approval. That's why – if you don't have all cash (how many first-time buyers do do?) – your next step is talking to a lender and/or mortgage broker.
Contingency clauses also offer a form of protection. "A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house," explains Justin Lopatin, a mortgage planner with American Street Mortgage Co., to MSN.
Right from an escrow account to real estate attorney, all involved services and entities cost money which can snowball into a big amount. Many such services take advantage of consumers' ignorance by charging high fees. Junk fees, a series of charges that a lender imposes at the closing of a mortgage and is often unexpected by the borrower and not clearly explained by the lender, are a big cost. They include items like administrative fees, application review fees, appraisal review fees, ancillary fees, processing fees and settlement fees. Even fees for legitimate closing services can be inflated. If you're willing to speak up and stand your ground, you can usually get junk fees and other charges eliminated or at least reduced.
As a buyer, you have the right to a professional home inspection before you purchase the house, and you would be crazy not to do it! This is one of the most important precautions you can take before purchasing a home because it keeps you from being blindsided by structural issues or expensive repairs. If the inspection reveals major problems with the home, you can ask the seller to fix the problem, reduce the price, or cancel the contract.
First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.
Next, decide which mortgage makes the most sense for you. There are plenty of different options to consider. Although Gilmour advises choosing one of the most common two: a fixed-rate mortgage, in which your interest rate remains steady for the duration of the loan, or an adjustable rate mortgage (ARM), in which your rate fluctuates to reflect market changes.
FHA Loans – FHA loans are the most popular type of home loan used by first-time homebuyers. This is because they are easier to qualify for and have a low 3.5% down payment. FHA home loans allow for higher DTI ratios making it easier to qualify for a home loan with low income. They also have the lowest credit score requirement of any mortgage, you need just a 580 credit score with 3.5% down.
You might have some empty rooms for a little while, but your budget and your future selves will thank you! And if you find yourself thinking, Oh well, I’ll just put it on credit—stop right there! Debt is dumb. Plus, taking on new debt in the middle of buying a house could delay your approval for a mortgage and make you miss out on the perfect home. Don’t do it!
Your agent can provide detailed information on almost any property currently listed for sale. This includes Coldwell Banker listings as well as all other real estate broker listings on the Multiple Listing Service (MLS). Your agent can also provide information on homes that you see advertised for sale in the newspaper or online, such as properties that are advertised “For Sale by Owner.” Your Coldwell Banker agent is the only resource you’ll need.
Let the serious shopping begin! By now you’ve talked things over with your agent and you both know what you really want and need in a home. Armed with this, your price range and knowledge of the local area, look at listings online and with your agent, who will come up with properties for you to tour. Chances are you’ll discover some new things to love or hate about homes and refine your search.
Don't dip too far into your savings though. Try to keep at least 3-6 months of expenses set aside for emergencies. After all, you will be responsible for maintenance and repairs now. If you don't have enough money available in your regular accounts, you can access up to $10,000 without penalties from IRAs for a first-time home purchase and your employer's retirement plan may allow you to borrow from your retirement account with a longer time period to pay off home loans. There's always the "family and friends" route too.
| |RateShield Approval locks your initial interest rate for up to 90 days on 30-year conventional, FHA and VA fixed-rate purchase loan products. Your exact interest rate will depend on the date you lock your rate. Once you submit your signed purchase agreement, we’ll compare your rate to our published rates for that date and re-lock your interest rate at the lower of the two rates for an additional 40 to 60 days. Quicken Loans reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Quicken Loans. This is not a commitment to lend. Additional conditions or exclusions may apply.
A real estate agent isn't always a necessity when it comes to buying a home, but he or she can be an invaluable tool for those who do work with one. An agent will understand the real estate market and lead homebuyers to the homes that they want to see. As a result this will save the home buyer time and frustration. The recommendation of friends or family members is one of the best ways to choose a real estate agent. If there are no recommendations, choose a real estate agent or agency that has a good reputation in the area. The agent should be a buyer's agent dedicated to working in the best interests of the buyer. The agent should also be someone who listens and has no problem answering any questions that are asked of him or her.
The home buying process can take anywhere from one month to a few years, depending on the unique experience and expectations of the home buyer. On average, a home buyer can spend one to two months searching listings, several weeks to negotiate and close a deal, and then make the first mortgage payment several weeks after that. With these variations in mind, a home buyer can realistically expect for the home buying process to take roughly three months.
You'll probably have an ideal location, but keep an open mind as you see how much house you can buy in different areas. Homes and land are less expensive the farther they are from a metropolitan area. On the other hand, imagining that the long commute won't matter that much is an easy trap to fall into. The stress and costs of a long commute can undermine marriages, finances and mental health. Use the calculator in step 1 to see what that extra trip could add to your monthly bill.
Once you have researched the home buying process in detail, the next phase is to take actionable steps towards your goal of becoming a homeowner. The home buying process is no doubt a long and arduous process, and it is possible that you will experience some setbacks along the way. At times like these, a helpful home buying process checklist will prove to be helpful:
The title company and escrow company will also send you documents to review. The title company will send you the title insurance commitment showing that the party who has title is in fact the seller, in addition to any liens on the title. You should review this document and so should your attorney if you have one. The escrow company will also review it to make sure it says what it should say.
Mortgage insurance terms: In general, home buyers who pay less than 20% in their down payment have to pay mortgage insurance until their loan-to-value ratio is 80%. So, if you borrowed $270,000 on a $300,000 home -- in other words, your down payment came to 10% -- your LTV ratio (that is, the loan amount, $270,000, divided by the price of the house, $300,000) would be 90%. Your monthly payments on that policy would continue until you paid your mortgage down by another $30,000 to a balance of $240,000, or 80% of the full price.
How to avoid this mistake: Talk to a mortgage professional about getting pre-qualified or even preapproved for a home loan before you start to seriously shop for a place. The pre-qualification or preapproval process involves a review of your income and expenses, and it can make your bid more competitive because you’ll be able to show sellers that you can back up your offer.
Especially when you’re in a seller’s market, where there are more buyers than houses for sale, don’t be discouraged if the first house you bid on goes to another buyer. Heyer says a multiple-offer situation tends to be a double-edged sword: “If they don’t get the apartment they’re going to be bummed, at least in a bidding war, and if they do get it, they’re going to instantly feel like they overpaid, which is also a bummer.”
An FHA loan is a loan insured by the Federal Housing Administration (this means that if you default, the FHA will repay the note to the bank). Because the loan is insured, the lender typically offers a low down payment required (3.5%, for example) and low closing costs. Anyone can apply for an FHA loan and an FHA loan is easier to qualify for than a conventional loan. Instead of PMI on your FHA loan, you will have MIP (mortgage insurance premium), which stays with the life of the loan. That means that unlike a conventional loan where you can remove the PMI, on an FHA loan, you cannot remove the insurance without refinancing the entire loan (which you have to qualify for in order to do).
Owning a home is expensive—much more expensive than renting, even if your monthly house payment will be similar or cheaper than your current rent amount. That’s because when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast! So, before you even think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place.
Now you're getting into serious home buying territory. Once a bank or mortgage lender gives you a price range for a home mortgage, you can go ahead and attempt to get pre-approved for a home loan. In a pre-approval scenario, a mortgage lender will dig deeper into your personal finances. You'll fill out a mortgage application (and pay a fee to do so), undergo an extensive credit check and answer any questions a mortgage lender may have about your ability to repay a mortgage on time, and in full. If you're approved, you'll receive a conditional commitment from a mortgage lender to green light a home loan for a specific loan amount and with a specific interest rate range. A pre-approval document from a lender is pure gold for a home buyer, as it shows a demonstrated ability to procure an actual mortgage, and shows a home seller that you're a serious buyer.
While 20 percent is ideal, you don’t necessarily need that large of a down payment to buy a home. There are loan programs that cater to first-time home buyers, such as the FHA loan, which allow for down payments as little as 3.5%. Even some conventional loans allow for down payments as low as 3 percent. And certain loans, such as VA loans for veterans and military or USDA loans for buyers in rural areas, don’t require a down payment at all.
Or better yet, decide how much you’re willing to pay. Just because you can qualify for a larger mortgage doesn’t mean you want to have that kind of payment each month. Use the mortgage affordability calculator to help determine what you can afford. Now is also a good time to research your housing market and start going to open houses in your prospective neighborhood to give you a good sense of what your money will get you.
1) Get your credit in as good shape as possible. Your credit score can make a big difference in your mortgage interest rate. You can use sites like creditkarma.com (which uses TransUnion and Equifax) and freecreditscore.com (which uses Experian) to get free credit scores from all three credit bureaus, free credit monitoring to alert you of any changes to your credit, and advice on how to improve your credit scores. The key things are to make sure you make your debt payments on time, pay off as much of your debt as possible (except perhaps car and student loans, which tend to have relatively low interest rates), and be careful of closing credit card accounts. If you have a credit card that is charging you an annual fee, see if you can convert the card into a no-fee card rather than close it.
You’re almost home. Once your mortgage is approved and at least three business days before you close, you receive a closing disclosure. It lists the fees you must pay, which typically total 2 to 5 percent of the home price. Read this closely and tell your lender if anything seems off. Know what to bring to your closing—such as your ID and any payments that are due. If you have a cosigner, that person needs to be there. Most of the time is taken up carefully signing forms. Once the loan closes—which may take a couple days—the funds go to the seller, you get handed the keys and the home is yours!
The winning bid isn’t always about price – the seller wants to feel confident about the entire transaction at the end of the day. If your bid includes your preapproval letter as opposed to a competing buyer’s prequalification, or you’re willing to let the seller take a little more time to move out, your offer might be the package the seller chooses.
After your offer has been accepted, splurge for a home inspection. Spending even $500 can educate you about the house and help you decide if you really want to pay for necessary repairs. You can also leverage your offer depending on the results of the inspection report and make the seller financially responsible for all or some of the repairs. For more on what to look for, see 10 Reasons You Shouldn't Skip a Home Inspection.
Wirtz says one of the things in a home that seems to always break or have issues within the first year of its purchase is the air conditioner. But it’s not always because it breaks down – she says it simply might not be as effective as the new homeowner wants it to be. “It may not be cooling like they’re used to,” Wirtz says. You can either learn to deal with a little less cooling, bring in an HVAC pro to inspect and fix any problems or research any DIY fixes that might get it cooling better – like air conditioner cleaning spray.
To your initial savings for a $300,000 home, it's also wise to add enough to ensure that any unexpected twists and turns are accounted for after you move into your new house. A sensible goal is to think of that buffer as a half-year of mortgage payments. That would be $10,572 for the buyers in our initial $300,000-at-10% model -- a total of $46,572-$48,072 in the bank before closing a deal.
Buying a home is one of the largest purchases you'll likely make, and it's important to make sure your financial house is in order. Start by reviewing your bank accounts and billing statements to get a handle on how much money you're making and spending each month. If you're planning to buy a house with someone else (like your spouse), review their finances as well, and then ask yourself some questions: