Article By : Patrick Mansfield | U.S. Consumer Finance
Ten Steps to Buying a Home.
1. Assemble Your Documents
Your mortgage lender requires certain financial information such as your credit scores and debt-income ratios. Before applying for a mortgage loan, assemble your buyer’s documents. Your mortgage lender will request:
W-2s from the past two years if you’re employed.
Profit & Loss (P&L) statements or 1099s if you’re self-employed.
Paycheck stubs from the past one to two years.
Federal and state tax returns from the past two tax years.
Debt Statement of outstanding obligations such as student loans, personal loans, auto loans, credit cards, etc., along with balances and minimum monthly payment amounts.
Asset statement, including bank statements, brokerage accounts, real estate, and auto titles, etc.
Proof of current rental or mortgage payments, such as canceled checks.
2. Research Prospective Lenders
Lenders such as banks and credit unions offer services and financial products that assist in the home buying process:
Lending options may vary a bit from lender to lender, and both pros and cons exist with either banks or credit unions. Although there are differences between available loan options, both types of lenders offer mortgage programs to moderate income home buyers.
Consider using a Mortgage Broker. A Mortgage broker will be able to shop for the best possible terms of a loan but may charge a percentage of the loan, or add cost to the closing. It’s imperative to get the cost upfront, so there are no surprises at closing.
3. Qualifying for a Mortgage
Check your credit profiles with the top three national credit reporting agencies (CRAs), Equifax, Experian, and TransUnion. Dispute any errors and check credit scores again in about a month.
Plan to submit mortgage loan applications to the cost-effective lenders discovered in your research.
Also at this stage in the process you should determine what you can afford. A general rule of thumb is that you should be looking at homes that are three times your annual income, at the high end.
4. Consider The Cost Of Owning A Home.
Your potential lender will determine if you can afford your monthly cost of owning your home, so get ahead of the game by running a simulation before applying for a mortgage (The key to this process to avoid ugly surprises):
If you are interested in a pre-owned home apply maintenance cost to your monthly budget. A rule of thumb here is around $200 for a $200,000 home (This is only an estimate as all home maintenance isn’t equal.
When estimating mortgage payment include property taxes, homeowners insurance, association dues, trash, and water.
After choosing a home ask the previous owner for historic utility bills.
5. Shopping For A Home
Now that you know your price range, you should have a good idea on where you are looking and affordability. You may want to begin your search over the internet. Two good websites for this would be www.zillow.com and www.realtor.com.
Make a checklist and highlight the importance of what matters most.
For example is it the schools, a two story versus a one story, etc. If you would like an example of a checklist, then go here.
By working with a realtor, and doing research, you have found the home that fits your needs. So now it’s time to make an offer. At this step in the process, it would be a good idea to have a trusted realtor or attorney. The offer should be fair and should be within the range of similar homes in the area in which you are looking. The tricky part here is understanding market conditions. Are home selling fast in the area in which you are looking? There are many variables that go into a fair offer, so do research to know what you are willing to pay.
After you’re approved for a mortgage loan, your mortgage closing costs incorporate third-party fees for home appraisal, inspections, and other necessary expenses. Some banks and credit unions also extract an “origination” fee that you pay for loan processing.
6. Home Inspection And Appraisal
Your offer has been accepted. So the next step in the home buying process would be to have the property appraised and inspected. Both of these are required if you are obtaining an FHA-backed mortgage. If the Home Inspector finds any defaults, or items that may be needing repaired, make sure that your attorney or realtor put such information in the contract.
7. Pre-Closing Walkthrough
Closing your home purchase is an exciting time. Your closing is the formal transfer of the property from the seller to you. Before the closing date, ask for a formal walkthrough (within 24 hours of the closing).
If you’ve worked closely with the realtor, lender, and other professionals involved in your buyer’s team, you shouldn’t have any negative surprises.
Check that any previously agreed upon repairs have been made to your satisfaction.
Obviously, if something isn’t right with the property prior to closing, alert your seller right away. He or she must address the issues with financial compensation, a later closing date, or both.
If the seller planned to vacate the property prior to closing, your walkthrough ensures that the property is ready for you and your furnishings.
8. Before the Closing
Ask your attorney and/or lender about electronic transfer of estimated closing costs and downpayment funds prior to the closing date. It may be possible for you to get this out of the way before the closing date.
Some lenders require certified funds. If yours does, plan to visit the bank to arrange cashier’s check(s) or payment as agreed.
Lender Closing Disclosure
Three days before the closing date, your lender must send the Closing Disclosure document:
Review the Closing Disclosure with care. Read the loan terms and determine that the costs are in alignment with your loan estimate.
Ask your lender about any discrepancies.
Learn about the closing documents you will sign to transfer the property from the seller to you.
9. Moving In: Insurance and Services
The home buying process requires you to obtain homeowner insurance. Check your lender’s terms and conditions before purchasing a homeowner’s policy. Consider bundling your homeowner policy with an auto, boat, or other vehicle policy to save money.
Arrange for utilities, including electric, gas, Internet, etc., before the move-in date. If you plan to move in after closing, make these arrangements now.
10. The Closing
Closing day is the legal transfer of the property. Applying for a mortgage, receiving approval for the mortgage loan, engaging appraisers and the like culminate on this day.
On the closing day, bring the following items:
Picture identification, such as driver’s license or passport.