Home Buying Guide
Buying a home is often daunting, especially if you are a first-time home buyer. Home buyers must navigate searching for, financing, and closing on a new house. They must also hire attorneys, real estate agents, and home inspectors, to name a few real estate professionals. This guide can help home buyers through much of this process.
This FindLaw article explores introductory aspects of the home-buying process. It also offers more resources for buying a home.
Are You Ready to Buy a Home?
The home-buying process starts long before hiring a real estate agent. The first step in buying a new home is determining how much home you can afford. The answer to this question will help shape your house-hunting experience.
There are many ways to determine how much you can spend on a house, including using a mortgage calculator. A loan preapproval or prequalification is a strong option. Prequalification and preapproval are two tools lenders use to help buyers. Getting pre-approved for a mortgage loan shows homeowners and real estate agents that you are serious about buying a home.
This part of the process should take a few weeks.
Preapproval vs. Prequalification
A prequalification gives you an estimate of how much you can afford to spend on a home. Lenders may ask for some financial information, but don't delve too deeply into your finances. A mortgage preapproval requires a more extensive look at your finances. Lenders will review the following before offering you a pre-approval letter:
- Credit score
- Credit report
- Debt-to-income ratio (DTI)
- Monthly income
- Employment history
- Bank statements
If the mortgage lender believes you are creditworthy, it will offer you a pre-approval letter. This letter is not binding; if your financial situation changes after you get the letter, the lender may deny your loan. If the mortgage lender decides you are not creditworthy, based on information in your credit report, you have the right to a free copy of the report.
First-time homebuyers should know the costs of homeownership, which go beyond the home price and monthly mortgage payments. A few expenses to consider include, but are not limited to, the following:
- Property taxes
- Maintenance and upkeep
- Homeowners Insurance
Keep these in mind as you are shopping for a new home. Consider all the costs of homeownership, not just the purchase price or monthly payments. Leave room in your budget for the unexpected.
Financing Your New Home
There are many ancillary costs associated with buying a home. Besides the sale price, borrowers have to pay for:
- Earnest money deposit
- Down payment
- Home inspection
- Title search
- Closing costs
Fortunately, many assistance programs help first-time buyers cover these expenses. Some examples of programs for first-timers include, but are not limited to:
- First-time home buyer programs offered by your local government can help you buy a home with low mortgage interest rates or low down payments.
- Down payment assistance grants or low-interest loans help borrowers with upfront costs like a down payment.
- Closing cost assistance programs help borrowers cover closing costs.
- The Department of Veterans Affairs offers VA loans for veterans, members of the U.S. military, and their spouses who meet eligibility requirements.
- The U.S. Department of Agriculture offers USDA loans for qualified homes in rural or suburban homes.
- The Federal Housing Administration (FHA) via the Department of Housing and Urban Development (HUD) offers FHA loans. First-time buyers with low credit scores (580 and over) can qualify for a first-time home buyer loan. These loans often feature lower interest rates and a lower down payment. FHA loan borrowers must carry private mortgage insurance (PMI).
Most people who do not qualify for a loan program use a conventional loan. Unlike loans under many loan assistance programs, conventional loans need higher credit scores and a down payment. The primary feature of a conventional loan is that a federal agency does not back these loans. These fixed-rate loans offer consistent monthly payments over the term of fixed interest rates. They also feature no PMI for borrowers with a 20% down payment.
Researching your options and going through the home loan application process should take about a month to six weeks. Gathering the necessary documentation first can help speed up the process.
Finding Your Dream Home
Once you know how much home you can afford, you can hire a real estate agent to help you search for homes in your price range. These real estate professionals are experts in your local housing market. They can provide helpful information on recent home purchases and help you negotiate an offer.
Realtors and agents also have access to listings unavailable to the general public. They will walk you through all aspects of the home-buying process, from open houses to the final walkthrough and closing.
Closing on Your Home
Once you find your dream home, you will make an offer to the seller. The seller can either accept your offer or make a counteroffer. If you agree to the counteroffer, you will place an earnest money deposit into escrow. An earnest money deposit aims to show your seriousness about buying the home. Once the deposit is in escrow, a closing date is set, and the closing process begins.
- Through the closing process, you will likely do most of the following:
- Confirm ownership of the house (title search)
- Hire a home inspector to check for structural damage and the presence of things like radon
- Confirm mortgage rates and terms
- Get a home appraisal to confirm the home's value
From the start to the closing date, the home-buying process can take several months, so keep this timeline in mind.
Get Legal Help
Buying a home is a major financial and legal undertaking. A qualified local real estate attorney can help you with almost all process aspects. They can review contracts, deeds, and title reports to protect your legal rights. Speak to an experienced local real estate attorney today.
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