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A Loan for your dream house to become a reality.
For most of us, buying your first home is a dream come true. However, it can also be a very lengthy and nervy process. This guide will help you get prepared.
How do you know if you're ready? Making the leap to become a homeowner is a big decision. For some, renting may be the right choice. Because the "down payment" is most often limited to first and last month deposit, renting can be viewed as cheaper and more flexible in the short-term. Monthly rent payments are also generally "all in" and usually cover all property taxes, homeowners' association fees and maintenance costs. Plus, renting can offer flexibility should circumstances unexpectedly change.
For others however, buying is the right move to make. They've reached the point where they feel confident about staying in one place for a while and are established in their jobs with a relaible income. Their debt obligations - such as car loans, student loans and credit card payments - are manageable, and they're interested in exploring how the traditional benefits of homeownership, like favorable tax treatment and equity appreciation, can enhance their long term financial prospects. If that sounds like you, this guide will help you assess your current situation and better prepare you for the home-buying process.
Before you buy your first home, there are important things you need to know. Consider which option is right for you.
Depending on the amount you have saved for a down payment, your mortgage payment should typically be no more than 28% of your monthly income, and your total debt should not be more than 36%. Use our loan calculator to find out what price range might be good for you.
You'll need to have some money set aside for extra costs beyond your monthly mortgage payment. These costs include your down payment and closing costs. A down payment of 20% or more helps you avoid PMI (Private Mortgage Insurance) and lowers your monthly payment. And closing costs are typically 3% - 5% of the total home cost.
Home ownership brings a lot of added responsibilities and drawbacks but it also has its advantages.
While these costs will vary from home to home, you'll want to know what they are before making a final purchase offer.
Getting pre-approved by a mortgage lender shows real estate agents and sellers that you are a serious and qualified buyer. And being "qualified" has its benefits. In fact, being pre-approved indicates that you are a serious buyer and may even put you ahead of other applicants once you make an offer
Pre-approval also has additional perks worth noting. For instance, it helps you determine how much property you can afford and how much money you can borrow. That way, your time won't be wasted looking at out-of-reach properties.
Part of the pre-approval process includes filling out a loan application. To establish your employment history and financial capabilities, you must provide the lender with the following income documentation:
After the mortgage loan officer receives these documents, he or she will then pull your credit report, assess your financial capabilities, and inform you of how much money you can borrow towards your home.
Once you're pre-approved, you can start looking at houses. Now is the time to contact a reputable real estate agent who can show you good homes you can afford.
It's important to find a real estate agent who will:
You might also consider hiring a real estate attorney to:
Get a Home Appraisal & Title Search
Found a home you like? Once the seller accepts your offer, you may strongly consider hiring a certified home inspector who can verify there are no structural problems, code violations or other undisclosed concerns. When your contract is final, your lender will have the property appraised by an independent, third-party appraiser who will confirm the fair market value of the home.
In addition, a title search will typically be conducted to:
You're ready to finalize the sale. During the closing, you'll meet with all parties involved in the sale to make it official by signing documents, receiving the deed and paying your closing costs, which may include:
Also called homeowner's insurance, property insurance protects the homeowner from losses to the property, as well as potential liability from events that occur on the property and elsewhere. Lenders require homeowner's insurance coverage to protect the collateral that secures their loan. Some homeowner's insurance policies do not cover catastrophic events such as tornadoes, hurricanes or floods. These kinds of events generally require a separate insurance policy. Sometimes additional insurance may be required for your loan.
Property Taxes and Homeowner's Insurance:
A typical monthly mortgage payment consists of amounts for loan principal, interest, taxes and homeowner's insurance. Taxes and insurance are usually paid from an escrow, or impound account.