If you are a first-time home buyer, it
is easy to get overwhelmed by the process. However,
if you have an idea of what to expect it can make the
process much more enjoyable. Let's face it, this is
one of the most exciting things a person will do in
his or her life. So, don't be overwhelmed by the number
of items listed or their complexity. Your attorney and
loan officer will guide you through this process. Many
of the tasks are handled directly by these these professionals.
If you need an attorney or a loan officer you can simply
search our database for professional associates of Fifty
States FSBO in your area.
THE STEPS:
1) Figure out how much you can afford
to spend on a house. Refer to our article "Pre-Qualifying
for a Mortgage" for more information on how
to figure what you can afford monthly for a mortgage.
It is also a good idea to get "pre-approved"
for a loan. Pre-approval is a similar process but goes
much more in-depth with regards to your credit and income
verification, but once approved, you are a guaranteed
buyer which can be an asset when making an offer on
a house. Once you have determined how much you can afford
to spend, the next step is to actually start shopping
for your dream home. You can start your search right
here on the internet where up to 70% of current home
buyers are starting their search!
2) Next, you should have an idea of where
you would like to live. There are several resources
on the internet to research communities for information
on crime, school systems, cost of living information
and more. For the most part, you should count on spending
2 to 4 weeks looking at homes. This will give you enough
time to look at plenty of homes and make your decision.
Be careful not to get bogged down in the process of
trying to find that "perfect" home. If you
take longer than a month, you risk the chance of loosing
a home that you would have liked.
3) When you find a home that you want
to purchase, the next thing to do is make an offer to
purchase. You will need a standard residential sales
contract approved by the Bar Association for your area.
An attorney may or may not be necessary at this point,
(most sales contracts are fairly standard) but will
be required later in the process. However, you may decide
that you want an attorney to review the contract. It
is now common for contracts to include an "Attorney
Approval Period" clause in the contract that allows
your attorney 72 hours to review a contract that you
have signed and either approve or disapprove without
any consequence to you. The sales contract will most
likely contain some contingencies or riders attached
to the contract. Examples of some contingencies are:
your obtaining financing for a specified rate and term,
selling your current home, or obtaining a satisfactory
home inspection just to name a few. An example of a
rider would be a Federal
lead based paint disclosure form which is required
in every residential sale, or a property condition disclosure
form which may or may not be a required document depending
on the state you reside in. See an example..
When you make an offer to purchase a home
you should include an earnest money deposit. The deposit
can be as little as $100.00 but should customarily be
at least $1,000.00 or more depending on the price of
the home. This indicates to the seller that you are
making a serious offer. The earnest money deposit is
not an extra fee. It is considered part of your down
payment required by the bank. The earnest money can
be in the form of a check and is fully refundable if
your offer is not accepted! It should be deposited in
an attorney escrow account and will be applied to your
down payment. If the sale is not finalized for a reason
beyond your control , the earnest money will be returned
to you.
Remember, your initial offer may not be
accepted. So, subsequent offers and counter offers may
take place until all terms are agreed upon by both parties.
OK, they have accepted your offer! Now what?
4) After agreeing to purchase, it is a
good idea to have the home inspected by a professional
home inspector. The buyer normally pays for the home
inspection and generally cost between $200 and $500.
Use our Home
Inspector Locator to find a professional in your
area. The home inspection should be listed in the contract
as a sale contingency. This way you have an "out"
should the inspector find serious problems. The home
inspection usually takes place within 5 days after signing
the contract. If there are any major flaws in the home,
they can be dealt with before you apply for the mortgage
should you choose to go ahead with the purchase.
5) Formal Loan Application. Check the
loan and mortgage pre qualification functions provided
by our associates at Fifty States FSBO. You will probably
have to pay a loan application fee of $100 to $300.
Some lenders also charge you prepaid points. One point
refers to 1% of the loan amount. Points are paid to
the lender as a way of "buying down" the interest
rate. You may decide to "lock in" the rate
at this time, or the lender may allow you to do it at
a later point in time. If you have been pre-approved
for a loan, some of the steps in this process will have
already been completed.
Items needed to make formal application:
(Items vary depending on the lender)
- Social Security cards & drivers
licenses
- Residence addresses for the past 2 - 5 years
- Your landlord's name and address
- Names and addresses of each employer (past 2 - 5 years)
- Your most recent pay stubs
- Two years signed tax returns & W2's
- Names, addresses, account numbers, and balances of
all checking, savings, credit cards, and installment
loans
- Two most recent bank statements on all accounts
- Information on any assets
- Information on all real estate owned
- Copy of fully executed sales contract, riders
- Divorce decree & child support agreements
- Application fee
You will receive a "good faith" estimate of
the closing costs from the lender called a "RESPA
Statement". It includes the costs for: points,
appraisal, title search, title insurance, survey, recording
of deeds and the bank's attorney fees.
Other items you should be familiar with:
Title Search - This is usually required
by the lender. Most contracts require the seller to
provide you with an "abstract of title" showing
clean title (one without any liens against it). An abstract
of title is a booklet that outlays every previous owner
and all mortgages that were liens against the property
at any given time. They can be quite interesting to
review. (Provided by the seller at the sellers expense.)
Title Insurance - The lender will require
a title insurance policy for THEIR own protection. Also
known as a mortgagee policy,this is the lender's way
of protecting their interest should a title issue arise.
The insurance policy covers any problems with title.(Paid
for by the purchaser)
Buyer's Title Insurance - Also know as
a Fee policy, this type of title insurance policy covers
you, the buyer, in the event that the title is not clear.
This type of policy is optional and is paid for by you
the buyer if you desire a policy.
Private Mortgage Insurance - Again, this
is something that most lenders require if your down
payment is less than 20% of the purchase price. It is
a protection for the lender in case you default on the
loan. (Much has been written about PMI. Once you own
20% equity in your new home you can apply to have the
PMI portion of your payment eliminated.)
Homeowner's Insurance - This is an insurance
policy that covers the cost of repairing or rebuilding
your home in the event of a fire or other catastrophe.
It also covers liability should someone get injured
on your property. Obviously, this is beneficial to both
you and the lender. IT is wise to shop around for hazard
insurance. Like auto insurance premiums can be all over
the place. Once again, you can search our associate
database for an insurance company near you.
With the exception of the homeowner's
insurance, all of the above costs plus any additional
ones such as the appraisal, survey, recording of deeds
and the bank's attorney fees will be included in the
RESPA provided by the lender. The
entire cost to you, the buyer, will usually be in the
range of $1,000 to $1,500 excluding points. (The actual
amount may be higher or lower than these limits.) The
amount of points that you will have to pay depends on
the lender's policies, the amount of your down payment,
the term and the amount of the mortgage.
This means that you should count on having
this much cash available besides the amount of your
down payment and the amount of points paid to the lender.
The down payment is usually a minimum of 5% of the selling
price but can be as
low as 3% or even 0%.
So, how much will this cost? Let's take
an example of a $100,000 home. Suppose your lender allows
you to put a 5% down payment on the house, and your
closing costs will be between $1,000 and $1,500.
Down payment $5,000
Closing costs $1,000 to $ 1,500
------------------
Total $6,000 to $6,000
6) If your mortgage is approved, the
lender will send you a letter of commitment. The commitment
letter demonstrates the banks commitment to providing
the mortgage money. Once your loan is committed the
attorneys can agree on a closing date. The closing is
the day that the actual transaction takes place, where
you hand over the money and the seller hands over the
deed. A few days prior to closing you should do a final
walk-through. This is your opportunity to inspect the
home one last time before closing to ensure that none
of the permanently attached fixtures have been removed
and that the home is in the same condition as when you
first decided to purchase.
That's it! After signing a boatload of
documents and recording your deed at your county courthouse
you will officially join the millions of proud owners
across America who have achieved the "American
Dream".
PS- Since most people buy or sell a home
every seven years on average you might want to consider
reading our article on "Setting
the Sale Price".. and remember to list your
home right here on Fifty
States FSBO!
