Closing & Home
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You're ready to buy a house! Congratulations���that���s exciting. You know what isn���t exciting, though? Sifting through all the information about the home buying process. Instead, let us walk you through it! For the readers out there, check out the extended version by clicking "read more."Learn More
From initial discussion to closing, buying a home can take 3 months, or 3 years. It all depends on where you stand financially and with your credit score, along with the housing market as a whole.
Traditionally, first time buyers face compromises between:
Once you determine what you are willing to compromise on, you're in a better position to make the best choices in home selection and affordability.Learn More
There are a few parts and pieces of the home buying process where you should never compromise.
Selection of a
Choice of a
real estate agent
A financial plan
& purchase budget
Write down an itemized list of all your monthly income
Write down an itemized list of all your monthly expenses
Maintain records & track your budget
Ideally, you should get a tri-merge credit report that provides your FICO scores from the three major credit bureaus: Transunion, Experian and Equifax.
It���s important that you check your credit as soon as you���ve decided to buy a house, as repairing bad credit or building new credit can take time.
How much money should you have in the bank? If you have nothing saved, then your first goal should be to save one month���s worth of bills / expenses in a savings account.
Make a list of what you would like to accomplish financially in the next 1-5 years.
Organize this list into time frames of when you want to accomplish your goals.
Put an action plan in place to help you accomplish your goals. Follow the plan. Do it.
Five Signs You May Not be Ready to Buy Yet
You might relocate soon
Your job (or income) may not be secure
You're in a ton of debt
Your assets for a down payment are slim
You don't have budget for additional expensesLearn More
Your credit score, the algorithmic scoring
model of your overall credit worthiness, is
an important consideration when buying a
Payment History ��� Accounts for 35% of your score. This shows whether you make payments on time and how often you miss payments.
Credit Utilization Ratio ��� This is the 2nd most important factor and constitutes 30% of your score. Credit Utilization Ratio is based on the entire amount you owe versus the entire amount of credit available. The higher the risk the lower your credit score will be.
Length of Credit History ��� Accounts for 15% of your score. The longer your history of making timely payments, the higher your score will be.
Type of Credit ��� This makes up 10% of your score. Having a mix of payments, including auto and mortgage loans as well as carefully managed credit cards, will provide the bureau with what they want to see.
Credit Inquiries ��� Responsible for about 10% of your score. Those actively seeking new credit ��� with multiple inquiries from various creditors ��� will feel the credit score ding.
Focus on avoiding costly issues that can often pop-up with a weak mortgage pre-approval:
Start early & have a plan
You must disclose every little financial detail
Only use a loan officer who asks for full documentation
Start planning 6+ months in advance
By checking your credit report early, you can address any as
well as legitimate derogatory credit.Learn More
Identity and Income Verification
Full legal name, Social Security number, and birthdate (in some cases, you may be asked to provide a copy of your Social Security card)
Phone number, email address, and current and former residential mailing addresses over the past two years
Primary and secondary income amounts and sources
Government-issued photo ID
Name, addresses, and phone numbers of all employers over the last two years
Values of bank, retirement, investment, and other asset accounts
Monthly debt obligations
Address of property being purchased, year built, estimated down-payment amount, and purchase price
Estimates of annual property taxes, homeowners insurance, and any homeowner association dues
Once you have narrowed your search to the ideal homes and neighborhoods (based on preferences, compromises and affordability,) it���s time to dig deeper on each home���s data.
What are the average sales prices for homes in the area with similar features and characteristics?
What condition is the home in, and what repairs or improvements are needed?
Are similar homes available at a more desirable price?
How long has the home been on the market?
Has the sales price already been reduced?
Is the seller considering other offers at this time?
Your real estate agent will be able to provide you with answers to all these questions via a Comparable Market Analysis (CMA).
When you���ve found the ideal home, generally you���ll have to negotiate an offer. This is something your real estate agent can and should handle.
Once terms, conditions, pricing, and contingencies are agreed, then all parties are ���in agreeance��� and you are officially under contract. Escrow is then opened and earnest money is deposited.Learn More
"It's a myth that you always need a 20% down payment to buy your first home."
Home buyers purchasing a primary residence will always have lower down payment requirements than an investor or second home buyer. Requirements vary based on loan type, credit rating, and often the urgency of the home seller or advice of the seller���s agent.
Click here for 5 legitimate ways to avoid the 20% down myth...Learn More
Down payment assistance programs have proven a valuable resource in helping first time home buyers secure their homeownership dream.
The majority of down payment assistance programs carry the same three major restrictive guidelines:
Income limits - Borrower, and sometimes household maximum allowable income is determined by County.
Debt to Income (DTI) - DTI for assistance programs in certain states is limited to 45%. This is well below the FHA allowable DTI.
First Loan Amount Limit ��� In many states the maximum first loan amount is $417,000 if using a conventional loan, or the FHA loan limit, whichever is less.Learn More
Most down payment assistance programs (DPA) require approval for your first mortgage before approval of the program.
���Some mortgage companies offer little in the way of down payment assistance, while others make it a feature product.���
If you need down payment assistance, then you need to put some additional time and thought into choosing your lender.
PMI is a tool used to protect mortgage lenders against loss on loans that have higher risk factors. Usually, your loan-to-value (LTV) ratio is the trigger. If you have over 80% LTV you are required to pay for PTI, but if you put 20% down on conventional financing (in many situations) then you don���t have to.
Some lenders are restrictive on both the type and provider of private mortgage insurance. It pays to inquire about ALL the mortgage insurance options available:
Single Premium Financed MI ��� Single premium MI works the same way as the upfront mortgage insurance on an FHA loan ��� it���s financed into the loan balance.
Lender Paid MI ��� When your mortgage lender pays the MI they typically do it through an adjustment to the interest rate of your loan. You don���t see the mortgage insurance on your statement, but you are paying for it.
Monthly MI ��� You pay it every month until you can drop the mortgage insurance from your loan. To drop the MI you need to reach 78% or less on your loan to value.Learn More
"Making a better PMI choice can result in thousands saved versus thousands wasted."
Include lenders��� fees, as well as third-party fees, for services such as appraisals and credit reports. The survey excludes title insurance, title search, property taxes, property insurance, homeowners��� association fees, interest and other prepaid items.
It also does not include private mortgage insurance premiums.Learn More
Expect to pay at least 2% of your purchase price for
closing costs. In the more expensive states,
and for home purchases at prices lower than
$150,000, you can (and should) expect to pay a higher %.
Here���s what you can expect to pay for major closing fee items.
(for guidance only - please consult with your agent!)
Appraisal Fee$450 ��� $490
Discount Points1%-2% of the loan amount
Processing Fee$300 ��� $800
Loan Origination Fee0.5%-2% of the loan amount
Underwriting Fee$600 ��� $1200
Pre-Paid InterestYou will pay a per diem interest from the day you close till the end of the month.
Flood Certification Fee$9-$19
Hazard Insurance Premium$300-$850
The Attorney & Title Fees
Attorney Fee$300 ��� $500
Title Insurance Binder$25-$30
Title Insurance$4.40 per thousand of purchase price
Recording Fee$285 ��� $450
Transfer FeeVaries based on state, and is split equally between the buyer and the seller.
You just signed the dotted
line. You are a
homeowner. Now what?
Closing & Home
(for guidance only - please consult with your tax professional!)
As well as purchase tax benefits, homeowners are entitled to on-going benefits so you can continue to reap the tax rewards for as long as you own the home.
Energy Efficient Improvements
Handicap Accessability & Health-Related Renovations
Home Office Expenses
Short-Term Rental Income
Real Estate Property Taxes
Mortgage Interest Deduction (1st Lien)
Mortgage Interest Deduction Part 2
Capital Gains Tax
We hope you enjoyed this journey through the homebuying process, and that you feel more prepared & empowered in your home ownership quest!
If you���re now ready, set and prepped to buy a house, check out our comprehensive list of homes in your area on Homes.com, and make sure to invite us to the housewarming party!Homes.com