8 Steps to a New Home Purchase
8 Steps to a New Home Purchase
The home buying process can be a bit daunting for those looking for the first time. Sometimes it's hard to know where to begin. But don't fret! There are 8 parts to the home buying process that are important to understand so you can be as prepared as possible for this process. Overall, you’ll want to make sure you have the best team behind you to put you in the best position to secure your dream home.
1. Shopping and Touring Houses
The exciting part of home buying is deciding which type of house, condo or townhome will fit your needs. A home is not only a place to share memories with friends and family or a place to sleep... it’s also an investment.
2. Finding a Realtor®
Finding a good Realtor® is an imperative part of the home buying process. You will be working very closely with them and want to make sure they have extensive knowledge about the market and the area so they can best guide you. They will be the one not only finding you the perfect home, but also negotiating your contract, and assisting with the home inspection process. If the inspection does not meet your standards, they will negotiate either fixing the issues before closing or offering money for those items to be resolved after closing. If the appraisal comes in low, they will have to negotiate the terms again. Having a good Realtor® and Loan Officer can help you save thousands of dollars.
3. Review Your Credit
The type of credit you have will help determine if you are home buying ready. Service First will look at your credit score, activity, and debts to help them determine which loan program will best suit you. There are many programs to choose from, and while you can purchase a home with as low as a 580 FICO, a 620 and above will help you secure better interest rates. Also, it’s important to halt any new activity that would impact your credit during the home buying process.
4. Learn About Interest Rates
Interest rates are determined by several factors:
- Home Price and Loan Amount
- Down Payment
- Loan Term
- Loan Type (including Adjustable Rate Mortgages or ARMs)
Interest rates can change 2-3 times a day depending on the market. Oftentimes internet lenders will show the best scenario rate that may involve charging points to get that rate. You can buy down your rate using points, but points can cost hundreds to thousands of dollars.
5. Save for your Down Payment
Down payment must be sourced and can come from your checking or savings account, a gift from a close family member, or your retirement account (with no penalty). Unsourced, large deposits can cause an underwriter to turn your loan down. It cannot be paid for by the seller with concession, but the seller can assist with closing costs. There are loan products out there where you can put down as little as 3% down and some states even offer grants for down payment assistance where they cover up to 5% of your down payment. A Loan Officer can guide you through the specifics in order to find you the best program. Additionally, if you put down anything less than 20% you will have mortgage insurance added to the loan payment. Mortgage insurance cost and length is determined by type of loan, down payment amount, and often credit score.
6. Get Pre-Qualified!
There a number of mortgage loan types:
- Conventional – Typically requires a minimum of 5% down, but there are programs for first time homebuyers with good credit that require as little as 3% down. The mortgage insurance, which is based on credit score and down payment amount, isn’t through the life of the loan so your payment will eventually decrease. Credit must be a 640 or above.
- FHA – Requires a minimum of 3.5% down. The mortgage insurance is based on a set percentage of the loan amount and lasts the life of the loan, meaning, you will have that mortgage insurance payment until you sell or refinance. Credit score must be a 580 or above. If you do not have credit scores your lender can use things like car insurance or a cell phone bill to show your ability for repayment.
- VA – No down payment minimum, no mortgage insurance and some lenders will approve you with a less than 580 credit score. This loan is also strictly for veterans and spouses of deceased veterans.
- USDA – No down payment minimum and is strictly for homes in rural/some suburban areas. You can search your zip code on the USDA website to find out if the area you’re searching for eligible for this loan type. They also have income requirements and low credit score acceptability.
Additionally, all of these loans have a debt-to-income maximums as well, but certain factors will allow you to go higher or lower. For example, car payments and student loans will have a big impact on what you can afford. Your Service First Loan Officer will collect all the necessary information to help decide which program is best for you and your family. Once you have submitted your application to pull credit and the supporting documents, your Loan Officer should be able to determine your prequalification in less than 24 hours.
7. Make an Offer
Once your find your perfect home, you and your Realtor® will go through the contract together and ask for all of the items you want. Expect there to be some back and forth until both parties agree to the terms. You will send the proposed contract out to the sellers with a prequalification letter from your lender. In many markets, right now, there are multiple offer situations and even bidding wars so you’ll want to make sure your loan officer and realtor make you stand out above the rest. Once the offer is accepted, you will have an option period, which is typically 3-10 days, to have the home inspected to make sure there are no big issues and you want to proceed in the home purchase.
8. Process your Loan and Close!
The loan process can take anywhere from 15-45 days depending on loan type and other factors. You will be asked for several personal documents to submit to underwriting so they can approve your loan. It’s important to have good communication with your Loan Officer and their team, and provide the documents in a timely manner to avoid a delay in closing. Your Realtor®, the title company and your lender will be in constant communication to make sure your expected close date is achieved. During this process we strongly advise that you do not add new activity to your credit or change jobs. It is important for you to notify your loan officer of any changes so they can help ensure there is no impact to your loan and process. The week of closing, the lender will call your company to make sure you are still employed and recheck your credit to make sure there was no change to your debts.
That's all there is to it! Are you ready to get started? We're hapapy to help! One of our Loan Officers can discuss how we can help answer any additional questions you may have and assist you every step of the way!