Dash Home Loans’ First-Time Home Buyers Guide
Loans for first-time homebuyers can seem…overwhelming at best. How do you know what loan to invest in? How much home can you afford? It’s a lot to know! To help you tackle these questions one by one, we’ve put this guide together to make the entire process easy and seamless for first-time homebuyers. You’ll learn what you need to know about getting a loan and buying your dream home. Ready to get started?
First Question: Are You Ready to Buy a House?
It’s the biggest question you have to answer, weighing the pros and cons of both owning and renting. Don’t buy because your family or friends want you to. Do so because it’s right for you.
Will the house I can afford meet my needs?
Can you afford to buy a home in your desired neighborhood? Will you be able to purchase a home with enough square footage to meet your needs? How will this change your needs for commuting to work? Does it impact your child’s school? If you keep answering no, this might not be the time to buy.
In some cases, you may have better access if you continue to rent. You may want to consider how different renting and buying is for what’s important in your life.
Can I afford new homeownership costs?
Get ready — homeownership can have very different costs than renting. Instead of just making a single payment each month to cover the costs of rent, you’ll need to think about things such as:
- Making repairs
- Paying for upkeep
- Paying taxes
- Covering higher insurance costs
- Covering all of the utility costs
Will the value of the home decrease over time?
There are situations where the value of the home you are buying will decrease. This can happen if the quality is not maintained but also if the area develops in a different direction. This may impact your ability to sell the home later.
Am I financially stable enough to buy?
We already talked about the new homeownership costs you’ll encounter, so this question exists to make sure you can actually pay for it all.
Do you have a secure job? Will your pay stay the same or increase over the coming months and years? Does your co-borrower, if you have one, have a secure job too? Will you still be able to cover large upcoming expenses, such as buying a car, tuition for schooling, medical bills, or home improvements after purchasing a home?
It may be beneficial to have some financial security before making the decision to buy a home. Circumstances change. You cannot always predict the outcome.
Understanding Homeowners Expenses
The thing about buying a home is that there are costs at the beginning, during, and at the end of the process. Some of the costs below are sub-costs within a larger one. For example, when people talk about loan costs, that typically includes origination fees, appraisal fees, pest control costs, credit report fees, and your down payment. Non-loan costs typically include the cost of an inspection report and survey.
Expenses Before You Buy
Down Payment: These are the funds you’ll pay towards the purchase price of your home (unless you opt for a zero-down loan option). Often required by lenders, this will range from 3 to 20 percent of the purchase price of the home, dependent on the type of loan.
Credit Report: You’ll pay a one-time fee for the lender to pull a copy of your credit report. This helps them make a decision about whether to lend to you. This may be a part of your closing cost fees. It ranges from $10 to $100.
Home Appraisal: A home appraisal is a requirement for nearly all loans. A professional provides a full inspection to determine the value of the home based on features, size, location, and the value of recently sold homes in the area. It costs between $200 and $500.
Home Inspection: You pay for the home inspection, and it’s your way of knowing the home is safe and secure. This can also tell you about potential upgrades and repairs you’ll need to make in the coming months and years. It costs between $200 and $1000.
Pest Inspection: Your lender (and you) need to ensure the home is safe from pests, especially termites. Having a professional pest inspector look at the home ensures you know what to expect. It costs around $100.
Survey: This is a one-time fee paid at the time of the purchase to survey the property to know exactly where the boundaries are. It costs around $100.
Expenses During the Home Buying Process
Origination Fees: This is a one-time fee paid to cover the costs of processing the loan and any associated administrative costs. It generally costs .5 to 2 percent of the loan amount.
Closing Costs: This is a more general term that encompasses all of the fees you have to cover at closing, including some of the costs listed above (like your appraise and survey fees) as well as title insurance, attorney fees, and settlement fees. It generally costs between 2 and 6 percent of the home purchase price.
Title Insurance: Sometimes included in closing costs, if not, title insurance costs around $500.
After You Buy Expenses
Moving Costs: Moving costs will range extensively based on the size of your home as well as the location and distance you’re moving.
Escrow Fees: Escrow fees may be a part of your closing costs. This is an administration fee for opening and managing an account to hold escrow in.
Repair Fees: The only way to know the cost of repair fees is to have an inspection done by a professional in the related industry.
Property Taxes: Your local taxing authority may charge property tax. Check with your local county office to learn how much to expect.
Private Mortgage Insurance: This is a monthly payment associated with your loan if you purchased a home with less than 20 percent down. It typically is one-half of a percent of the loan.
Homeowners Insurance: This is an ongoing monthly payment that covers the property and liability insurance you need during homeownership. It is often required by your lender. Expect to pay between $100 and $500.
HOA Dues: If you buy a home in an area where there is a homeowners association, you may pay a monthly fee for membership dues. Most are monthly costs, and they vary considerably from one location to the next.
Utilities: These are monthly costs you’ll pay each month for things like electricity, gas, water and sewer costs. You may have others to consider, including things like cable and phone costs. Expect to pay between $100 and $500 a month in most areas.
Maintenance and Repairs: These are ongoing and typically impossible to estimate costs associated with the routine upkeep of your home. This can range widely but expect $100 to $500 a month.
Lawn Care: You may need to pay ongoing costs to maintain your lawn and exterior of the home. Estimate $100 or more per month.
Understanding Credit Scores
It’s time to pay attention because credit scores are very important in the home buying process.
Credit scores are numerical representations of your creditworthiness created by credit bureaus who manage your payment history and debt usage. Your mortgage lender looks at this number to know how much of a credit risk you are when it comes to providing a loan to you. A higher credit score means you are more likely to secure a loan. It also may help you qualify for a lower interest rate on your loan and other key savings options.
What credit score is needed to buy a house? It depends. To qualify for an FHA loan with a low down payment of around 3.5 percent you need a credit score of 580. Things get a little more flexible, however, the more money you put down as a down payment.
What Impacts a Credit Score?
Credit bureaus gather information on your credit usage and how you manage credit to develop this score. Some of the factors that impact it include:
- Making payments on time
- How much debt you have
- How close you are to maxing out your credit
- The types of debts you have (such as secured loans and unsecured loans)
- How long you’ve had a credit history
- How many loans you’ve applied for
How to Get a Copy of your Credit Score
Start with a free copy of your credit report. That’s right, free. You have the legal right to one free copy each year from each of the three main credit bureaus. You can request this from AnnualCreditReport.com, the only government-approved site. To get a copy of your credit score, you’ll need to visit each one of the credit bureau websites to request one, and there may be a fee for doing so. You can also visit TransUnion, Equifax, or Experian.
How to Improve Your Credit Score
You know those signs on the side of the road claiming you can “buy” a higher credit score? That is false. Improving your credit score is totally doable, it just takes some time and willingness.
Here are some things you need to do to work to improve your credit score:
- Make payments on time every month. Use auto payments to ensure this.
- Keep the amount of debt you have as low as possible. Aim for under 30 percent of your available credit.
- Settle any judgments made against you.
- Use credit but try to pay off your balances in full.
- Avoiding applying to numerous credit cards or loans at one time.
Can I Afford to Buy a Home?
You might be asking yourself, “How much house can I afford?”
Before you start looking at a home to buy, start by calculating how much you can spend each month on a home mortgage. To do this,
- Determine what your household income is
- Calculate all of your current monthly payments (credit cards, loans, food costs, etc) and subtract it from your income
- Determine how much you will need to save each month for other needs and subtract that too
However much you have leftover is a ballpark of what you can afford to pay each month on a mortgage.
The Good Ol’ 28 Percent Rule
Lenders typically provide a general rule that you should not have a mortgage payment that is more than 28 percent of your gross income. This rule states that:
- Your monthly home-related costs should be no more than 28 percent of your gross income.
- Your total debts, including your mortgage and all other loans should not be more than 36 percent of your gross income. This is not a requirement, however. For certain loans (including first-time homebuyer loans) this debt-to-income ratio is exceeded.
Another good rule of thumb? Make sure you also have at least three months of your mortgage costs in case of an emergency, like losing your job. This can help to give you a bit of extra support to help you cover your costs. Together, these common-sense adages will help you figure out a ballpark of what you can pay for a house month to month.
Calculate How Much Can You Borrow for a Home Loan
Now that you know how much you can afford for a monthly mortgage, the next question is (you guessed it) how much can you borrow from a mortgage lender, bank, or credit union.
Prequalification. It sounds stressful, but it’s not! Prequalification helps you and your lender to start the process of getting a loan. It is an initial gathering of information such as your income, expense information, and credit score that the lender then uses to determine how much of a loan they can provide to you.
Mortgage lenders look at a lot of factors to make a lending decision. That includes things like your credit and ability to pay. They need to know how much risk you present to the lender – will you make payments on time? Will you default on the loan? Using all of this information, along with how much free money you have each month to cover the costs of a loan, they determine how much they will lend to you.
One key factor is your debt-to-income ratio. Lenders set this ratio, and sometimes it is based on the type of loan you secure.
Remember that 28 percent rule we mentioned earlier? We’re not the only believers: lenders are too. Generally, lenders do not want you to have more than 36 percent of your monthly gross income tied into paying towards debt (mortgage costs, home costs, and all other debts you pay).
Prequalification is based on just basic sharing of information. The next step is pre-approval. That’s when you’ll send in all of your documents to prove your income and expenses. This process takes a bit more time, but it is exactly what home sellers want to see when you put an offer in on the loan. If you get pre-approval, that means the lender is most likely to approve the loan for you.
To obtain pre-approval, the lender will request information from you to prove your creditworthiness. This may include documents such as:
- The last two years of tax returns
- Paycheck stubs or proof of income
- Bank statements showing available savings
- Your personal identification
- Secondary identification, such as a utility bill or credit card
- Investment account statements to show proof of savings for down payments
- Credit card statements
- Loan statements for other accounts you own
All of this information allows the lender to know just how likely you are to make payments on time and how easily you can afford the loan. Loans for first time home buyers nearly always need this type and level of documentation because there is no other record of your creditworthiness.
When you start applying for homes, you’ll submit your preapproval letter from your mortgage lender to let the owners know you’re interested and able to buy the property.
Financing Your First Home
What first-time homebuyers should know about financing a home really comes down to some key basics. Not to worry! Your lender is likely to walk you through the entire process, giving you support where you need it. But here’s a little introduction.
Want to learn more? Dive into our Guide to Home Financing.
A down payment is your initial payment towards the purchase price of the home.
Let’s say you plan to buy a home for $300,000. Most of the time, lenders require you to make a down payment between three and 20 percent, depending on the type of loan you have. That means you’ll need to have at least $6,000 (or three percent) to put towards the purchase of the home before the lender will cover the rest of the price for you through a loan.
How much money do you need to put down on a house? Well, that depends.
A larger down payment can be a good thing. It means you’ll pay less month after month on the loan. It also helps your lender to know you’re serious about purchasing your home. Some lenders offer a lower interest rate to those who have a higher down payment because there’s less risk to them.
Another benefit of a larger down payment? You might be able to bypass mortgage insurance. Mortgage insurance is a fee you may have to pay each month if you put down less than 20 percent of the home’s purchase price. It helps to provide a level of security to the lender.
It’s advisable to put as much down as you can so that there is less debt that has finance charges applied to it over the lifetime of the loan.
Of course, a smaller down payment is just fine too and may be easier for you to afford initially to get into your new home sooner.
To get over the downpayment hump, the FHA offers loans specifically for first-time homebuyers, some with a much lower (3.5 percent) down payment. VA loans do not have any down payment requirement.
Don’t forget that down payment assistance programs may be available to you. These programs help buyers to get low-interest loans that can reduce the amount of money the borrower has to have to put towards a down payment. Grants for first time home buyers can help to minimize these costs as well.
A mortgage is a loan obtained on a real estate entity, such as a home. Each payment you make on a mortgage each month consists of principal and interest and most often includes the property taxes and insurance on the home as well.
Mortgage interest rates are the fee for borrowing money to buy the loan. Rates change frequently in terms of what is available – and that’s why you want to ensure you lock in a low rate as soon as it is available. An interest rate that’s even slightly higher can mean thousands of extra dollars on your home’s purchase price over the years. Lower rates also help you with lower monthly payments. That means if the interest rate is slightly lower, you may qualify for a larger loan.
Mortgage terms, or the length of the loan, typically range from 15 years up to 30 years. The longer the loan is, the lower your monthly payment is. However, the longer you obtain a loan, the more time there is for interest to build on it.
Mortgages are secured loans. That’s a benefit to you because it helps translate into a lower interest rate. It also gives you far more time to repay the loan than a typical unsecured loan, such as a personal loan. The key to remember, though, is that if you stop making payments on the loan, the lender can force the sale of the property to recoup their loss.
What Is a Mortgage Lender?
Mortgage lenders are financial institutions that provide access to loans. Local banks and credit unions, national lenders, and even specialized lenders are available. And of course, the fairest of them all, Dash Home Loans.
To pick the right lender, learn as much as you can about them including their financial stability. You also want to learn the types of loans they offer and the competitive rates they provide.
Home Loans Available to First Time Home Buyers
First time home buyer home loans are widely available in several forms. Here are a few types of loans to consider:
Conventional Loans: These loans typically have moderate interest rates and are most common for borrowers. They require mid-to-upper credit score ranges depending on lender approval. Most require about a five percent down payment. First-time home buyers can qualify for three percent down, and 20 percent down avoids mortgage insurance.
FHA Loans: These are backed by the U.S. federal government, which makes them available to more first time home buyers. They have lower credit score requirements, lower down payment requirements, and lower interest rates.
VA Loans: These are available to individuals who have served in the U.S. Armed Forces. They are backed by the Dept. of Veterans Affairs. There are no down payment requirements, loans have lower credit score requirements, and they typically have low to mid-range interest rates.
USDA Loans: These are loans aimed at helping to develop rural areas. They also have lower interest rates and low down payment requirements.
Fixed vs. Adjustable Rates
Lenders may offer a fixed interest rate on a loan, which means the interest rate remains the same throughout the lifetime of the loan. That ensures monthly payments are always the same. Adjustable-rate loans may have a lower initial rate, but those rates can rise over time. For those who want a lower monthly payment, especially those who do not plan to remain in the home long, this type of loan can work well.
First Time Home Buyer Grants
Grants for first-time homebuyers may be available. Specialized lenders offer these programs based on the state you’re located in. They can help to reduce interest rates and help you to borrow enough for your down payment.
Finding the Perfect Home
Finding the ideal place to live requires careful consideration of your needs, desires, lifestyle, and even the current market trends. There’s a lot to think about, but what first time homebuyers should know is that they have help available to them throughout the process.
Reasons to Hire a Real Estate Agent for Your First Home Purchase
When you’re ready to start looking at properties, it’s time to find a real estate agent. These are licensed, experienced professionals who have the sole goal of helping you to find the ideal property within your budget, in your desired location, and with the features you need.
A real estate agent that works with home buyers is called a buyer’s agent. Your buyer’s agent works for you and only you, looking out for your best interests. (Side note: Homeowners selling their homes also work with a real estate agent, known as a seller’s agent or listing agent.)
The great thing about working with a buyer’s agent is that it’s at no cost to you! Most often, the home seller pays the real estate agent’s commission.
There are some real advantages to working with a real estate agent:
- Your agent can help you with all aspects of paperwork, from understanding and completing documents to ensuring your legal rights are protected during the process.
- Your agent negotiates for you. Once you find a home, they work with the seller’s agent to negotiate the best terms possible for you.
- Your agent knows what to look for in a home and can help to identify concerns before you make an offer regarding the home value, structural integrity, or what to expect in repair costs.
What to Expect from a Buyer’s Agent
How exactly does a buyer’s agent help you during the process? Here’s what you can expect them to help you with:
Finding Listings: Your agent will talk to you about your needs in a new property as well as gather insight into your desired features, space, and location. They then get to work, finding and recommending listings that you can see.
Show Properties: Your agent schedules appointments to allow you to see the homes that fit your goals. They will also research these selected properties to uncover any problems or issues, giving you all of the facts to make the best decision.
Making an Offer: Once you find the ideal property to purchase, your agent will advise you on how to make an offer. That includes setting conditions, gathering insight into the property’s true market value, and helping you complete a legally binding offer.
Negotiating the Offer: Once the offer is in the hands of the seller, your agent works with you and that seller’s agent to negotiate the offer. The goal here is to ensure your rights are protected but also to make sure you’re getting a fair price.
Support Your Transaction: Another way real estate agents help you is by providing you with help finding the resources you need. That may include movers, attorneys for complex transactions (most real estate brokerages handle the paperwork for you), as well as appraisers and home inspectors.
What to Look for in a Real Estate Agent
When looking for a real estate agent, you want someone that you trust and feel comfortable working with since you’ll be spending a considerable amount of time together. Remember, this is someone who will be negotiating on your behalf, so choose someone you have confidence in.
In addition to chemistry, you want to find a real estate agent that knows your desired area like the back of their hand. They’ll have the inside scoop of where to look for a home and can help you evaluate the market value for your home.
It’s a good idea to meet with at least three real estate agents before you make a decision on who to work with. Don’t be afraid to ask them some questions and get to know them. Then, choose the one that makes you feel the best about their ability to help you.
Types of Home Sales
As you start to look at the homes for sale, also consider how they are being sold. There are various strategies for home sellers to list their property for sale. However, how they are being sold can play a role in the type of experience you have.
Standard Home Sales: A standard sale is the most common option. A person lists their home on the real estate market and aims to get the highest price possible. The homeowner handles the entire process, including negotiating the sale, often with the help of their real estate agent. Sometimes, the home is sold on contingency. That means the home is being sold based on a certain outcome, such as the seller closing on the sale of their own home.
Bank Owned Sales: It is not uncommon for banks to list homes for sale. Often, these are properties where the lender foreclosed on the property owner for failure to make payments. The bank owns the home and is selling it, sometimes at a fraction of the overall market price. However, not all bank-owned homes are a good deal – you have to know the market and what it has to offer to determine if the value is right. Keep in mind that with most bank-owned homes, it’s sold “as is,” which means that the bank isn’t going to do any renovation work to it before you buy it. You also may not be able to access the full history of the home, including any repairs that have been done.
Short Sale Sales: Short sales occur when a home seller is hoping to get out from under a mortgage quickly. They ask the bank to accept an offer on the home for less than what they owe on the loan. The bank may agree to this if they believe the property cannot be sold at a higher rate or that the homeowner may default on the loan. This could create a good deal for some home buyers. However, the process takes months and may not be perfect because the property is sold as-is. That limits your ability to know the condition of the property.
Main Factors to Consider When Searching for Your First Home
When searching for your first home, it helps to keep these three tips in the back of your mind.
Once you are pre-approved for a loan, you know what you can afford to buy. So don’t tempt yourself and look for homes outside of your price range.
You also don’t have to spend the full amount that you’ve been approved for by a lender. Some homebuyers buy a lower-priced home, using their remaining budget for renovations. You also may want to leave some extra room in that budget for updates and renovations that may need to be done.
Know how much of a home you need. Think about your needs now, but also what your needs will be in the next few months and years. You may be thinking about a family, or you may know you have loved ones that will move in with you. Be sure you have enough bedrooms, a large enough kitchen, ample living space, and enough outdoor space to fit your needs. Think about parking and extra spaces you need for things like a home gym or office.
It’s not just about the city, but the neighborhood. Work with your real estate agent to get a good feel of the community as a whole to make sure you’d enjoy living there. Learn about these areas, including things like the length of the commute. You may even want to get out of your car and walk along the sidewalk to experience the area.
What to Look for When Viewing a Property
Your agent has found the perfect home for you. You’re excited to see it. Just don’t let the cosmetics or the first impression influence your decision. Instead, be sure to look at all of the details in the home that may be a factor in your decision to purchase it.
Here are some things to look at specifically:
- Floors: Type, condition, and whether they need to be cleaned or replaced when moving in.
- Cracks: Look at the walls, ceiling, and the foundation of the home, both inside and out.
- Water in the basement: Look for moisture or a mildew smell in the basement. It’s also a good idea to look at the ceiling tiles in the basement to notice any discoloration from the leaks above.
- Windows: The condition, style, and cleanliness are factors here. Make sure they open and don’t let a lot of air in when closed.
- Roof: Have a professional roof inspection, ultimately. Initially, step back away from the home to see all angles of the roof well. Look for discoloration, missing shingles, and aesthetics.
- Trees: Are the trees and shrubs outside in good condition? Are any causing cracks in the foundation, sidewalks, or driveway?
- Electrical and Plumbing: Make sure things like lights and the oven turn on, but also flush the toilet and turn on the water. You’ll have an inspection later.
In addition to this, be sure your real estate agent helps you check out the ownership history of the home. If it has been sold numerous times in a short period, that’s an indication the home may have some problems that aren’t fully understood or disclosed. You also want to have the agent look into any city violations or code violations that could become a problem later.
Putting in an Offer on a Home
You’ve found your home! Now, you need to put an offer in. The next question is, do you offer more or less than the asking price of the home? While you want to offer a competitive bid to stay in the game, you also don’t want to overpay for the home either.
Lots of factors play into your offer amount. Luckily, your real estate agent can help guide you on the right offer amount.
A low offer might be right if:
- You’re operating in a buyer’s market where sellers are more likely to accept your offer
- The home has been sitting on the marketing for a while
- The listing price has already been reduced
Offering the asking price might be right if:
- The listing price is fair and is similar to other listing prices of similar homes in the same area
- The listing is in a desirable market and was recently put on the market
A high offer might be right if:
- You’re operating in a seller’s market and competition is hot for homes in the area
- If there’s a lot of interest in a home that was just recently put on the market
- You must have the house because it’s perfect for you in every way
Your agent will walk you through the legal contract for putting in a formal offer. You’ll need to come to terms with a specific price, but there are other factors to consider as well. That includes:
- Setting a timeline for a response from the seller
- Listing any contingencies you have
- Putting in stipulations for ensuring a home inspection is provided
Work with your agent carefully on this, and be sure you know all of the terms. That includes when you’ll move out, what type of property (if any) is being left behind, and any details about closing costs.
Negotiate Closing Costs
One of the things you may be able to do during the process of negotiating with your seller is to negotiate the closing costs.
What are closing costs?
Closing costs are fees charged by the lender and other vendors that you pay when you close on your home. To be clear, closing costs are additional costs that you pay after your down payment and they typically range from 2-5 percent of the home’s sales price. However, in some markets, it is common for the seller to pay some or all of the closing costs.
What do closing costs cover?
Closing costs pay for things like loan origination fees, fees for appraisals and surveys, title and homeowners insurance, attorney fees and property tax (typically six months of advance tax is paid at closing).
If you know the seller needs to sell the property fast or that your offer is a solid one, you may be able to ask that the seller contribute to the closing costs or lower the asking price so that you can pay for the closing costs.
However, if you are in a competitive market where there are few properties for sale and numerous buyers, think again. The seller may disregard this request and move on to another buyer. Work with your agent to determine if this is an acceptable way of reducing your costs in the home buying process.
After you put in an offer on a home, it’s time to schedule a home inspection. This is where a licensed inspector will review the home, looking for obvious signs of damage or repairs. If a major repair is detected, the home buyers can renegotiate their offer to cover the cost of the repair. Or, the home buyers can ask that the home sellers fix the damage.
A home inspector will look at the home’s roof, structure, exterior, electrical, interior plumbing, heating and air conditioning. You may be required to hire additional inspectors to check additional parts of the home, like a septic tank for example. If the home inspector notices something wrong with a specific part of the home, say the plumbing, they may recommend you call in a plumbing specialist to take a closer look and evaluate any repair costs.
If something unexpected comes up during this inspection, like a termite infestation or serious foundational issues, you the homebuyer will have the ability to walk away from the deal.
During the Home Inspection
Walk around the home with your home inspector. Learn about the age and condition of each of the home’s features and major systems. This is important for things you may not know a lot about, such as the heating and cooling system, roof, and foundation.
Ask when updates or upgrades will be needed. For example, if the inspector says you have about 5 years on the roof before you need a new one, that’s a key component of the decision making for this home.
Home Inspections & VA/FHA Loans
Keep in mind if you have a VA or FHA loan, these government organizations have very specific and sometimes stringent requirements for loans. They want to ensure the home is not only in good condition and worth the price but also safe. They may require a home inspection as a result. If there are problems, the seller will need to make the repairs required before these loans can close.
Earnest money, also known as a good faith deposit, is a down deposit that homebuyers make to show intent to purchase. That’s because when the buyer and seller enter a contract together, the home gets taken off the market.
If the deal doesn’t go through, the seller must start back at square one, losing valuable time and money. This good faith deposit gives the seller some insurance that the buyer is serious, only backing out of the deal if there is just cause.
If the deal closes as planned, the earnest is applied to the down payment. If the buyer backs out of the deal, they can lose their earnest, depending on the contingencies listed in the contract.
Earnest Money Contingencies
Within the purchase agreement, you’ll find contingencies or criteria that must be met to finalize the sale of the home. These protect both the buyers and sellers, so read them carefully to understand whether you lose your earnest money in various situations. Most commonly, they include:
Home Inspection Contingency: This can allow the buyers to back out of a deal without losing earnest money if a home inspection reveals serious damage to the home.
Appraisal Contingency: This protects the buyer by checking that the property isn’t overvalued. If the home is appraised for less than the listing price, the buyers can walk away from the deal without losing earnest money.
Financing Contingency: If a buyer doesn’t get approved by a lender and must walk away from a contract, a financing contingency can help them get their earnest money back.
Get Homeowners Insurance
You can start the process of securing homeowners insurance at any time during the process. However, you’ll need to have a policy available before you can sign the contract with your lender. Make sure you have enough coverage for the home based on the requirements the lender sets and for your own needs. Your home insurance agent may want to come to the home to provide an inspection and to make recommendations. The good news is that you can adjust the policy higher later if you need to do so.
Finalize Your Loan
With the help of your mortgage lender, you can start the process of finalizing the home at this point. The underwriters will go to work, ensuring all details are in order before they agree to the loan fully.
At this point, the lender may re-pull your credit or check that you’re still employed, or ask for additional documents, although that’s less common if you’ve gone through the full pre-approval process.
This is not the time to spend big, like buying a new car, as these big purchases can affect your credit score and ultimately your ability to have your loan finalized. Speaking of your credit score, you also don’t want to do anything else that would affect it, like stop paying rent, missing payments or paying off large debts.
Close on the House
Once the underwriters from the financial institution agree to move your loan forward, the final step is to close on your home. During your closing, you’ll meet with legal representatives to sign your mortgage, along with other documents to make the home purchase official.
It’s a good idea to allow the closing agent to read through the entire loan document with you to ensure you fully understand what to expect. They have the ability to explain each of the forms you’ll sign during the closing process. If you have questions about what something means, be sure to ask for an explanation. It’s their goal to ensure you fully understand the terms you are agreeing to in the loan.
You’ll see a breakdown of all costs during this process. This will include details about when your first payment is due. It will also include all details of the title transferring from the other party to you. You’ll also be authorizing the payment to the seller for the home at this time.
The closing process will complete the home sale process. That means you’ll learn your move-in date, get the keys, and become a homeowner.
*Taxes and insurance are estimates only, it is always best to contact a tax advisor
*Closing costs and fees may still apply
*First lien interest rates may be higher when using a DPA second
*FICO® is a registered trademark of Fair Isaac Corporation
*Pre-approvals are given to clients who have met qualifying approval criteria, and specific loan requirements, at time of applications. Results may vary.