Buying your first home will most likely be the largest financial decision and process that a person or family will ever make. This makes it essential that people looking to buy a home make sure that they have their paperwork in order and follow their bank’s instructions in order to make sure they get the best rates and pay the least amount in fees as possible. If you are just starting the first time home buying process, follow this set of steps to make sure that you get the house you want.
The first step in buying a home is to figure out how much house you can afford. This means first figuring out your maximum monthly payment. After doing this, it is possible to work backwards using the current average interest rate offered by a bank and an online calculator to determine how much house you can afford to buy.
Once you have this estimate of your purchasing power, start talking to banks about getting a pre-approval letter. A bank will be able to give you an estimate of the interest rate and issue a letter to your realtor stating your price range. With this information, it will be possible to start looking for a home. Don’t worry about getting your number figured out exactly at this point in the first time home buying process. As you look at homes, your bank and realtor will be able to give you good estimates for taxes and insurance costs that will affect your payment amounts.
Once you find a home that fits your needs, it will be time to make an offer. A good realtor will be able to guide you through this process, but be prepared to go through several rounds of negotiations. In addition to settling on a price, it is also possible to negotiate which home repairs will be done to the home before moving in. In most cases, a potential buyer will also be required to put forth “earnest money”. This is a deposit (later applied towards closing costs) that ensures that a buyer is serious about purchasing the home.
As soon as a price has been agreed on, the home is considered to be “under contract”. This means that no other offers on the property will be accepted. In most states, this also means that both parties have thirty days to meet the terms of the contract, unless the contract term has been extended beyond this. Over the next month, it will be necessary to get your paperwork in order and have your bank issue final approval on the mortgage.
During this time, be as financially conservative as possible. The bank will be scrutinizing your credit score and account balances during this time. Avoid large purchases and opening new lines of credit.
You may also want to consider scheduling a home inspector to write a report on the home. In fact, many contracts have a good report from the home inspector as a contingency on the final sale going through. Read this report carefully, and be prepared to walk away from a home that is in poor condition.
Finally, on the day of closing remember to bring any required paperwork and a check to cover the closing costs.