Most homeowners can recall that moment it became clear that they could, and would, buy a home. Ditching the landlord is a dream of many and when you can see that dream – grasp it – it’s intoxicating.
It’s easy to jump right into the process and let the cards fall where they may, but it’s not wise. There’s a system to buying a home, and those that are successful follow the steps.
Before you jump online to look at homes for sale, start with the basics: the 3 basic things you need to buy a home.
You’ll need a mortgage
Unless you are among the 23 percent of homebuyers who will pay cash for a home, you’ll need to borrow the money to pay for it.
The loan you’ll use is called a “mortgage,” a word which traces its origins appropriately to the Old French “death pledge.” Ok, so 30 years may not put you on death’s door, but it will feel as if you’ve been repaying this loan forever.
But, look what you get in return. The freedom to have a pet, or two. The luxury of painting your living room any color you want and the liberation of knowing that a landlord will never be calling you to schedule an inspection of his or her property.
Shopping for a mortgage is something that shouldn’t be entered into lightly. There are a lot more factors and terms to consider, for instance, than the interest rate. Your real estate agent should be able to recommend to you preferred lenders that have successfully closed loans with previous clients.
You’ll need some cash
You most likely know you’ll need cash for a down payment on the home you finally choose. If you’re using a Veterans Administration or U.S. Department of Agriculture loan you may not have to pay anything in down payment funds.
FHA lenders, on the other hand, bases the amount required, at least partially, on your credit score and it could range from 3.5 to 10 percent.
Then, there are the Fannie Mae and Freddie Mac programs which require from 3 to 20 percent down. Your real estate agent’s preferred lender will be able to clarify if you qualify for down payment assistance. But, that’s not all the cash you’ll need.
While not the big chunk that the down payment represents, the earnest money deposit will need to be paid when the seller accepts your offer to purchase (or shortly after). The amount of this deposit varies, but it’s typically around 1 to 3 percent of the purchase price. At closing, it will be credited toward what you owe.
Speaking of closing, there is a three-word phrase that few people warn first-time homebuyers about: “cash to close.” You may have heard of this chunk of money referred to as “closing costs.”
This amount includes all the fees and expenses that are related to actually making the loan and the closing process. They might include transfer fees and taxes, attorney and notary fees, title fees and more.
While closing costs vary, expect to pay between 2 and 3 percent of the purchase price, unless the seller has agreed to pay all or a part of your closing costs, or your lender has confirmed that you will qualify for closing cost assistance.
This money, along with your down payment, is due at closing so most homebuyers wire the funds to the title company (or whomever is acting as the closing agent) or bring a cashier’s check to closing.
The lender will let you know the total amount of cash you’ll need to close in advance of the actual closing.
You’ll need a Realtor
Sure, this sounds like a no-brainer, but make sure you are choosing to work with an excellent Realtor.
The truth is that just like professionals in any industry, real estate agents are not all alike. Make sure you check online reviews for your potential real estate agent and that they have a strategy in place to create as seamless of a transaction as possible for you. Again, your real estate agent will have trusted vendors and lenders that they work with on a regular basis to refer you to, so establishing a relationship with a great real estate agent is the best place to start your home-buying process!
With a strategic plan in place, soon you will be able to enjoy the fun part — shopping for your future home!
I would be honored to have the opportunity to earn your business. Feel free to read my reviews from past clients and reach out to me with all of your real estate needs.