Buying your first home and becoming a home owner is one of the most exciting steps in any person's life. With home loan purchase rates at the lowest they have been in decades, this is an opportune time to purchase a home. At Bad Credit Lender, we work with affiliate mortgage brokers who work hard to find you the lowest rate possible. We can help you analyze your financial situation quickly and efficiently, allowing you to have a solid understanding of what you can afford and how much a lender will reasonably allow you to borrow.
Buying your first home and acquiring a home loan can seem like a daunting task. The best way to approach getting a loan and finding a home is to take it one step at a time. Here are seven steps that will help you purchase your first home.
1) What Can You Afford
Determining what you can afford in the housing market is one of the most important steps as it helps define your search for a home loan and lets you find a comfortable mortgage amount that will allow you to find the home of your dreams without any undue burden. Some of the considerations to take into account include your household monthly income, your current level of debt (monthly bills, car payments, credit cards, etc.), your credit score, and the amount you will put down initially. Once you have a basic understanding of what the household earns minus what the household spends, it is much easier to determine a comfortable monthly mortgage amount. Take these numbers to your mortgage broker or lender and they can then go over what this will allow you to buy given certain loan scenarios (including the tax deductions available for the interest portion of your home loan).
2) Get Pre-qualified for a Home Loan
If you are really serious about buying a home, it is very important to at least be pre-qualified for a loan. Getting pre-qualified means a cursory examination from a mortgage broker or financial institution who can verify your level of income, credit score and current debt and can quickly tell you much you can afford to borrow.
Many realtors or home owners will not accept an initial offer on their home without a pre-qualification letter. Once you do have your pre-qualifying letter, you can begin to search for a house, confident that if you do find one, that you can make an initial offer on it. As well, the pre-qualification process will give you a much better idea of the loan amount that you qualify for and a general idea of what interest rate you qualify for.
3) Do One Better: Get Pre-approved
Getting pre-approved for a home loan tells the home seller and your realtor that you are ready to make the commitment. The pre-approval process is a bit more intensive than getting pre-qualified but pays off in the end. In order to become preapproved, you will give your lender your W-2 or 1099 Forms, Paycheck Stubs, as well as savings or checking acccount statements. In addition, it is necessary to run your credit, unless you have a recent credit report copy handy. The real advantage of pre-approval is it drastically cuts down on any problems that may be lurking in your credit or financials that might block you from obtaining the home you want.
3) Do One Better: Get Pre-approved
Getting pre-approved for a home loan tells the home seller and your realtor that you are ready to
make the commitment. The pre-approval process is a bit more intensive than getting Pre-qualified
but pays off in the end. In order to become preapproved, you will give your lender W-2 Forms,
Paycheck Stubs, as well as savings or checking acccount statements. In addition, it is necessary
to run your credit, unless you have a recent credit report copy handy. The real advantage of
pre-approval is it drastically cuts down on any problems that may be lurking in your credit or
financials that might block you from obtaining the home you want.
4) The Fun Part: Searching for your new home
With the advent of the internet, there are loads of ways for you to search for your new home. One of the easiest is to find a realtor website that allows you to search the mls listings. You can enter your minimum amount and maximum amount and the areas you would like to search and, viola, you will be given a list of homes for sale that meet your requirements. Of course, if you are using a realtor they should have access to a more comprehensive mls listing service and should be able to screen your search for you. The Sunday classified ads always list the home sales in your area and often include the "For Sale By Owner" listings that are typically not included in the mls listings. One final place to look is at www.craigslist.com or your local reader in the classifieds section.
5) Check it out and make an offer
Driving by homes and walking through Open Houses is certainly exciting -- it gives you an opportunity to imagine yourself living in the various spaces. There are lots of items that you should be checking for, however, this subject is beyond the scope of this article. In the event that you like the home, you or your realtor can make the seller or the seller's agent an offer on the home. In a hot market where homes are being bought up quickly, it is a good idea to make an offer that is close, if not slightly over, the seller's price. In a slow market where homes are sitting for months at a time, you can offer an initial price that may challenge the seller's desire to sell at a lower cost. Your offer should include the following:
Seller concessions (if applicable)
Financing contingencies (if applicable)
Home inspection contingencies (if applicable)
A specific outline of what is to be included in the sale of the Home
The “earnest money” deposit amount to be tendered with the offer
Once your offer has been made, the seller will then decide to accept it, reject it or counter offer. Once you and the seller agree on a home price, both parties will sign a home purchase agreement that will include the agreed upon terms, escrow period, etc. If you are working with a realtor, they will handle all of these steps for you (hopefully in a timely and efficient manner).
6) Lock up that interest rate and find the right loan
Your mortgage broker or lender can lock in an interest rate for 30 days or 60 days until your home closes and you move in, insuring that you know exactly how much your mortgage will set be once you move in. This protects you if the interest rates rise during your escrow period. If rates go down during this time, you can usually renegotiate and get this lower rate. Locking in an interest rate is a win win situation for the borrower.
There are two main types of home loans -- fixed rate and adjustable. Fixed-rate loans divide the amount to be repaid over a set number of years. “Fixed rate” means that no matter how the interest rate fluctuates over the years, the amount of payment will remain the same. If the interest rate dips, your mortgage consultant will help you refinance to take advantage of the lower rate.
Adjustable rate mortgages (ARMs) are dependent on the fluctuation of the interest rate over time. A five year ARM is a fixed rate for five years but once this period ends your loan rate will fluctuate based on the market rate. When the rate is low, payments are low, but when interest rates are high, the payment increases also. ARMs are slightly easier to qualify for than fixed-rate loans, but they also carry more risks.
7) Closing and moving in
You or your realtor should have a checklist of items that have to be accomplished during the 30, 60 or 90 day escrow period. Home inspection, termite inspection, title on the property, your final approval from the lending institution, etc.
If all of this goes smoothly, you will own your home and can now look forward to the fun task of moving all of your worldly possessions into your new home! Do your homework, take it one step at a time and enjoy the process!