Home Buyer's Guide
Buying a home by yourself or through an agent should not be complicated. Many prospective buyers are overwhelmed with the home buying process today. Buying a home is one of the best investments one can achieve in their lifetime. There are many important aspects to consider before buying a home.
- Knowing how much you can afford
- Familiarizing yourself with disclosures
- Researching the different home buying programs
- Shopping for a loan
- Locating your home
- Getting a home inspection
- Acquiring homeowners insurance
- Signing papers/Getting your keys
Step 1: How Much You Can Afford
Probably the most important step in buying a home is knowing how much you can afford. What you can afford depends on your gross income. Mortgage companies use your gross income, less all expenses, to determine how much they can lend you. Your credit score is very essential to the lender. Having an excellent credit score allows you to acquire a better interest rate from the mortgage company. Making a down payment on your home also helps to lower your mortgage. For example, a buyer with a 20% down payment can save by not having to obtain a (PMI) Private Mortgage Insurance if they don’t want to. (Private Mortgage Insurance is a policy that guarantees repayment of a mortgage in the event of death of the mortgagor). However, there are also programs available which allow up to 100% financing if you qualify. Basically, what you can afford depends on your income, credit ratings, interest rate, current monthly expenses and down payment.
Step 2: Disclosures
Sellers generally reveal all facts and details of the property and it’s surrounding in a disclosures. For example; a fire station is within certain distance from the property. Knowing your rights makes the process simple. Most people hire real estate attorneys to review contracts. An attorney will look out for your best interests. It is advisable to hire a professional agent during the closing process.
Step 3: Home Buying Programs
There are many home buying programs. FHA loan programs offer lower down-payments and are a good option for home buyers. HUD’s special home buying programs include “Good Neighbor Next Door Program” for police officers, teachers, firefighters and medical technicians. Homeownership for public housing residents and Indian Home Loan Guarantee Program (Section 184) are also home buying programs for qualified buyers.
Step 4: Shopping for a Loan
Many buyers can save money by doing research about different types of mortgages. Prepare a list of mortgage lenders and compare their interest rates and points. Points are another way for the lender to increase their yield. (A point equals 1% of the loan). Always negotiate with lender for the best interest rates and try to obtain a loan with no points. Request a Good Faith Estimate from the lender. Consider getting pre-approved from one or more lenders, this will allow you to know exactly how much you can afford before you start looking for a home.
Step 5: Searching for a Home
Many homebuyers consider searching for a home by themselves. Using the internet or simply driving around local areas are ways of finding a home. Others choose an agent to find their home. If you choose a home in a community with a Homeowners Association, be sure to request a copy of the HOA packet so that you can review the rules and regulations. Inquire about schools and their ratings, also local amenities that best satisfy your lifestyle before making your decisions.
Step 6: Home Inspection
Inspecting the property prior to making your decision will prevent you from buying a home that may need major repairs. In some cases hiring a building inspector is essential especially if the property is old. Make your offer contingent on a home inspection.
Step 7: Homeowner’s Insurance
Shopping for Homeowners Insurance is simple. First, prepare a listing of insurance companies offering homeowners insurance using the Yellow Pages. Compare prices from several insurance brokers. Obtain a policy from a reputable insurance company. Be specific about the amount of deductible, also verify all coverage on your policy.
Step 8: Signing the Papers
If you are represented by an attorney, the attorney will explain the entire closing procedure. If for any reason you are not sure what you are about to sign, stop and ask questions before signing any documents. Make sure all requirements are met and you are satisfied with the property before the closing. In some states, buying a newly build home doesn’t necessarily require an attorney. The title company should be sufficient to do the research on what was previously empty land.