Buying a Home 101

Buying a home can be an overwhelming prospect, especially if this is your first time. Here’s a quick look at five steps to consider.

1. Get pre-approved for your loan.

It saves you the heartbreak of falling in love with a home only to discover you’re not approved to borrow the amount it takes to buy it. Lenders will want a snapshot of your current financial condition, which involves:

  • Your credit score (keep a high score for the best possible rate)
  • Your current income (gross and net)
  • Current debts (credit cards, car loans, student loans, etc.)
  • Disposable income (income less taxes, debts, living expenses)
  • Stability of your employment (how long have you worked?)
  • Type of employment (part-time, full-time, salary, commissions, etc.)

Factor in your down payment and closing costs. This list is an example of common fees, which will vary from state to state. Some may also be negotiated down or eliminated completely.

  • Application Fee
  • Loan Origination Fee
  • Points, if any (one point is 1% of the loan amount)
  • Appraisal Fee
  • Credit Report Fee
  • Lender Inspection Fee
  • Prepaids (as required by lender)
  • Interest (from closing date to date of first mortgage payment)
  • PMI premium (if less than 20% down payment)
  • Homeowners insurance premium (check with your insurer)
  • Flood insurance premium (if needed)
  • Escrow fees (If the lender will be paying home insurance and property taxes out of an escrow account, it’ll require a reserve up front to begin paying. Future payments will come out of your mortgage payments if an escrow account is established)
  • Title and Closing Charges
  • Settlement/Closing Fee
  • Title Search Fee
  • Document Preparation Fee
  • Notary Fee
  • Title Insurance
  • Recording/Government Filing Fees
  • Recording Fee
  • Transfer Tax (on land, based on percentage of purchase price)
  • Miscellaneous Charges
  • Survey Fee
  • Inspection Fee (separate from lender-required; may be inspection for specific items like pests or roofing)

You can get a “good faith estimate” before you close, but a rule of thumb is to expect closing costs to be about 3 to 5 percent of the loan amount.

Knowing your financial position before you start your search will save time knowing what homes are in your price range. And, it assures realtors and sellers you’re qualified and serious about buying.

2. Find the right realtor.

There’s no magic formula to finding the right agent. You’ll need to ask questions and check references. And not only do you want an agent who’s knowledgeable about the home-buying process as well as the pros and cons about your target neighborhood, you need someone whose personality will gel with yours. As silly as that may sound, you may likely be spending lots of time with this agent, working side-by-side for up to several months. So having a good rapport is just as important as finding a quality closer.

3. Research locations.

Spend time in the neighborhoods that interest you. Are you looking for a place with young families? Is your commute time important versus how much house you can buy for your money? Do you want a yard or a nearby park, or live in a homeowner’s association? Decide what your priorities are in finding your ideal home and location, and be sure to discuss it with your realtor.

4. Think about the house you want.

Make a detailed list of your requirements, including necessities and nice-to-haves. You may find a home you like only to find you feel the asking price is way too high for the type of home and/or location. So go in educated about the factors used to determine a home’s price and see where there could be negotiation:

  • The current inventory of similar-sized homes in the area
  • The floor plan and size of similar houses
  • The age and overall condition of the house
  • The active listings in the area
  • The pending listings (those under contract but not yet closed)
  • The sold listings in the last six months
  • The canceled/expired listings (didn’t sell and were removed from the market)
  • Similar upgrades and amenities
  • Location of similar listings

5. Negotiate the best price for all.

As the buyer, you start the negotiation process with your initial offer, which your agent should help you formulate based on the factors in the section above. Once you determine an offer, your agent will send a legal document to the seller and the seller’s agent, detailing the offer. This will include things like:

  • Offer price
  • Terms—all-cash or subject to obtaining a mortgage
  • Target date for closing
  • A time limit on the offer
  • What the seller agrees to pay, what the buyer agrees to pay
  • Contingencies (proper financing, a clean home inspection)

There are other legal things to be included, many of which are determined laws in your state.

Once the seller has this offer, it’s up to him or her to accept all of the terms of the offer, or make a counter-offer. This could be an adjustment in price or who will pay for what (termite inspection, title insurance, etc.). Then the ball’s back in your court to accept the counter-offer as is, or submit another counter-offer with suggested changes.

When you both come to agree to all of the terms of the most recent offer, a purchase contract is then prepared. This will be the contract both you and the seller will sign at closing, reflecting all necessary terms of the accepted offer, plus details of the home inspection and other items.

And of course, ask questions. Your real estate agent should be able to answer most of your questions, and so can the mortgage professionals at Mortgage Solutions, LLC, a wholly owned subsidiary of Vantage Credit Union.

Home buying doesn’t have to be intimidating when you go at it informed.

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