What does the Process Look Like?
What does the Process Look Like?
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I've reduced it to three simple steps - take a look below.
1) Determining a Budget
1) Determining a Budget
This is the most important part of the process.
Calculate your take home income and subtract your recurring expenses to understand what you can afford monthly. Most people know they need a down payment to purchase a home, but might not be aware of the additional expenses associated with buying a home. Take these into account when playing with your budget:
Property Taxes
Home Insurance
Private Mortgage Insurance or PMI (Usually only occurs when the down payment is less than 20%)
Inspection costs (Home, water, septic, etc.)
Closing Costs
You can almost always roll your property taxes, home insurance and PMI into your monthly mortgage payment to the bank (escrow), but the first time you have to pay them will be out of pocket during Closing.
Don’t underestimate Closing Costs. Budget between 2-6% of the purchase price of the home.
2) Financing
2) Financing
Determine if you will pay cash or will need financing.
If you need financing, start by contacting a local mortgage broker. I recommend staying local because local brokers are often simply more familiar with the area and understand the niche aspects of the communities you want to join.
Additionally, local brokers often have faster communication and more established relationships with local appraisers which can potentially speed up the financing process.
If you still don’t know where to start, go to Step 3 and find a Real Estate Agent. They will often have contacts they can recommend to you.
Once you find a mortgage broker, ask them for a Pre-Approval Letter. A Pre-Approval Letter means you have provided some of your financial information to the bank, the bank has evaluated this preliminary information and determined that you are credit-worthy enough to proceed with the process.
Having a pre-approval letter in hand gives confidence to your agent, the listing agent and the sellers that you are a serious buyer when you go to present an offer on a home.
To get a pre-approval you will need to submit some of your financial information to the bank and the bank will run a credit check. There will be more information needed down the road, but this gets you started.
If you are a first time home buyer, ask your local mortgage broker if they are running any promotions. In my area, I know the local brokers can offer up to a few thousand dollars towards closing costs for first time home buyers with certain credentials. Always worth asking!
3) Find an Agent
3) Find an Agent
It is fairly easy to find an agent near you, but be discerning in your selection. You are allowed to interview several and see who feels right to work with before seeing any properties with them.
Once you feel comfortable with an agent, give them an idea of what you are looking for, what is most important to you, and what your budget is. They will setup a search and start recommending some properties that match or have some similar components to the criteria you desire.
When you work with an agent, you will want to sign a Buyer’s Agency Agreement - this verifies that your agent is working for you, will keep all of your information confidential and that you are represented when it comes time to putting an offer in on a home. This also allows agents to provide guidance on offer creation, negotiation and area feedback.
Need Help Creating a Budget?
Need Help Creating a Budget?
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