At Washington Federal, nothing makes us happier than putting people in their dream home. Buying a home is a big commitment and there are a lot of steps that need to happen to take you from looking at listings to picking up the keys. Over the next few weeks, we’ll be providing some information to help you understand and prepare yourself for the home buying process during our Home Buyer blog series. First up…the 10 major steps of buying a home.
Decide that buying vs. renting is best for you.
Are you ready to put down roots and take on the additional responsibility of maintaining a home? If your short- term plans include moving to another city, figure in the time and expense of buying a home versus continuing to rent. Also consider whether you want the lifestyle of a detached (single family) home, or whether a condominium or townhouse might be more to your liking.
Calculate the amount of payment you can afford.
Generally, lenders will not want you to spend more than 33% of your gross monthly income on a mortgage payment, principal, interest, taxes and insurance, and not more than 43% combined for all monthly debt payments (including the mortgage payment, car loans, student loans, credit-card payments and other debt). Based on the down payment, the monthly payment you can make, and the current interest rate for home loans, your loan officer can arrive at an estimated price range of home you can afford.
Get “pre-qualified” or “pre-approved” for a loan.
A lender can do a preliminary review of your finances and credit to determine the loan amount you qualify for. Washington Federal will pre-approve your loan so you know just what you can afford before you start shopping for a home. Many real estate agents prefer that buyers are pre-qualified or pre-approved for financing to narrow the search for a home to a targeted price range.
What kind of home do you want?
Given your price range, decide what kind of home you want or need. Consider the number of bedrooms and bathrooms, the general size and style of the home, its location, and any special features you want such as a fireplace or garage. Keep in mind that real estate is valued based on “location, location, location.” So the closer a home is to a major city or desirable recreational opportunities, the more you can expect to pay. Homes with a view will also command higher prices. You may find it helpful to tour open houses in neighborhoods you are considering so you can get a good feel for housing costs.
A Truth in Lending Disclosure will give you the Annual Percentage Rate (APR) for your loan which is a better indicator of the true cost of your loan than the base interest rate. Compare APRs when shopping for a lender. While it is required to be given to a borrower at the time of application, you can also request an estimate in order to “shop” for a lender who will give you the best overall deal, and not just the best interest rate.
Shop for your new home.
Be sure to allow time (up to several months) to look at a number of homes so that you have a good basis for making a final decision. Contact a Realtor to help you with your search. Many companies now have “buyer’s agents” who represent home buyers exclusively during the negotiation process.
Make an offer.
When you find a home that you like, carefully give it your own personal inspection. If you think this is “the one,” you will need to formally make an Offer to Purchase, including writing a check for a partial down payment (called “earnest money”) which tells the seller you are serious about your offer. Make sure the offer allows you to get your earnest money back if a professional inspection reveals problems with the house, or if you are unable to get financing. Also, be prepared for disappointment. During boom times, there may be several offers on a house and you may find yourself competing with other buyers. The seller will inform you through their Realtor if they formally “accept” your offer.
Apply for a mortgage loan.
After your offer is accepted, it is time to make an appointment and get your paperwork to your loan officer. Your loan officer will help answer your questions and may help you complete certain sections of the application. You will usually be asked to provide some money up-front to pay for a credit report and appraisal.
Order a professional inspection of the home.
While you’re making a formal application for a home loan, you should also be contacting a professional home inspector who will look over the house for potential problems with the structure. Usually, the purchase and sale agreement you sign gives you a limited amount of time to get the inspection done. Make sure your inspector is more than a “pest” inspector. You will want someone qualified to check out the plumbing, wiring, roofing, appliances, heating system, etc. They will look for water or pest damage and should check both the attic and basement or crawl space (if applicable).
You should be present when the inspector views the home, as they can point out to you where electrical boxes and other system controls are located and how they operate. Expect to pay at least a couple hundred dollars for this inspection. If the results are unexpectedly negative, you may decide at this time not to go ahead with the purchase. (During the loan approval process, your lender also will require a professional appraisal of the home to determine its market value based on comparable home sales in the immediate area.)
Close the loan.
Assuming your lender approved your loan, you can expect to “close the loan” anywhere from several weeks to a little more than a month from the time you apply. At closing, you will be asked to bring a certified or official check to complete your down payment and pay loan fees. You will also be asked to sign all necessary legal documents. At this time, you’re given the keys to your new home!
Stay tuned for the the next post in our Home Buyer blog series…”5 Mistakes to Avoid When Thinking About Buying a Home”.