My tips on how to start the home buying process:
FIRST: Make a plan and have flexible housing. If you are renting an apartment or house I suggest having serious conversations with your landlord about this process you are diving into. This process could take 60-120+ days and there is no way you can foresee the things that will cause this process to lengthen.
Next step: BUDGET! and play with online calculators. Zillow has an affordability calculator where you can determine the price of the house to search for based on the amount you would want to spend each month. Basically, don’t go looking at 250k homes you end up loving only to find out your payment would be in the thousands, which is why I suggest budgeting first, telling yourself “I have X amount to spend on a mortgage” and using that to determine the amount of house you want. In my experience for my state we can expect $700 (this includes taxes and insurance) for every $100k worth of house, equating to approx $50 more toward a monthly payment for every 10k you add to the price of the house (ish). Remember this is all estimates and every scenario is different.
Once you know numbers, before looking for the home, I suggest learning the loan options. I’ll tell you what I know but please do your own research as I am no expert. I know of 3 loan options (I’m leaving the Vet option out as I didn’t even look into it as we are non military). For us there are USDA, FHA and Conventional. Each has their own credit and down payment requirements as well as property quality requirements. USDA is a rural development loan, you can research what is considered rural in your state (all links and more info will be in final article). USDA is a 0% down loan but they are picky about the type and condition of property requiring a 620 or higher score. FHA is similar in all aspects but requires 3.5% of the purchase price down. Conventional is more relaxed on the property quality but has a 640 score requirement and a 3% down. There are also things like 30 and 15 fixed (meaning your interest never changes) and 5/1 ARM and so on. I did not research much into this except knowing we wanted fixed because we were not comfortable with the what if and I don’t know factors. On flexible rate loans, one year your interest could be 3% the next year it could be 6%. We like playing it safe so fixed rate for us!
So now you know your loan options and your budget. Go research areas you want to live in. Not just houses but schools and hospitals, etc. research crime rates and sex offenders, shops and construction. This will help you know where you even want to start to look. I suggest finding yourself a Realtor in the area that way they know more about Comparables and if the market seems to be better in one area verses another.
Now you have a plan. Now is the time to find a bank and get a pre-qualification. They will take W2s and tax returns and bank statements, credit reports and personal info. Every thing but a blood sample it seems. They’ll basically take a once over of your financial situation, ask a million questions and say “we think you’d fit best into a home at X amount with an estimate of X a month”. This should not be new info for you, this is them learning the info for themselves and deciding on whether they’d want to lend you money or not and what kind of risk you are. Also, now is the time to ask the bank questions about what they charge and what all their fees are. This is what you will be expected to pay at closing. Even with a ZERO DOWN loan, there will always be closing costs and it will either be all you, 50-50 or all seller. Even if seller pays closing costs they still only pay so much so expect at least 1000+ dollars. Some banks have a lot of junk fees. Things like Participation Fee and Credit pull fee, Realtor transaction fee, Loan doc fee, loan guarantee fee (this one may be mandatory, looking into it). Pretty sure there’s nothing you can do about it except lender shop and know this first before settling on the bank of your choice.
Once all that is said and done it’s time to go look for your dream home, please find yourself a realtor to help instead of just clicking on “request a showing” on all the websites. Trust me this will be a godsend! There are so many realtors out there looking to get just anyone into any home. That’s how they make they’re money and there are some crazy and shady ones so ask around, get recommendations or suggestion from friends. It’s a dog eat dog world out there! Find someone who will listen and explain things clearly and stick with ya till the end! There is a reality fee so expect about $400 for this but it’s put into the closing costs so it’s not an upfront payment.
Once you and your realtor have found your dream home, call up your bank lender and ask for a pre-approval letter to send in with the offer you and your Realtor will write up together. With your offer you will likely send a check to the sellers basically giving them confidence that you are a serious buyer. This will be between 500-1000 and WILL be deposited but given back to you at Closing (or to help pay part or all of your closing costs).
Once your offer is accepted by the seller your bank lender will send you (or have you come in and go over) a Cost Analysis Worksheet (CAW) or Good Faith Estimate (GFE), they all seem to have their own lingo, this you will learn as you go. This will give you a synopsis of what to expect payment wise, what is estimated to bring cash wise to closing and will give you a good run down of cost expectations).
THIS IS WHERE I AM: BY TOMORROW AT NOON THEY WILL EITHER ACCEPT, COUNTER OR DECLINE. WISH US LUCK!