Where to Begin
So you have decided you want to become a homeowner. Congratulations! Many people aspire to owning their own home. There are some financial planning tips that will help you begin the process.
- Calculate your current living expenses.
- Make note of future income changes.
- Determine your net worth.
- Obtain and review your credit report. Correct any inaccuracies found on your credit report.
- Aim for a home you can really afford.
- Buy in a district with good schools.
- Before house hunting, get pre-approved.
Find an Agent
Once you have positioned yourself financially, you can begin your search for a real estate agent. Having a real estate agent can be very helpful in the home buying process and is highly recommended, especially for first time buyers. To begin your search for the right agent, ask friends for referrals and develop a list of potential agents. Meet with the potential agents and determine the right fit for your needs.
Once you have your real estate agent, they should:
- Develop a list of potential homes to view.
- Visit each potential home with you and offer information about the history of each.
- Help you determine the benefits and drawbacks of each home and its location.
- Determine the home's fair market value and show you comparisons of similar homes in the neighborhood.
- Write a purchase offer when you have found the right property.
- Negotiate the price and the conditions of the sale.
- Assist with inspections and any contingency issues.
It is important for every buyer to remember that real estate agents are a helpful tool in your home search, but they are not the decision makers, and do make commissions on each sale. A great agent will educate you on the current real estate market and the homes you are interested but will never try to make decisions for you.
Securing financing can be the most intimidating part of the home buying process for many buyers. Realistically evaluating your current financial situation and communicating clearly with your lender will help them determine the best lending product to meet your needs.
Some tips to help you prepare:
- Determine the amount of your down payment availability.
- Estimate potential mortgage payments.
- Factor in taxes and insurance costs.
- Consider additional costs such as HOA fees and maintenance.
- Research the various types of loans available.
- Prepare information for pre-approval.
Choosing Your Loan
Meeting with a loan officer can help you determine the best type of loan for your situation. It is important for you to do your research on various types of loans so you understand all of the risks associated with each option. Some examples of common loan types:
Fixed Rate Mortgages
The interest rate remains fixed for the entire length of the loan. The longer the term of the loan, the more total interest you pay, but the monthly payment can be lower.
Adjustable Rate Mortgages (ARM)
The interest rate and payments fluctuate over time. It is important to understand when and by how much the interest rate and monthly payments may change.
Why You Should Get Pre-Approved for Your Loan
Pre-approval occurs before you begin the search for your new home and is an extremely valuable tool. Pre-approval involves meeting with a loan officer who will then take your complete loan application and upon verifying the information, grants approval before you've selected a home to purchase.
Some benefits to pre-approval are:
- A credit report will be requested and will allow time to correct inaccuracies.
- You have already determined that you are financially capable of buying property, putting you in a better position to negotiate.
- Paperwork has already been started which means closing will move more quickly.
The Home Search Begins
As you begin to look at potential homes it is important to remember that no home is the perfect home. Each property will have both assets and drawbacks, the challenge is to find the home that is right for you.
Here are some steps to help you stay focused:
- Explore potential neighborhoods and determine if they meet your needs.
- Work with your REALTOR to identify homes that you are interested in seeing.
- Visit your favorite potential homes for a second viewing.
- Take photos of your favorite homes if possible.
- Evaluate all aspects of each property.
- Consider your future needs in terms of housing.
Making an Offer
When you find the right property there are a few things to consider before signing:
- Check recent sales of comparable homes in the area.
- Estimate costs to update and repair the home in its existing condition.
- Be aware of the current real estate market conditions.
- Review the seller's disclosure form.
- Review any contingencies in the offer.
Contingency clauses are common in the home buying process. Some common contingency clauses include:
- Financing- The buyer must obtain appropriate financing by a certain date or the offer is null and void.
- Property Appraisal- The property must appraise for the purchase price or above or the offer is null and void.
- General Inspection- The buyer is entitled to an inspection of the property. If problems are found it is common for the seller to have the right to fix them or the buyer can walk away from the offer.
- Survey- The buyer is entitled to have a third party survey the property boundary lines.
Prepare for Closing
As you near the final stages of the home buying process, you should begin to prepare for closing activities.
At this time you will need to:
- Perform a final walk through of the property before closing to ensure it is in proper condition.
- Confirm that the lender has all of the necessary paperwork complete.
- Verify closing documents and costs.
- Begin packing and preparing yourself for moving.
- Research and obtain homeowner's insurance.
The closing is final when the terms of the original purchase and sale agreement have been fulfilled. At closing time legal ownership of the property is transferred from the seller to the buyer.
Some things to remember during closing:
- Read everything before signing.
- Have your attorney explain anything in the paperwork that you do not understand.
- Check all closing costs.
When closing is complete, you are officially a homeowner! Congratulations! Enjoy your new adventure!
Now that you have completed the process it is important to:
- Store all of the paperwork in a secure place.
- Make a time line for additional large purchases and stagger accordingly.
- Begin to rebuild your savings account.
Click here for more information on Mortgage Loans from ATFCU, or call our mortgage department at 512.302.5555, ext. 7388.