1. Get prequalified for a loan
Before you begin the home buying process, it is essential to know how much you can pay for a home. Your lender can make this easy for you, by pre-qualifying you before you and your real estate agent begin looking for a home. A prequalification is free and can usually be done in just one visit, or even in one phone call. By getting pre-qualified, you will know what price home you can afford and what your monthly payments will be.
2. Selecting a Real Estate Professional
Once you have been pre-qualified, it is time to find a real estate professional to help you find the home of your dreams. A real estate professional is an expert who knows exactly which homes are for sale and which ones can meet your requirements and desires. Show your agent your pre-qualification certificate – with it, your agent will be able to pre-select homes that are in your price range. Additionally, your agent can provide you with information about different neighborhoods where you might want to live, as well as suggestions that you may not have considered. Your agent can also give you practical advice about what you should look for in a home. And when it is time to make an offer on the home you wish to purchase, your agent will be there to help.
How to select a real estate professional
A real estate professional plays a very important role in the homebuying process and should be selected with care. Before selecting your agent, ask for recommendations from family and friends and interview several agents, to have a better idea of what each one is like and what each offers you. The relationship between a real estate professional and a buyer should be one of mutual respect, similar objectives, and, frequently, a written agreement which specifies the terms and conditions of the agent’s representation of the buyer.
Qualities of a good real estate agent
- Understands your needs and objectives.
- Is professional and dedicated to doing a good job.
- Knows the area where you want to live.
- Knows how much you can spend on a home.
- Has a valid real estate license or certificate.
- Has excellent references from other clients.
- Treats you with the respect that you deserve.
3. Finding your dream home
Location, location, location
To reduce the number of homes that you visit, you should begin by deciding what factors are important to you, such as the approximate cost of the home and the location, and then you can begin to determine more specific details, such as the neighborhood, the characteristics of the home, and the type of dwelling (i.e., condominium, town home, or traditional single-family home). The location is the factor that most affects the value of the home. The majority of homebuyers are prepared to sacrifice certain characteristics and preferences of their home, in order to be able to purchase a home in the area or neighborhood that they most prefer. This is a very important insight, because you can almost always make some adjustments or do some remodeling, such as adding on another room or putting in a pool in the backyard, to have everything you desire in your home. But once you have moved into your home, it does not matter how many improvements you make, you will not be able to move this home from the city to the suburbs, or from the west side to the east side of the city!
What should I look for in my neighborhood?
Here is a list of the top seven questions potential buyers ask about a neighborhood:
- Does it have good schools?
- Is it a nice neighborhood?
- Is it in a good shopping district?
- Is it near my/my spouse’s office/work location?
- Is it near my/my spouse’s family and friends?
- Does it have a low crime index/how safe is it?
- Is it close to parks and recreation areas?
What should I look for in a home?
Before you begin searching for a home, it is important that you decide what characteristics you want in your home. Use the handy Evaluation Chart provided below to note down the desired characteristics of your dream home, and use it to evaluate how the different homes you look at meet your desires. Make several copies of the chart and carry them with you as you search for the ideal home, keeping in mind which characteristics you consider essential in the home you purchase. If you fill in the information as you look at homes, you will be able to remember the pluses and minuses of the different homes you see, and can evaluate the homes fairly, using the same criteria regardless of when you see them.
Home evaluation checklist
Evaluating the homes you see
Once you have decided which characteristics you want your dream home to have, and in which neighborhoods you are interested in living, you should begin to view homes for sale with your real estate agent. During this period, it is important that you make a thorough evaluation of the properties that you visit. Get accustomed to viewing properties with a critical eye. Inspect each home thoroughly, making sure you look at and evaluate each area that you consider important in your home. Feel free to take pictures or video so that you can remember what you liked or disliked in each home, and make sure that you keep detailed notes on your Evaluation Chart.
4. Making a Thorough Inspection Prior to Making a Final Decision
When you finally find the home of your dreams, it is very important that you inspect it “from top to bottom,” to make sure you do not fall in love too quickly. Sellers sometimes cover major flaws with paint or wallpaper, so that people who do not do thorough inspections will not notice the damage. These flaws frequently cost a great amount to repair once you have bought the home, so you should do your best to inspect the home very carefully prior to purchasing it.
Before making an offer on a home, you should get to know the neighborhood. Visit the area during different times of day and night. Meet your potential neighbors and ask them about the neighborhood. Reconsider the amount you are willing to offer to purchase the home, so that you are really sure that it is worth the price.
Check the pipes and plumbing – Flush the toilets, turn on all the lights, open all the windows. Ask about the condition of the electrical system, the plumbing, the heating and air conditioning, and any other important features such as the pool, the irrigation system, etc.
Analyze the physical characteristics of the homes you visit – Thoroughly inspect the physical condition of the home, looking for any repairs that need to be made, as well as whether the house is new, several years old, or fairly old. It is also important to feel confident that there are enough bedrooms and extra space to meet your needs. Make sure that you really like the design of the home as well.
5. Making an offer on the home
When you are ready to make an offer, your real estate agent should prepare a Purchase Contract, which is the document that you will present to the seller, and where you offer a price and any conditions you have for the purchase.
Before presenting this document, check to see that your contract includes a clause that stipulates that the purchase depends on a satisfactory professional inspection. Ask your real estate agent to recommend a professional inspector with many years of experience. The inspector should give you a written evaluation of the home and make any repair recommendations that are necessary. If you have any doubts about the inspection, ask for a second one.
Once your offer has been accepted, you will need to provide earnest money (or a good faith deposit). This is a cash deposit (several hundred dollars to several thousand depending on the value of the home and the market) towards the down payment that shows your commitment to buying the home. Ask your real estate agent how much money is needed for a deposit, and use your pre-qualification certificate to back up your offer to the seller.
How do I determine the real value of the home?
Before you make an offer, you need to determine how much the home is really worth. Your real estate agent can help you by providing information about other homes in the neighborhood that have recently sold. This way, you can compare the selling prices of the different homes to feel confident that you are offering a fair and sufficient amount. There are also a number of other services available on the Internet that can provide estimated property values and recent sales within the general area. However, online home valuation tools are just for reference, and cannot be considered accurate.
6. Applying for a Loan
Congratulations! You are only a few steps away from realizing your dream of homeownership. When the offer you make on the home of your dreams is accepted and you have a signed purchase contract in your hand, call your lender immediately. As of that moment, your interest rate protection will be extended for 45 more days (or for up to 60 days in the case of government loans), giving them enough time to completely process your loan.
Choosing the right home loan
In the home loan world, there are two types of loans — those with fixed interest rates, and those with variable interest rates. Lenders offer a large variety of fixed-rate and variable-rate loans to accommodate each borrower’s needs and preferences. Of course, they will also help you choose the ideal loan for you, but it is important that you know the difference between these loans.
Fixed-Rate Home Loans
The most popular home loan is the traditional fixed-rate mortgage. Generally this interest rate is a little higher that the initial rate you receive with a variable-rate mortgage. But what makes this loan so popular is that with a fixed-rate loan, you have the assurance that your interest rate will never rise. Also, your monthly payments of interest plus principal will always remain the same. If you are the kind of person who prefers the stability of knowing exactly how much you will pay each month, this could be the ideal loan for you.
Why are down payments so low on some properties?
These are offers that lenders make, but they are not ideal for everyone. A borrower must qualify for the exact loan offered. Remember that in many cases, the lower the down payment, the higher the monthly payment, and the higher the probability that the borrower needs to purchase mortgage insurance. If you are interested in a loan with a low down payment, ask your lender about getting one. They offer many types of loans with low down payments and less stringent qualification guidelines.
Variable-Rate Home Loans
In recent years, the Adjustable-Rate Mortgage (or ARM) has become famous for its low initial interest rate. The primary advantage of this loan is that it permits you to qualify more easily for a loan, or to get a larger loan. Due to the fact that the variable-rate home loan is based on a published rate called an Index*, your interest rate can rise or fall, meaning that your monthly payments can also increase or decrease. Variable-rate home loans can even save you money in the long run, if interest rates remain constant or fall.
*Indexes are published in the financial section of many newspapers and are also available on the Internet.
Additional Types of Loans
In addition to offering you home loans, lenders also offer a variety of loans for home improvement, to help you save energy, and to consolidate your debt.
Special Loan Programs
Lenders offer special types of loans that cover the cost of the home, as well as the costs of needed repairs or improvements. This type of loan is based on the value of the home after the repairs/improvements are made.
7. Closing/Settlement
The closing (or settlement) is the meeting at which you sign all the paperwork and make the payments needed to become an official homeowner. The title company, which issues the title insurance, usually provides a forum for the exchange of documents and the releasing of funds during the closing. In California, the closing is known as an “escrow closing,” and the title or escrow company acts as a third party for the benefit of the buyer and the seller.
Prior to the closing meeting, your title company, escrow company or attorney will review with you a copy of the HUD-1 Settlement Statement. This document will provide the final total for your closing costs. It establishes the total funds you must bring to closing. Once the loan is approved, we will call you to come in and sign the closing documents, as well as the final documentation required to make you a homeowner.
There are many documents that need to be signed prior to receiving the keys to your home. For this reason, a closing typically takes one or two hours. The three most important documents you will sign are the note, the mortgage (deed of trust), and the deed. The mortgage (promissory) note represents your promise to pay the lender according to the agreed terms, including the dates on which your home loan payments must be made and the location to which payment must be sent.
The mortgage, also known as a deed of trust or a security instrument, is a contract that makes your home the security on the loan or guarantees its repayment. And the deed is the document that transfers the ownership of the property from the seller to the buyer. You will also need to obtain a certified or cashier’s check to pay the closing costs. Once these documents are signed and the closing costs are paid, you are a homeowner! Go ahead and call the movers!
Moving in to your own home is an unforgettable experience. Perhaps you will soon be enjoying your own home together with your family and friends. We know that the American dream is not just a dream!
What to know after moving into your new home
How to make your monthly loan payments
Within a few days of the closing and the receipt of your loan, you will receive a letter from your lender with monthly payment instructions and an explanation of your responsibilities as a borrower.
What to do if you have problems making your payment
The first thing that you should do is call the lender. Representatives are there to listen to you and to try to help however possible. But remember, it is very important to make your payments on time and for exactly the amount due, if you want to protect your credit. And if in the future you decide to buy another home, a good credit history will be very useful.
What to do if your home is damaged
If your home is damaged by a fire or by some other occurrence that is covered in your insurance policy, call your insurance agent and fill out a claim immediately. A claims adjustor will do an inspection of the property to determine the cash value of the damages. Once this has occurred, the insurance company will make out a check, jointly issued to you and to the lender. Call the lender’s claims department to ask about the proper procedure for funds distribution.
Your other obligations as a borrower
Your loan or deed of trust requires that you maintain your property in a good state. This requirement exists to protect your investment and to increase the value of your property, if you decide to sell it one day. When you make any repairs or improvements, make sure to always use licensed contractors.
Additional costs
When you buy a home, be prepared for certain additional costs that all homeowners have, such as monthly mortgage payments, annual property tax payments, homeowner’s insurance, electricity, gas, trash collection, water and sewer service, home maintenance and gardening.
A guide to home buying terms
Abstract of Title
A written history of the property title from its origin to the present.
Accrued Interest
The amount of interest due since the last payment.
Adjustable-Rate Mortgage Loan (ARM)
A mortgage in which the interest rate changes periodically according to a predetermined index.
Agreement of Sale (Purchase Contract, Purchase Agreement, Sales Agreement)
A written document by which a Buyer agrees to buy and a Seller agrees to sell a property.
Amortization
The payment of a debt in equal installments that results in the retirement of the debt.
Amortization Schedule
A list of each payment due on a mortgage loan, which shows the amount applied to the principal, the amount applied to interest, and the remaining principal balance.
Annual Percentage Rate (APR)
A percentage of the amount of the home loan that represents the total annual cost of the loan, including finance charges.
Application
The forms used and the process of asking for a home loan.
Appraisal
The report made by a qualified person, in which he gives his opinion as to the value of a property.
Appreciation
An increase in the value of real estate (property).
Balance Sheet
A statement of assets, liabilities and net worth.
Balloon Mortgage
A mortgage with monthly payments that are made for a certain period of time, at the end of which, the remaining balance is due.
Cap
A limit on the maximum that interest rates can rise on a variable-rate mortgage (ARM) during a specified period and over the life of the loan.
Closing/Settlement
The conclusion of the transfer of ownership on a property.
Closing Costs
Costs associated with the transfer of ownership of a property.
Credit Report
A report carried out by a credit reporting agency and used by the lender to determine whether an applicant is eligible for credit.
Deed Of Trust
In some states, the instrument used in place of a mortgage.
Depreciation
The loss of value in real estate (property).
Discount or Discount Points or Points
A single charge imposed by the lender to adjust the interest rate of the loan to the required yield.
Down Payment
The portion of the amount for the purchase of real estate that is given in cash and in advance by the borrower.
Earnest Money or Good Faith Deposit
The deposit made by the person buying a property to a third agency, which is held in escrow until the transaction is completed.
Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition; i.e., the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.
First Mortgage
A mortgage having priority over all other liens.
Homeowner’s (or Hazard) Insurance
An insurance policy whereby, for a premium, an insurer agrees to insure a property in case of a loss.
HUD-1 Settlement Statement
Itemizes the charges to the buyer and the seller, and shows how the money gets paid out.
Interest Rate
The percentage of an amount of money that is paid for the use of that money over a period of time.
Judgment Lien
A judgment by the court and placed as a lien against a property.
Loan-To-Value Ratio
The relationship between the value of property and the loan amount.
Loss Payee Clause
The clause in an insurance policy indicating who is to be paid in the event of a loss.
Margin
The percentage a lender adds to the index rate to determine the new interest rate.
Maturity
The due date of a note.
Mortgage
A legal document that transfers interest in a property and serves as a security for payment of a debt.
Mortgage Banker
A firm dedicated to making real estate loans.
Mortgage Banking
The packaging of mortgage loans to be sold to a permanent investor.
Mortgage Insurance
Insures the lender against loss caused by the borrower´s failure to make the payments.
Mortgage Note
A written promise to repay a stated amount of money at a stated interest rate over a stated period of time.
Origination Fee
A fee charged by a lender to cover the cost of the process of making a mortgage loan.
PITI
The acronym for Principal, Interest, Taxes and Insurance, usually the four parts of your monthly mortgage payment.
Points
*Points: a one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.
Principal
The amount of a debt.
Private Mortgage Insurance (PMI)
See MORTGAGE INSURANCE.
Purchase Contract
See AGREEMENT OF SALE.
Release Of Lien
An instrument that discharges a lien.
Refinance
Process of paying off one loan with the proceeds from a new loan using the same property as security
RESPA
Real Estate Settlement and Procedures Act. A law that requires the lender to disclose information to the borrower, including a Good Faith Estimate (GFE) of the borrower’s closing costs.
Security Instrument
The mortgage or deed of trust of the property.
Subordination
The act of acknowledging that a lien will have a position after a mortgage loan. This is accomplished by recording a Subordination Agreement.
Tax Lien
A lien against a property for unpaid taxes.
Term
The period of time over which a loan is paid.
Title
Evidence that establishes ownership of a property.
Title Insurance Policy
A policy which protects the lender in the event of a loss due to a defect in the Title. The owner´s policy protects the owner in this same way.
Truth-in-Lending (TIL) Disclosure
Outlines the costs of a loan and discloses the APR and other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required. The lender is required to present the final version of a TIL disclosure at or prior to the closing meeting.
Trust Deed
An instrument given by the borrower to a third person (the trustee) vesting title to the property in the trustee’s name as security for the borrower’s payment of the mortgage loan.
Underwriting
The risk analysis of a borrower’s loan application.