Finding that perfect home of your dreams can be very exciting, and it can also be a bit scary! Here are some important items to consider along the way.
1. Obtain Your Mortgage Pre-Approval Early On in the Process
Before venturing out to tour some homes you are interested in, make sure you've obtained a mortgage pre-approval. Meeting with your lender of choice and discussing your financial situation early on will help you determine a price range that will give you a comfortable monthly payment. This will guide you and your agent toward only those homes in the right price range for your budget.
After you receive your pre-approval letter, you can confidently shop for your new home! Once you find the home of your dreams and sign paperwork and become "under contract", the loan officer will require various financial documents from you to get your loan started. He/she will run credit reports and verify your income and employment. Once things are moving along, an appraisal will be ordered.
Closer to your settlement date, your file will be sent to the processor who will review all of your information as well as the appraisal. He or she will then put together a package of all pertinent information to be sent to the underwriter.
The underwriting process is what determines whether or not you are considered an acceptable credit risk. Things taken into consideration are your ability to repay the loan, your credit, and the collateral in the property being purchased. Then, just before funding the loan, the underwriter will perform what is known as a "soft pull" of your credit information to see if anything has changed.
This is the point where many borrowers innocently make costly mistakes. It is very important that you don't do anything - from application to closing - that might change your financial picture and sabotage your final approval. This means not using credit for appliances, furniture or any other large-ticket items. Don't switch jobs, fall behind on your bills, co-sign a loan for anyone, or in any way reduce the income stated on your application.
2. Carefully Read the Homeowners Association Documents
When purchasing a home in a community governed by a homeowners association, you'll be given Bi-Laws and other governing documents to read and accept. It's very important to carefully read through these documents upon receipt.
It might be advisable to have an attorney review these HOA documents for you, especially if you do not feel confident in understanding them yourself. If you do purchase this home, you will be governed by these documents so you want to make sure you understand them.
3. Be Sure to Get a Home Inspection
All homes - even newly constructed ones - could have some problems. It is always advisable to have a home inspection performed by a licensed, certified Home Inspector. Your agent can assist you with names of some reputable home inspectors if you don't know of any.
During the home inspection, your inspector will test all the major systems of the home, such as the heater/air conditioner, electrical connections, outlets, panel box, etc, and he will advise you on items that might need repair before or shortly after you take ownership. He will also advise you on things to budget for down the road, such as a new roof in an estimated number of years. This inspection can be very valuable to you in many ways, and you want to make sure you are present when it is performed so the inspector can point these things out to you.
You should also receive a thorough report after the home inspection, oftentimes complete with photographs. These will assist you in any requests you feel the need to ask the seller to take care of for you.
Built within your real estate contract will be terms concerning the timeframe the home inspection must be performed, as well as the timeframe for reporting back to the seller with any requests you may have and the seller's response back to you.
Home inspection results don't have to be deal-breakers, but they can be. If the home inspector finds a major structural concern that cannot be easily remedied, or you just don't feel comfortable proceeding with the purchase, there is always an out for you as long as your contract was made contingent upon the inspection, as most are. Your real estate agent will be able to explain all this to you.
4. Budgeting Considerations
There are some things you will need to budget for in the purchase of your new home.
· Initial down-payment that you will present to the sellers with your Agreement of Sale offer.
· Down-payment on your loan. This could be anywhere from 3% - 20%.
· Closing costs to include attorney fees, title policy fees, transfer taxes, other lender fees, and such. Your real estate agent can help explain these costs to you.
You will receive an initial Good Faith Estimate from your lender, and then a complete "Closing Disclosure," right before settlement. These will give you a bottom-line "Cash to Close" figure.
Throughout the process of selecting your new home, don't be afraid to ask questions and heed the advice of your real estate agent or attorney as they are working on your behalf to guide you through a smooth transaction. There are many other factors that your real estate agent will arrange on your behalf so sit back, relax and enjoy the process!