- Start a savings plan; you'll need to have cash on hand for a down payment and closing costs.
- Get a copy of your credit report to verify that all of the information is correct.
- Don't take on any additional debt, especially during the six months prior to applying for a home loan.
- Pay down your credit cards and don't apply for any new ones. Remember, most lenders often consider open credit cards with a zero balance as used credit, so cancel any cards you can live without.
- Finally, select a reputable real estate agent with experience in your area. This person will be able to help select the right home for your lifestyle and also assist you with the buying process.
How much house can you afford?
Any lender will want to make sure you are able to afford the home you buy. Typically, you are eligible to purchase a home worth two or three times your annual income, depending on your savings and debts. Your total monthly payment for housing expenses, which include mortgage principal, interest, taxes, and insurance (PITI), should not be more than 30-40% of your total monthly income. As interest rates rises and fall, the maximum sales price you can consider will also change. Keep up to date with the current interest rates by checking with our preferred lender, Cendant Mortgage.
The benefits of home ownership should also be considered as you approach making a decision about purchasing. As you make mortgage payments each month, your property is typically increasing in value and you're building equity in your home and increasing your net worth. A more immediate benefit is the tax benefit of deducting the interest paid on your mortgage each year when you file your personal tax return.
The Offer
Once you're pre-qualified for a mortgage and have found the right house, you'll want to make an offer to the seller and begin negotiating the terms of the sale. The contract will include many items such as your sale price, method of payment, date you will take possession, and any additional fixtures or furnishings that will be included in the sale. Your realtor can provide you with a sample purchase agreement so that you can become familiar with the terminology and have your questions answered early on in the process. Your submission of an offer will include a good faith deposit or earnest money. This deposit will be applied to the purchase of the home at the closing.
The seller will either accept, reject or make a counter offer to your offer. Usually the counter offer is in reference to the price, the closing date or some other item. After all parties have agreed on the points of the contract, you will want to schedule a home inspection to make sure your new home is in good working condition. You will also need to inform your lender of your purchase and provide them with a copy of the contract.
The Closing
Finally, the time has come to complete the purchase of your new home. Typically you will meet with an escrow officer from the title company whom is facilitating your closing to settle all paperwork and exchange moneys. The escrow officer will review all closing documents with you, including your loan or mortgage documents. This is an important meeting and you will be signing many different forms. Review all documents carefully. Your realtor may attend the closing or they will review many of the documents in advance and notify you of the costs and fees associated with your closing.
Once all items have been signed, moneys collected and the final documents recorded you will receive the keys to your new home. Congratulations! You are now a proud homeowner!
