Basic Facts About Buying and Financing Your Home
For many people, owning a home is one of the most gratifying and financially rewarding experiences of a lifetime. If you are considering buying your own home, educating yourself about the home buying process and planning ahead will save you time and money. This guide is intended to familiarize you with the home buying process, so that you can make the best possible decisions in choosing your new home and the financing for your mortgage.
Is This The Right Time to Buy?
Planning will help you determine whether the time is right for you to become a homeowner. There are several factors you will want to consider before beginning the search for your new home.
1) Renting versus buying
If you currently are renting, think about your future plans, as well as your finances, to determine whether homeownership makes sense for you right now. For example, if you are planning to stay in the area for only one or two more years, renting may be your best option. While it’s true that buying a home can be a great investment, appreciation is not guaranteed in the short-run.
2) The importance of credit history
When you apply for home financing, your credit history will be a major factor in determining not only your loan approval, but also the interest rate your lender can offer you. Your credit information is collected and reported by three private companies: Experian, Equifax and TransUnion. Before applying for a loan, obtain a copy of your credit report from any of the above companies. Reviewing your report also will give you an opportunity to correct any errors before applying for your loan. Additionally, if you have limited or no credit history, some lenders will be able to provide you with financing; however, you may have to pay a higher interest rate.
3) Understanding the costs associated with home ownership.
You probably have already estimated how much money you will need for a down payment and closing costs, depending on the purchase price of your new home. But there are additional costs, including property taxes, homeowners insurance and homeowners association fees, if applicable in your new neighborhood. You will need to set aside additional funds for closing costs, moving to your new home, and routine home maintenance and repairs. Preparing a preliminary budget that includes these items will help you decide whether this is the right time for you to take on this important financial commitment.
How Much House Can I Afford?
The answer to this question depends on the amount you can comfortably afford for your monthly housing expenses and the amount you invest in your down payment. Your real estate agent and lender can work through several scenarios with you to determine the maximum loan amount that works with your budget. Remember that there are sources of money for your down payment besides your savings, such as gifts and the sales of stocks and bond. Also, lower-income, first-time homebuyers may qualify for assistance from local community or county programs.
Finding a Real Estate Agent
Now that you are ready for homeownership, it is time to enlist the services of a real estate agent. Most home buyers rely on professional real estate agents to assist them with finding and purchasing the home of their choice.
Real estate agents have specific knowledge of the housing market in your area, and can be invaluable in helping you find the right neighborhood for your new home. They are also your advocate and representative throughout the home buying process. In other words, they represent only your interests and will negotiate the best possible terms on your behalf.
There are many ways to locate a real estate agent, but the best way is to ask your friends and family for referrals. Their personal experience will help you know what to expect in working with this agent. Another way to locate a reputable agent in your area is by contacting the South Asian Real Estate Association of America at www.sareaa.com
Professional services provided by your agent will include:
i) Providing information about community you want to live in to help you refine your home search
ii) Helping you identify available homes in your price range that best meet your needs
iii) Assisting you in writing the offer to purchase your home, including providing you with comparable recent sales
iv) Negotiating with the seller and their agent so that you receive the best possible terms in your purchase agreement
v) Answering your questions and discussing your options throughout the homebuying process
vi) Ensuring that you have a thorough understanding of the various forms and disclosures provided by the seller
vii) Representing your interests during the escrow period and ensuring that you understand the documents that you will sign at closing
Selecting a Lender
When it comes to applying for a mortgage loan, you have many choices in the lender you work with. Sources for your mortgage loan include mortgage companies, banks, credit unions and mortgage brokers. Mortgage professionals will offer you a variety of financing programs and help you select the option that works best with your overall budget and future needs.
If you do not already have a relationship with a lender, your real estate agent can recommend several professionals whom they have worked with. Of course, you also can ask your friends and family for referrals as well.
One of the first things your lender will do is pre-approve you for a mortgage. Obtaining pre-approval by a lender is important because you will know the amount that you can borrow, and the type of loan you qualify for. Some lenders may waive the a loan application fee and a credit report fee as you obtain a pre-approval letter.
