1. Check Your Credit Score
Before applying for a mortgage or any kind of loan you should always check your credit. You can get one free copy of your credit score per year by visiting annualcreditreport.com. Don’t forget to check your report for errors and if there are any dispute them – it can help your score.
Start online by using a mortgage calculate to help you figure out an affordable monthly mortgage payment. Don’t forget to factor in your down payment, closing costs, fees and the cost of remodeling or furniture. You don’t always have to put down 10 percent – there are loans available with little to no down payment. An expert will help you understand all your loan options.
3. Find the right real estate agent and lender
The best way to start both of these is research. Get recommendations from your friends and family. Talk to at least three or four mortgage lenders and ask a lot of questions. You should choose someone that you are comfortable with because this isn’t a short process.
Once you have the right lender, make sure you get a pre-approval. Pre-qualifications are only a guess based o what you tell the lender, a pre-approval will give you a better sense of how big of a loan you qualify for. It will speed up the profess when you’re ready to make an offer and your offer will look more appealing since your financing is guaranteed.
Make a list of all the specific features you want in your home. How many bedrooms and bathrooms? What kind of kitchen? How much storage? Big yard or small yard?
Once you’ve made a list of features, think about the kind of neighborhoods you want. Take into consideration the schools, the length of your commute and the convenience of local shopping.
5. Make an offer
Once you’ve found your dream home it’s time to get serious. A decent place to start is about five percent below the asking price. You should get a CMA from your agent to see how much comparable homes have sold for. The seller will probably make a counter-offer, which you can then counter back. But don’t haggle too much – at some point, you’ll have to meet in the middle.
Once the price is agreed on, you’ll make a deposit, which goes into escrow as a sign of good faith to the seller.
6. Choose a mortgage
There are many different mortgage programs but as a first-time buyer you should be aware of the basics:
- Adjustable rate mortgages (ARMs) are short-term mortgages that offer a fixed interest rate for a short amount of time (usually 1-7 years). After that, the interest rate will adjust every year depending on the market. This is a good mortgage if you don’t plan on living in your home very long or if you’re looking for a lower interest rate or payment.
- Fixed-rate mortgages are more traditional and offer a fixed interest rate and fixed monthly payment for a longer period of time (15-30 years). This is a good option if you want to have routine payments and are planning on staying in your home for a long time.
- Both fixed and adjustable rate mortgage can have interest-only payments. That means that for a certain amount of time during the loan term you’re allowed to pay only enough to cover the interest portion of your payment. You can still pay principal when you want but you don’t have to if your budget is tight. A common misconception is that you don’t build equity with an interest only mortgage. But this isn’t necessarily true, you can build equity through home appreciation. The benefit to this option is that you increase your cash flow by not paying principal.
Make sure you as your lender or banker what they think is right for you.
7. Close on your home
Make sure you get a home inspection before you close – it is so worth it. You don’t want to move in and find out the whole place is about to collapse and an inspection will help you avoid that.
Setting the closing date can be tricky but try to make it convenient for both parties. You might have to wait until your rental agreement runs out and the seller might have to wait to close on their new place.
Talk to your mortgage banker to understand all the costs involved so there are no surprises. Closing costs will include your down payment, title fees appraisal fees, attorney fees, inspection fees, and points you may have bought to buy down your interest rate.
8. Move in
Congratulations! You’re finished with the process and now you get to enjoy your new home.
Remember, choosing an experienced home loan lender and a knowledgeable real estate agent are the key to helping you have a smooth home buying experience!