Understand the Financing Process

Data Management In Financial Services

As you begin your search, here is a word of advice – Read, Read, Read and Read some more! Look at all the informational real estate websites and books you can find. Also, network with friends and family who have been through purchasing a home before and become familiar with what lies ahead.

Below are 5 major steps for you to follow that will assist you in the home buying process. If you keep all these steps in mind when you decide to start the search for a home, many times you will be a step ahead of the game.

Step One – Doing Your Homework; Home versus Rent -One of the first steps any prospective first-time homebuyer should consider is whether owning a home is the right financial step for them to make. An initial understanding of your personal Debt to Income ratio (your bills versus the amount of income you earn) will help you decide whether owning a home is a viable choice for you at this point in your life. Those involved in the home purchase decision should agree upon what you can afford comfortably. Possible scenarios to consider are: ‘What happens if I (or my spouse) lose my job?’ and ‘Can we still afford the mortgage payments?’ You should map out all projected monthly bills that you would incur if you were to rent versus purchasing a home. There are many books and articles available to you to help in making this decision. Making the RIGHT decision for you and your family as to whether buying a home is right for you is the most important aspect of the process.

Step Two – Understand the Financing Process; Pre-Qualification versus Pre-Approval – An important step in helping you to decide how expensive of a house to purchase, or even whether to purchase at all, is the pre-approval process. Buying a home can be a stressful time and any steps you can take to lower stress in this process are worthwhile. The pre-approval process for a mortgage may help you with many of the decisions you may encounter.

The terms pre-approval and pre-qualification many times are used interchangeably but actually are quite different. Generally, a pre-qualification is a quick review of your income and gives you and the lender (bank/credit union) a general idea of what price range for homes you may want to consider. A pre-approval is a more detailed review of your income, job history, credit history and may really help you feel empowered when searching for a home. A pre-approval also gives you more leverage when making an offer since the seller knows they are dealing with a financially qualified buyer. Nothing can be more upsetting to a first-time home buyer than to make an offer on their dream house and then not qualify for the financing.

Loan type – A wide selection of mortgage loans exists to help you select the right type of financing. An initial decision you may want to make is whether a fixed rate mortgage (the same rate over the course of your loan) or an adjustable rate mortgage (your rate may move up or down over the course of your loan) may be appropriate. Another thing to consider is the different terms (number of years) of the loans and the many types of specific loan programs, such as those offered by HUD and many local governments that provide special home buying programs to help low-income level, mid-income level or first-time homebuyers. Research and look at all the options available to you before deciding. Many times mortgage lenders have special offerings for first time home buyers such as low percentage down payments and low introductory interest rates. Again, look at your real monthly expenses and decide what loan type and payment are affordable to you. The mortgage process may take a few weeks before final approval comes back so be patient. It could also be very fast paced and only take a few days. Your goal is to receive your loan commitment affirming you are financially approved and are on your way to purchasing a house.

Step Three Find a Neighborhood that Meets your Requirements – An important step is to understand your goals in buying your first home and match those goals to the right neighborhood. Some potential questions to ask are: ‘How long will I live here?’, ‘Do I have children or am I planning to have them in the near future?’, ‘How are the schools in the town/city I am considering?’, ‘Is this neighborhood near the social/religious/recreational activities that I enjoy?’ Finding the perfect house in a neighborhood that you won’t enjoy may make for a bad decision.

Step Four – Choose an Agent that is Knowledgeable; Real estate agents – When you start to look for a home one of the first steps is to find the right real estate agent with whom to work. Ask your family and friends who have recently bought houses who they used for an agent and if they were happy with their choice. Today there are a couple of choices you may make in selecting an agent to work with – a buyer agent and the traditional seller real estate agent. When purchasing a house you may want a buyer agent to help find a house for you. The buyer agent’s job is to assist you in selecting the right home for you. A seller’s agent represents the seller and represents the seller’s property and interests. The advantage of the buyer agent is that the agent can find a house for you and set up a showing for you. Agents may save you time tracking down your dream house and arranging several home showings when they are convenient for you. Many times a buyer’s agent will provide valuable assistance by helping you ask questions that you may not have thought of and by helping you avoid potential mistakes in the buying process. A buyer broker is paid by arrangement with the selling broker and splits the agreed upon commission in purchase and sale of the home. Both buyer brokers normally charge a percentage of the sales price to be paid by the buyer and/or seller at the closing.

If you are very comfortable with the idea of looking for a home on your own, you may benefit from looking in the neighborhood you like and dealing directly with the real estate agent representing the seller. You sometimes can save by not paying a buyer’s agent fee if you go directly through the seller’s agent. Whichever choice you make it is important to feel comfortable with the agent(s) who you are working with in finding a home.

Step Five – Understand the Closing Process; The first suggestion is to find a good attorney or lawyer – Ask friends and family if they have used a good attorney or lawyer in the past to help close on a house. If you have a good attorney or lawyer, he or she can save you money that you may have willingly paid to the real estate and/or mortgage broker by helping point out to you potential advantages written in the purchase and sale agreement for the seller of the home. After you have chosen an attorney or lawyer, ask a lot of questions; don’t stop until you are out of them. Attorneys and lawyers can advise you on the purchase and sale contract and make sure the final agreement is to your liking. You don’t have to use an attorney or lawyer at the closing, but many times it is suggested since the lender’s attorney or lawyer, who is normally present at the closing, will represent the interests of your lender, not you.

What to expect at closing – Closings may take place in one of many places. Closings may often occur at a registry of deeds in the county in which you are purchasing a property. A closing is an event in which promises made in the sales contract are fulfilled and the mortgage loan funds are disbursed from the lender. Title to the property is transferred when the promises in the sales contract are fulfilled and the mortgage deed is delivered and accepted by the seller. This is the way you legally become the owner and the occupant of the home you are purchasing. A face-to-face closing is highly suggested and may make a closing a lot easier. At closing the seller will likely be there and/or an attorney representing the seller. An mortgage attorney representing the lender is normally present. It is also best if you attend the closing and you may have an attorney present if you choose. One final thing to remember – closing costs can add up to a significant sum so keep a running tab when you arrange your mortgage and speak with your attorney about all the options you have in closing on your home. Costs such as points, prepaid interest, prepaid property taxes, and possibly homeowners insurance can add up quickly.