Have you ever noticed that your big life decisions leave you to figure it out for yourself, while the little stuff--toasters and power tools, for example--come with pages and pages of instruction? If you're thinking it's time to buy your first home, but you feel like you need a "Homebuyer's Guide for Dummies" to figure out how, you're not alone. There are so many facets to home buying that it's easy to get overwhelmed, but once you break down the process into the basic components it's a lot easier to digest--like any journey, you take it one step at the time.
These are the steps to home ownership, although in reality they are more of a Venn diagram, with several interlocking circles, than a straight chronological line. The good news is that once you start the process, you'll find that all the circles work together towards the goal--getting you in your new home.
- Maintaining Your Credit
- Saving For a Down Payment
- Qualifying For a Mortgage
- Finding a Realtor
- Signing a Contract
- Moving In
Maintaining Your Credit
Ensuring you have a strong credit score is THE most important thing to know about buying a house. Check your score with the three main bureaus--TransUnion, Equifax, and Experian--and correct any errors in the report. Lenders expect a blemish-free credit history; if you have any late payments or collections you will need to wait a few months or even a year after you get those accounts current and the collections paid before you can get approved for a mortgage.
Saving The Down Payment
The amount of money you'll need to put down on a house depends on the type of financing you're getting, which often is determined by your credit score. Plan on putting 10% down on the home, although it could easily be more or less. If you've got some credit issue to clear up, take advantage of that time by socking money away for your down payment.
Qualifying For a Mortgage
Here's the reality--your mortgage loan officer is the point person when you're buying a home--not your realtor. You should interview and then choose a loan officer when you first start thinking about buying; they can guide you through the process, from fixing your credit to determining how much house you can afford to getting you the right financing. A preapproval is useful when you start seeing houses in person, it lets your realtor know that you have the credit and income you'll need to get a mortgage.
Finding a Realtor
Here's another reality--lots of people pick out their houses from online real estate sites, and don't look at other options. Even if that's how you plan to buy a house, you still need a Realtor to be your advocate with the actual purchase. Ask your loan officer or friends for referrals, and choose the one that you're most comfortable with. You don't pay the commissions, the seller does.
Signing A Contract
This is when it all gets real. You find a home (or co-op, or townhome) that you love and your agent writes up your offer--how much you're offering, when you want to close, what your financing is, and standard contingencies--inspections, and an appraisal--for the initial Offer to Purchase. They'll present that to the seller, and will negotiate on your behalf to come to terms that are agreeable to you both. At that point you have an Acceptable Offer, and are legally bound to complete the transaction. The seller's attorney drafts a Memorandum of Agreement for all parties, that details the terms of the contract.
Contract to Close
This is time period between agreeing to terms and actually closing on the house, usually 60 days. This gives you time for inspections--you want to ensure the house is in good working order, with a solid roof, functioning AC and furnace, reliable plumbing, a solid foundation, and in general is a good buy. Your lender orders an appraisal in this window, to ensure the house or townhome is actually worth what you're paying for it. If the house does not appraise for the purchase price, or there are significant repairs, you have time to negotiate with the seller to reduce the price, or complete the repairs.
Once all the repairs are done and final terms are agreed upon, you may be required to send your down payment to the closing attorney. This is usually done by wire. The attorney takes over the finals steps of the process--ensuring a clear title to the property, obtaining title insurance, order a survey to confirm your property boundaries, and conduct a tax and violations search to confirm taxes are paid and there are no judgements against the seller that would impede the sale.
DO NOT go out and apply for new credit while your loan is processing--your lender will run a new credit report right before the loan is finally approved, and a lower score could kill your purchase. The new furniture can wait until you've closed.
They'll also re-verify your employment, so this would be a really bad time to quit your job.
You will get a Closing Document three days before you close that outlines all your expenses, and lets you know how much you'll need to "bring to closing". You really don't bring your checkbook or even a certified check any more; you'll get wiring instructions for your bank to wire the money into the attorney's trust account, and they will disburse the funds on your behalf.
This day is more exciting than the day you signed your contract--now you get the keys to your new house and move in. If you're moving in right away, slow down a little--the seller may not want to turn over the keys (via the attorney) until the deed is recorded at the county courthouse. Some attorneys record electronically, but some have paralegals physically deliver them. It's best to hold off on the truck for a day or two, if you can.
Before you move in, you'll need to get the utilities transferred to your name. If you've never had any power, water, or gas bill in your name they may require a security deposit to transfer service. Internet providers (the cable guy) are notorious for either giving you a four hour window when they'll be there, or not showing up until nine o'clock at night--if internet is crucial then don't move in until you've got that set up. You can change your address with the Post Office online, and most counties give you a couple of weeks to get a new drivers license and register your cars. There's a lot of housekeeping involved with your move, and most of it needs to happen before you actually stock the fridge and get settled.
If you've been paying attention, you've noticed that the one person who's involved through out the home buying process is your loan officer. Choosing the right one makes all the difference in an experience that you enjoyed and are happy with the end results, and one where you have immediate buyer's remorse. Since you're going to be in your home a long, long, time, the relationship you have with your lender is one that should withstand the test of that time, and you go back to them when you're ready to buy your next home.