Are you ready to purchase a home? Buying a home is one of the largest financial investments you will make in your lifetime. Some even consider this fulfilling the American dream. The process does not have to be stressful. In fact, it is actually quite easy if you are well prepared.
To begin the loan application process you will need to document your sources of income, assets owned, identity and place of residence. Collect your information, then schedule an appointment with your lending officer. Your lending officer will use your information to complete a loan application and begin the loan pre-approval process.
10 Steps for Purchasing A Home
Step 1 – Collect your personal information
Gather the information listed above and meet with your lending officer.
Step 2 – Begin the pre-approval process
The lending officer will evaluate the information and determine the amount of money you are approved to borrow (loan amount), the type of loan, and terms of the loan. The evaluation will also include:
- Your debt-to-income ratio (DTI),
- Loan programs available to you
- Loan-to-value ratio (LTV)
- Terms of the loan
The lending officer will then issue you a "pre-approval letter" so you may begin searching for your house.
Step 3 – Contact a real estate agent
Contact a real estate agent or Realtor® (a real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors). Interview and choose an agent who will work for you, has your best interests in mind, and with whom you feel comfortable.
Step 4 – Go house hunting!
Once you are pre-approved, you may shop for houses within the range for which you are qualified to buy. Carry the "pre-approval letter" with you so that you and the real estate agent are prepared to make an offer.
Step 5 – Make an offer
Make an offer on the house you want to purchase. You may experience a period of time where you negotiate on the price with the seller. The real estate agent will act on your behalf. An offer includes a number of important details regarding the transaction including:
- The price you are willing to pay
- Earnest money deposit (indicates to the seller your level of interest)
- How you intend to finance the home
- Amount of your down payment
- Who is responsible for closing costs
- The type of inspections required
- The timetable of the sale
- The personal property to be included in the purchase (such as a spa, appliances, etc.)
- Required repairs
- Date you wish to receive physical possession of the property
- How to settle a dispute if it occurs
- Any terms if the offer is cancelled
After negotiations are complete, your agent will prepare a final sales contract.
Step 6 – Initiating the loan process
Take the sales contract to your lending officer. You will be required to sign disclosures, which will then initiate your actual loan process.
The lending officer by law is required to provide you a Good Faith Estimate. This document identifies the costs you will have to pay at closing. It is important to understand these costs so be sure to have the lender clearly explain them. Click here to see » a list of items commonly included in the closing costs of a Good Faith Estimate.
Step 7 – Title search and property appraisal
The lending officer and his/her team will verify the information and order a title search on the property. The title search documents the previous owners and current owner to ensure the title is clear and there are no outstanding liens against it. The lending officer will also order an appraisal to determine the property's actual market value.
Step 8 – Underwriting your loan
Once the lender verifies all the information, your file will go to an underwriter. The underwriter assesses your credit and ability to repay the loan, makes sure your loan file conforms to all the guidelines required for the loan product, and that all accompanying documents are valid. The underwriter makes the final decision on approval of your loan. The underwriter may require that certain conditions be met before final approval.
Step 9 – Final loan package
Once all the underwriter's conditions are received, the loan package is submitted to the underwriter for final approval. After final approval is received, the lender orders verifications of employment and assets. Once this is received, the closing is scheduled.
Step 10 – Closing
Closing is the last step in the purchase process. It is a meeting where the buyer and seller sign the final documents and they exchange any required funds. The closing typically takes place at the title company. You will need to bring certified funds to close and two forms of ID. After all documentation is signed you are a proud homeowner and your transaction is complete.
FAQs About Buying a Home
Q: How does the mortgage lender use my credit report?
A: The mortgage lender uses your middle score from your credit report to determine your interest rates and loan programs. This score is the middle number between the highest and lowest numbers on your report. The lender also uses your credit report to determine how much you are paying on monthly debt, how many credit trade-lines are open, if the trade-lines have been paid on time, previous aliases, and previous addresses where you lived.
TIP! Click here to learn » Common Sense About Credit Scores
Q: Do I have to have perfect credit to purchase a home?
A: No, you do not need to have perfect credit. Having credit with a good pay history and no late pays shows established credit. Most lenders will lend money as low as a score of 620. Not only will they look at your previous history, they will look at your ability to pay in the future.
Q: Will shopping for a mortgage impact my credit score?
A: Shopping with multiple lenders will not impact your credit score unless you have every lender pull your credit report.
TIP: If you call lenders and provide them with your middle credit score and loan details they can provide you with rate quotes.
Q: Lenders often refer to "points". What is this?
A: You may pay a discount "point" to buy down your interest rate or to pay for pricing hits on your loan. A "point" is one percent of your loan amount. When paying a discount point, you are paying your lender upfront for interest.
Q: Do I need to be approved before I look for houses?
A: Yes. Most real estate agents will want to know you are pre-approved for a loan (qualified) before they invest their own time to show you houses for sale.
Q: Is a low interest rate the most important consideration of the loan?
A: Interest rates are important, however always understand the terms of your loan and associated fees. Ask where all the fees are going and to whom they are paid.
Q: What are closing costs?
A: Closing costs are the actual costs to complete your loan. These fees pay the parties who process your loan and provide necessary services to obtain the loan.
Typical Closing Costs
- Application Fee (lender controls)
- Loan Origination Fee (lender controls)
- Discount Points (lender controls)
- Appraisal Fee (market price)
- Title Search Fee (market price)
- Title Insurance Fee (market price)
- Underwriting Fee (lender controls)
- Wiring fees (lender controls)
- Processing Fee (lender controls)
- Inspection Fee (market price)
If you have questions about any of the terms involved with real estate or purchasing a home,
please see » Real Estate Definitions
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