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Buying your first home is likely the most major financial decision you’ve made. It can seem like a confusing, multi-leveled process to navigate. But with a little research and education, it can become an exciting step toward achieving a major life goal.
In this guide, we’ll tell you everything you need to know about how to buy your first home, from deciding your budget, to finding a home, buying it, and the steps involved in getting a mortgage.
How Much Home Can You Afford?
Before you start searching for houses, you’ll need to determine how much home you can afford.
Keep track of how much money you’re earning each month, and how much you’re spending on expenses. The remainder you have will give you a good idea of how much you can afford for a monthly mortgage payment.
Finding Houses Within Your Budget
Consider getting pre-qualified* by a housing lender. This will provide you with an estimate of how much the lender may give you for a mortgage. It’s not exact, but it will give you a realistic price range to aim for.
*A pre-qualification is not an approval of credit and does not signify that underwriting requirements have been met.
Be sure to look for homes that are comfortably under this estimate. You’ll also need to factor in other costs besides the house’s price.
Consider your down payment, closing costs, and ongoing monthly mortgage payments, as well as other expenses of owning a home, such as property taxes, homeowners insurance, and maintenance.
If you’re ready to buy and know an estimate of what you can afford, skip the pre-qualification step and get pre-approved.
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5 Steps to Buy Your First Home
1. Start the Pre-Approval* Process
For many, the first step in the mortgage process is getting a pre-approval letter. A pre-approval letter is more substantial than a pre-qualification.
The lender’s pre-approval letter provides an exact amount for your potential loan and is valid for 30-90 days. Why is it valid for this limited time? Because a lot can change financially in a short period of time, such as losing a job or gaining more debt or income.
To start the formal pre-approval process you will need to provide the lender with information regarding your monthly income, proof of assets, personal identification, employment verification, and credit score. The lender will use this information to evaluate how much money they can safely loan you.
Having a pre-approval letter is advantageous for the buyer, because sellers will take your offer more seriously as it shows proof that you have financing to buy their home.
*Pre-approval is based on a preliminary review of credit information provided to Homefinity, which has not been reviewed by Underwriting. Final loan approval is subject to a full Underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
2. Search For Your Dream House
After getting pre-approved you’re ready to search for your first house.
To save time in the process, consider working with a licensed realtor who can guide you in the right direction.
3. Make an Offer
You think you may have found the one and want to make an offer with the seller. If your offer is accepted, structure a deal with the seller that outlines conditions and contingencies, stating you’ll buy the house if the inspection doesn’t show any major concerns and the appraisal is favorable.
4. Order a Home Inspection
After you’ve made your offer, you’ll want to have the house inspected.
Depending on what the inspector finds, it could affect whether you go through with buying the house. If there are particular issues found, such as with the electrical roofing, or plumbing, use them as a negotiation tool to lower the home’s price.
5. Get a Home Appraisal
An outside company hired by the lender will provide a fair, unbiased appraisal on your home to determine its value. To ensure you and the lender aren’t overpaying on the loan amount, this is required for completing the mortgage process.
How Much Time Will it Take to Buy Your First Home?
Depending on how prepared you are, the timeline ranges. If you’re saving for a home or improving your credit score, it can be a longer process than if you’re ready to make your down payment tomorrow.
If you’re shopping for houses, you’ll want to be ready to make an offer when the right one comes along. This is why you should get pre-approved before seriously considering buying a house. It will make the process more efficient.
After you’ve finished the home inspection and appraisal, it may take about 30-45 days for the lender to finish the mortgage process. In this timeframe, the lender will submit the mortgage for processing, send additional information to underwriters, and submit the loan for approval. Once that’s finished, you’ll be ready to close on the deal.
Consider Your Loan Options
There are three major loan types for you to consider when purchasing your home. Your financial situation is the key factor in deciding which loan type is best suited for you.
Each loan has its own requirements and benefits. Consult a loan officer to decide which type of loan is best suited for your needs. Below are the most common types of loans:
- Most common loan for homebuyers
- Down payment as low as 3%
- No out-of-pocket closing cost option
- Choose fixed or adjustable rate
- Options for 15- or 30-year terms
Federal Housing Administration (FHA) Loan:
- Great for first-time home buyers
- Down payment as low as 3.5%
- No-closing-cost option
- Gift down payments allowed
- Option for no down payment
- Option for no closing costs
- No monthly mortgage insurance payment
A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Homefinity is not affiliated with any government agencies. These materials are not from the VA, HUD or FHA, and were not approved by a government agency.
Are You Ready to Buy Your First Home?
Now that you’ve familiarized yourself with how the mortgage process works, you’ll be more confident in taking the steps to buy your first home.Homefinity can help you move forward with certainty as our loan officers can discuss which financing option best suits your needs. Call us to get started with buying your first home.