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Learning How to Buy a House
Buying a house is not easy. If you want to know how to buy a house the right way, you've come to the right place!
You might tend to get emotional when thinking about buying your first house. Next thing you know, you're hunting "homes for sale" on the internet and scheduling drive-by viewings on your calendar. You may also be researching creative financing options that would allow you to buy a house with the lowest down payment possible.
Most people make the mistake of buying a house they can't really afford—affecting their ability to build wealth in the long run. Knowing the steps needed in a home-buying process will help you make smarter decisions about your home purchase.
Here are key resources for you to buy your house the smart way:
Buying a house can be a tedious process. It's not worth jumping into home buying if you're not ready. Making the right decisions during the house-buying process is important. Your house can either become a blessing to your family or a financial burden.
If you want a stress-free home-buying experience, trust our professionals at Ebenezer Mortgage Solutions.
LET US HANDLE ALL THE HARD AND TIME-CONSUMING WORK
BY PROVIDING YOU WITH THE BEST MORTGAGE OPTIONS FOR YOUR NEW HOME
If you decide to be more involved in the process of home-buying by taking matters into your own hands, we have prepared a guide to help you.
Follow our step-by-step guide if you are buying a house. And if you need guidance or have some questions along the process, feel free to contact us anytime.
1
Decide Whether You are Ready To Buy A Home
Buying a house is a major commitment. Before you begin shopping for properties or comparing mortgage options, you need to make sure you're ready to be a homeowner. Let's take a look at some of the factors your lender will consider when they look at your loan application.
Income and employment status
How much money you're currently making is not the only qualification your lender needs. They also want to see records of your income to make sure that you have a stable and reliable source.
Preparing your income is all about pulling the right documentation together to show steady employment. If you're on a payroll, you'll likely just need to provide recent pay stubs and W-2s. On the other hand, you'll need to submit your tax returns as well as any other documents the lender requests if you're self-employed.
Debt-To-Income Ratio
Debt-to-income ratio is another financial instrument that lenders use to evaluate your loan application. DTI helps your lender see how much of your monthly income is already going to debt so they can evaluate the amount of mortgage debt you can take on.
DTI is calculated by dividing your monthly debt by your gross monthly income. For example, if your monthly debts (credit card minimum payments, loan payments, etc.) total $2,000 per month and your gross monthly income is $6,000, your DTI is $2,000/$6,000, or 33%. Your lender will use the debts shown on your credit report to calculate your DTI.
It's smart to review your DTI before you apply for a loan. In most cases, you'll need a DTI of 50% or less to qualify for a mortgage, although this number varies based on your lender, loan type, and other factors.
Liquid assets
Buying a home with no down payment is possible. But still, most homeowners need to prepare some cash for a down payment. A down payment is the first major payment you make on your loan. The amount of money you'll need to save depends on your loan type and how much money you borrow.
Many home buyers believe that they need a 20% down payment to buy a home. This isn't true – you can buy a home with as little as 3% down. However, if you put at least 20% down on a conventional loan, you won't need to pay for private mortgage insurance. PMI protects your lender if you default on your loan. You can cancel PMI when you reach 20% equity in your home or you can avoid it altogether with a 20% down payment. A larger down payment also means a lower monthly payment, so you might want to take some time to save before you buy a home.
You'll also need to pay for closing costs before you move into your new home. Closing costs are fees that go to your lender in exchange for creating your loan. The specific amount you'll pay in closing costs will depend on where you live and your loan type. It's a good idea to save 3% – 6% of your home's value for closing costs.
Credit health
Your credit score plays a huge role in what loans and interest rates you qualify for. Your credit score tells lenders how risky you are to lend money to. Taking steps to improve your credit score and reduce your debt can pay off big as you prepare to get a mortgage. Better numbers mean better loan options with lower interest rates.
Your credit score comes from the following information:
- Payment history - Amount of money you owe - The length of your credit history - Types of credit you've used - Your pursuit of new credit
So what score will you need to qualify for a home loan?
Most lenders require a credit score of at least 580. However, a score of 620 will allow you to qualify for more options. A score above 720 will generally get you the very best loan terms.
Willingness to live in one place
A mortgage can be a 30-year-long commitment. Though you don't need to live in your home for the entirety of your mortgage term, it's still a big decision. When you own a home, it's more difficult to move. In many cases, you'll need to sell your home first, which can take a long time.
Decide whether you're ready to live in your current area for at least a few more years. Consider your career goals, family obligations, and more. Each of these factors will play major roles in the type of home you buy and where you buy it.
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Once you've decided that you're ready to buy a home, it's time to set a budget. A good place to begin is by calculating your DTI ratio. Take a look at your current debts and income and consider how much money you can reasonably afford to spend each month on a mortgage.
Remember that homeownership comes with several hidden costs you didn't need to worry about when renting. For example, you'll need to pay property taxes and maintain some form of homeowner's insurance. Make sure you factor these expenses into your household budget when determining how much home you can afford.
Having trouble coming up with numbers? spending too much time on it?
Use our mortgage calculator to get a rough idea of how much money you can get for a mortgage.
In most cases, you won't be able to get a loan for 100% of the purchase price of the home. That's why you make a down payment. A down payment is a large cash payment you make when buying your home.
A larger down payment typically means you have more mortgage options. It will mean you'll get a smaller monthly payment and a lower interest rate. If you're getting a conventional loan, putting 20% of the loan value down means you can avoid paying PMI.
A 20% down payment isn't realistic for many first-time homebuyers, so there are many options for buyers who can't pay those upfront costs. You can get a conventional loan for as little as 3% down. FHA mortgages have a minimum downpayment of 3.5%. VA loans and USDA loans even allow eligible and qualified borrowers to put 0% down.
Closing costs
You'll also need to save money to cover closing costs – the fees you pay to get the loan. Many variables go into determining how much you'll pay for closing costs, but it's usually smart to save 3% – 6% of the home value. This means that if you're buying a home worth $200,000, you might pay $6,000 – $10,000 in closing costs.
The specific closing costs you'll need to pay for will depend on your loan type, your lender, and where you live. Almost all homeowners will pay for things like appraisal fees and title insurance. If you take out a government-backed loan, you'll typically need to pay an insurance premium or funding fee upfront.
Your loan type might require a specialized inspection as well. For example, you must get a pest inspection before you take out a VA loan. Most lenders will schedule this inspection on your behalf and pass the cost along to you at closing.
Before you close on your loan, your lender will give you a document called a Closing Disclosure. This document lists each of the closing costs you need to cover, and how much money you will need to bring to the closing stage. Look over your Closing Disclosure carefully before you close to make sure there are no duplicate fees.
There are many ways to save for your home purchase, including through investments and savings accounts. If you have relatives who are willing to contribute money, you may be able to use gift money toward your down payment, but a letter confirming it's a gift and not a loan will be required.
DO YOU WANT TO BUY A HOUSE WITHOUT HAVING TO DO MUCH FOR IT?
You might have realized by now how complicated getting a mortgage can be. Knowing all these pieces of information is just the beginning!
WE ARE MORE THAN WILLING TO HELP YOU BECOME A HOMEOWNER
JUST GIVE US THE TASK, AND WE'LL LOOK FOR THE BEST MORTGAGE DEALS IN TOWN FOR YOU!
Ready for house-hunting? Then it's time to get pre-approved for a mortgage. When you apply for a loan, your lender will give you a pre-approval letter that states how much you're approved for based on your credit, assets, and income. You can show your pre-approval letter to your real estate agent so they can help you find homes within your budget.
To get pre-approved, you need to contact your lender. The preapproval process typically involves answering some questions about your income, your assets, and the home you want to buy. It will also involve a credit check.
There are multiple types of mortgage loans. Knowing all of your options can help you make the right decision. Here are some of the most common types of mortgage loans, and by the way, these are the ones we support.
CHECK OUT OUR home LOAN OPTIONs
WE WORK WITH THE MOST POPULAR MORTGAGE PACKAGES
Selecting the right mortgage loan is very important. As mortgage brokers we make sure you get the best deal available for your home loan.
Conventional Loan
No PMI required with a 20% down payment.
Can be used for a wide range of property types.
Higher loan limits than some government-backed programs.
Flexible loan terms with adjustable-rate and fixed-rate options.
Your real estate agent is your representative in the transaction. Your agent will look out for your best interests by finding homes that meet your criteria, get your showings, help you write offers, and negotiate.
As a buyer, you can usually work with a real estate agent for free. In most cases, the seller will pay the buyer's real estate agent's commission. The commission is usually 3% of the purchase price.
A real estate agent represents you and helps you understand how to buy a house. Your agent will show you properties, write an offer letter on your behalf, and assist in negotiations. Real estate agents are local market experts and can also advise you on how much to offer for each property.
6
start looking for houses
Your real estate agent will help you begin looking at properties within your budget. It's a good idea to make a list of your top priorities. Some of the things you might want to consider include:
Price
Square footage
Home condition and the possible need for repairs
Access to public transportation
Number of bedrooms
Backyard/swimming pool
Local entertainment options
Local school district ranking
Property value trends
Rank your priorities from most important to least important and show this list to your agent. Your agent will then show you homes that fit your criteria. You may need to spend some time searching for the perfect home, so don't get discouraged if your hunt takes longer than you expected.
Only you can decide which property is right for you. Make sure you see plenty of homes before you decide which one you want to make an offer on. You should also be sure to get an inspection before you decide to buy a home.
Go through each line of your inspection report and look for major problems. If a home has a serious health hazard (like lead paint or mold), ask the seller to correct the problem before you close. If you can't reach an agreement, you may want to move on and consider other options. Read over your inspection results with your agent and ask whether they noticed any major red flags.
7
begin negotiating the House price
When you decide to make an offer on a home, you must submit an offer letter in writing. Your offer letter includes details about yourself (like your name and current address), the price you're willing to pay for the home, and more. It will also include a deadline for the seller to respond to your offer.
Most offers also include an earnest money deposit. An earnest money deposit is a small amount of money, typically 1% – 2% of the purchase price. Your earnest money deposit goes toward your down payment and closing costs if you buy the home. If you agree to the home sale and later cancel, you typically lose your deposit.
From here, the seller can respond in one of three ways:
Accept the offer. If the seller accepts the offer, you can move onto the next step.
Reject the offer. If the seller rejects your offer, the ball is back in your court. You can choose to submit another offer or move onto another home.
Give you a counteroffer. The seller can also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it, or make another counteroffer.
Negotiations may go on for some time after you submit your offer. Let your real estate agent help you manage negotiations – don't be afraid to walk away if you can't reach an agreement. Once you and the seller agree to an offer, it's time to move on to the appraisal and inspection.
8
Get A Home Inspection And Appraisal
An appraisal is a review of your home that gives you a rough estimate of how much the property you want to buy is worth. You must get an appraisal before you buy a home with a mortgage loan. Lenders require appraisals because they can't lend out more money than your home is worth. If your appraised value comes back lower than your offer, you might have trouble getting financing. Be thoughtful about your offer and consider contesting the results of the appraisal if you believe the appraised value is too low.
An inspection isn't the same thing as an appraisal. During an appraisal, a home value expert will give you a rough estimate of how much your home is worth. An inspector will go through your home and specifically look for problems. He or she will test electrical systems, make sure your roofing is safe, make sure appliances are working and much more. After the inspection closes, the inspector will give you a list of problems he or she found in the home.
Lenders usually don't require inspections to get a loan. However, you should always get both an inspection and an appraisal before you buy a property. When you receive your inspection results, go over each item line by line, and look for major issues. You may want to ask your real estate agent or inspector to go over them with you as well.
Keep in mind that you'll be liable for any major repairs after your sale closes. A clogged toilet or a sink that won't drain aren't major issues. However, if your home has an expensive problem (like cracks in the home's foundation or an electrical system that's on the fritz) you may want to reconsider the sale.
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Our mortgage process is the order we follow in handling your home loans. This includes all the research, paperwork, and negotiations needed so that you can receive your house keys faster.
After you view your inspection results, you might want to ask your seller to correct some of the problems you found. There are three possible ways to solve the problems:
Ask for a discounted purchase price in light of the results.
Request that the seller gives you credits to cover some of your closing costs.
Ask that the seller have the problems fixed before you close.
Your real estate agent will submit your requests to the seller's agent. If you're buying a house that's for sale by the owner, your agent will negotiate with the seller directly. The seller might accept your request, or they might reject it. If your seller rejects your request, it's up to you to decide how to proceed. If you have an inspection contingency in your offer letter, you can walk away from the sale and keep your earnest money deposit.
10
Do A Final Walkthrough
You should do one last walk-through alone in your new home before you close, even if you're 100% committed to the property. This time allows you to check and make sure that the seller has made the repairs you requested and cleared out the property.
Walk through the home and make sure the seller hasn't left any belongings. Check your repair areas if you requested them and keep an eye out for pests. You may also want to double-check your home's systems one final time to make sure everything is in working order. If everything looks good, it's time for you to confidently move toward closing.
11
Close the deal On Your New Home
Your lender is required to give you a document called a Closing Disclosure three days before closing. A Closing Disclosure tells you exactly what you need to pay at closing and summarizes your loan details. Read through your Closing Disclosure and make sure the numbers don't vary too much from your loan estimate, which you would have received three days after your initial application.
ARE YOU LOOKING FORWARD TO BUYING A NEW HOME?
As you can see, buying a house can be a long, tough process that will determine where and how you live with your family for the next few years.
IF YOU WANT A FASTER AND MORE RELIABLE WAY TO GET THE BEST MORTGAGE DEAL FOR YOUR HOME
GET IN TOUCH WITH OUR PROFESSIONAL MORTGAGE BROKERS NOW!
Disclaimer: All data contained herein is for informational purposes only. While we make sure that all the information we provide is accurate, no guarantee is stated or implied. Any programs presented do not demonstrate all options or pricing structures. Rates, terms, programs, and underwriting policies may be modified without prior notice. Other restrictions may apply. This is not a proposal to extend credit or commitment to lend. Complaints may be directed to us by filling out the Complaints Form.
