Buying a home might be the most significant financial decision you ever make. By understanding these eight key steps in the process, you can move forward with confidence, clarity and long-term success:
1. Understand what you can afford. Understanding your finances may not be as fun as house hunting, but it’s necessary. Most lenders suggest spending no more than 30% of your monthly income (before taxes are taken out) on mortgage payments, including principal, interest, taxes and insurance. Your credit, current interest rates and closing costs also impact what you can afford. Freddie Mac’s Homebuying Budget Calculator is a useful resource during this step in the process.
2. Explore down payment options. Certain mortgage products allow you to put down as little as 3%. However, if you make a down payment of less than 20%, you may have to pay for private mortgage insurance until you reach 20% equity in your home. Knowing the possibilities for funding your down payment, beyond personal savings, is also helpful.
3. Find your team. Having the right people by your side makes homebuying more enjoyable and less stressful. This team may include a housing counselor, real estate agent and lender.
4. Find the right home. To find the right home, assess the property based on factors like its proximity to certain school districts, public transportation and your job. Then consider what type of home you want to live in. Include your must-haves and deal-breakers and reflect on how your needs may evolve.
5. Apply for a loan. Shop around and check out Freddie Mac’s Loan Comparison Calculator to determine which loan is best for your housing goals. Then, work with your lender to apply for and complete the application process. The process takes roughly 45 days and will include providing proof of employment, banking statements and other documentation.
6. Make your offer. Through this phase, you’ll work closely with your real estate agent who will help determine a fair offer price while making sure you stay within range of what you can afford.
7. Get an inspection and appraisal. Once your offer is final, your lender will order an appraisal. This is a necessary step in securing financing and protects you and the bank by ensuring the home’s value matches the agreed upon sale price. For peace of mind, you may also wish to pay for a home inspection.
8. Close on your home. Closing, also called settlement, is a meeting where you sign final documents, pay closing costs, and ownership is officially transferred to you. To prepare, secure your closing funds. Freddie Mac’s Closing Costs Calculator can help you estimate how much you’ll pay at settlement.
Preparation is key to successful homeownership. Know the phases of the homebuying process, so you can begin your housing search educated and informed.
Source: StatePoint
