Let's look at what you can expect during the homebuying process. It can be chaotic with counteroffers and offers flying at you, but if your mind is open to the hassle (and the paperwork), you will be able to get through it with your head held high. This is how you can expect the process to unfold:
Find a home
You should take advantage of every option for finding homes for sale, such as using your agent, searching online for listings, and driving around the areas that you are interested in looking for for-sale signs. Make contact with family and friends. It's possible to find a great reference or lead for a home.
If you are serious about buying a house, you should have an agent. Or at the very least, be prepared to give out the name and contact information of someone you are supposedly working with. It's possible to see why it might not be in your best interests to first deal with a seller agent before you contact one of your own.
Look for homes that have yet to realize their full potential if you are on a tight budget. You may be able to live with the ugly wallpaper in your bathroom for a while if it isn't cost-effective to do so. Don't let the physical limitations stop you from considering the home if it meets your needs. A house that can be added to value is a good choice for first-time homebuyers. This will help them to move up the property ladder.
Take into account your financing options and then secure financing
There are many options available for first-time homebuyers. These include FHA-backed mortgages and those that are geared specifically to novices. Some programs for first-time homebuyers offer minimum down payments of 3% to 5%, while others require no down payment. You should look at or consider:
HUD's resource listing. The government agency does not grant grants directly to individuals. However, funds are available to first-time homebuyers and tax-exempt organizations. You can find more information on the HUD website.4 The FHA and its loan program are part of HUD.
Your IRA. Each first-time homebuyer may withdraw $10,000 from either their Roth IRA or traditional individual retirement account (IRA), without having to pay the 10% penalty for early withdrawal. However, taxes will still be paid if you use a traditional IRA. A couple can withdraw up to $20,000 ($10,000 each) from their Roth IRA or traditional individual retirement account (IRA) to pay for a first home purchase. If you fail to repay the money within 120 calendar days, and you are under the age of 59 1/2, the 10% penalty will apply. You will also owe income tax on any withdrawals.
The programs offered by your state. There are many states that offer financial assistance for first-time homebuyers, including Illinois, Ohio and Washington.
Native American options. Native American homebuyers have the option to apply for a Section184 loan.10 The loan comes with a 1.5% up-front guarantee fee, and a 2.25% downpayment on loans above $50,000. For loans below that amount it is 1.25%. Only single-family homes with one to four units and primary residences can receive Section 184 loans.
When you are looking for pre-approval for a loan or a mortgage, don't feel obligated to any one financial institution. There are many fees that can vary. For example, fees for an FHA loan can vary depending on whether the loan is being applied for through a bank, credit union or mortgage banker. The mortgage interest rates, which can have a significant impact on the price of your home, can also vary.
After you have settled with a lender and submitted your application, the lender will verify all financial information (checking credit scores, verifying employment details, etc.). A pre-approval can be granted by the lender for a specific amount. Even if your pre-approval has been granted for a mortgage, you could lose your loan if your credit score changes, such as if your car purchase is financed.
A backup lender is recommended by some authorities. The approval for a loan does not guarantee funding. Underwriting guidelines may change, lenders risk analysis may change, investor markets could shift. Lenders can freeze funding for a loan program by notifying clients 24 to 48 hours in advance. A second lender who has qualified you for a mortgage can help you keep the process moving along or close to its original pace.
Your agent can help you determine how much you are willing to pay for the house and what conditions you would like to have. The agent will present your offer to the seller's agent. The seller will accept or reject it. The agent can accept or reject the offer.
Be sure to review your budget before you submit your offer. Consider closing costs (which can range anywhere from 2% to 5 percent of the purchase price), travel costs, as well as any urgent repairs or mandatory appliances you might need before you move in. If you're moving from a rental home to a bigger house, it is easy to get caught off guard by unexpected costs and higher utilities. To get an estimate of your monthly energy costs, you could request bills for the last 12 months.
You should not overlook hidden costs such as home inspections, homeowners association fees, property taxes, homeowner insurance, or home insurance when reviewing your budget.
Once you have reached an agreement, you will make a good faith deposit and then the process moves into escrow. Escrow is a brief period (often around 30 days) in which the seller removes the house from the market. The contractual expectation is that you will purchase it, provided you do not find any problems when you inspect it.
Inspect the house
A home inspection is a great way to ensure that your new home is safe and sound, even if it appears perfect. It's not worth the hassle of making costly repairs or being stuck in a financial bind. You can usually rescind the offer and get your deposit back if the inspection uncovers serious defects. You can also negotiate with the seller to make repairs or reduce the selling price.
Closer or move on
You should be able to reach a deal with your seller if you can do so, or if there are no significant issues found during the inspection. Closing involves signing lots of paperwork in a short time frame and praying that nothing happens.
You will need to pay for and deal with certain things in the closing stages of your purchase. These include an appraisal of the home (mortgage companies require it to protect their interest), a title search to ensure that the seller does not claim the property, private mortgage insurance, or a piggyback loan, if you have a down payment less than 20%, as well as completing the mortgage paperwork. Other closing costs include title insurance, survey fees, taxes and credit report fees.
Congratulations, new home owner! Now what?
Now that you've signed the paperwork and paid the movers for your new home, it is beginning to feel like home. It's over. Not quite. The costs of homeownership go beyond monthly mortgage payments and down payments. Let's look at some tips that will make your life easier and more secure as a homeowner.