Buying a home is not an easy thing, it’s the biggest purchase of your lifetime. Purchasing your first home is one of the most exciting experiences but it can also be daunting if you’re not aware of where to begin.
To make the process easier, we’ve put together a list to help you get started in the right direction.
Determine How Much Home You Can Afford
Determining your budget is the first step in your home buying process. First, you’ll need to determine your debt-to-income ratio (DTI), which is nothing but your expenses vs cash intake per month. This list includes all the recurring bills, such as student loans, car payments, child support payments – anything that you pay on a monthly basis. Your DTI should not be higher than 43% to secure a qualified mortgage.
Using a mortgage calculator can help you know, how much house you can afford, desired loan terms and interest rates, down payment amount, Desired monthly mortgage payments and Estimated property taxes.
Arrange the down payment
The next step is determining how much of a down payment you’ll need. It is determined by the type of mortgage you get. Down payments on conventional mortgages start from 3% to 5% of the home’s purchase price. If a down payment is bigger it will often result in a lower interest rate and smaller monthly payments; that’s because a lower loan-to-value ratio (LTV) decreases your lender’s risk.
Find A Real Estate Agent You Can Trust
Before you start looking at homes for purchasing it’s good to get an experienced mortgage lender for helping you get the best homes. The seller should have the confidence that you purchase the house if you make an offer, and that comes through preapproval. Hiring a real estate agent is beneficial as they are knowledgeable about the market. They can give you in-depth details about the property and help you negotiate a better price.
Find the right mortgage for you
Choosing the right home loan can help you in approval and may save you thousands in the long run. Before deciding on the right one, you must know the advantages and drawbacks of each one.
Conventional loans are mortgages that are not guaranteed by the federal government. Low minimum down payments is offered in this type.
FHA loans are mortgages backed by the Federal Housing Administration. It is easier to qualify than the previous loan.
VA purchase loans allow you to make no down payment.
Jumbo loans require larger down payments and higher credit scores.
Renovation loans allow you to wrap the costs of home improvements into the total amount of the home loan.
Out of these types of loans, you can choose between a fixed-rate or an adjustable-rate mortgage.
Get preapproved for a mortgage
Before shopping for a house you should know how much you can afford. If you want sellers and their real estate agents to take you seriously, you need a pre-approval letter. Pre-approval is a more rigorous examination of your financial situation, also it helps you know exactly the loan amount a lender is willing to underwrite.
Make an Offer
Found a home that’s right for you? Then make an offer. Your real estate agent will provide you with comparable sales information to decide whether to accept or make your own counteroffer. Is the offer accepted? Congrats!
Get a mortgage
Choose a lender to get a mortgage. If it’s your online-first lender, then work with a loan officer to complete the actual application. It’s a paperwork-heavy process, so upload the below details,
- ID and Social Security number.
- Pay stubs from the past 30 to 60 days.
- W-2 forms from the past two years
- Recent bank statements
- Federal income tax returns from the past two years.
- Proof of other sources of income
If the mortgage application is completed, you’ll go into underwriting. During this process, the lender will decide on whether to give you the loan