The home buying process is something we feel anyone who is serious about purchasing a home should know. The recent housing crisis has shown all of us that being better educated on the home buying process is VERY important. There are 9 steps we feel every buyer should know about. We like to call these, "The 9 Crucial Steps of The Home Buying Process." We'll break down all these steps for you in 3 different blogs.
Crucial Step 1 – Analyze your credit situation
Having good credit is KEY to helping you get a mortgage loan. Please don't be sadly mistaken, a bad credit score can ruin your chances of getting a mortgage loan. To be straight forward and honest with you, your credit is actually one of the first things a lender will check after you submit your loan application.
There are two crucial things you need to do in this stage of the process. You need to review your credit reports, to make sure there are not any errors on them. If you do see errors there are three sites that we know have a "disputes" section on their website where you can follow the process online to fix the errors; Experian, Equifax and TransUnion. Once you know there aren't any errors and if there where they are now fixed, you now need to check your credit score to see where you stand. When looking at this credit score you want to have a rate around 660 or higher, but to get a lenders best rate you want to have a rate around 760. This step is very important and should not be over looked when taking the correct steps in buying a home.
Crucial Step 2 - Establish Your Budget
True or False. A mortgage lender can tell you how much you can afford to pay each month on your mortgage. False. Only you know how much you can afford to pay each month on your mortgage. The only thing the lender can tell you is how much they are willing to lend you and at what interest rate. Establishing a budget is all up to you! We're here to help you know the correct steps to take and this is one of them if you want to avoid the costly mistakes that some home buyers make. You need to start out by putting your budget on paper. This will help you from over spending.
I'm sure you're wondering, well how much can I afford? And to be honest there is no way we can answer that question for you, we are not financial advisors. The best way to get your answer to this question is to answer it yourself. A good way to figure out how much you can afford is by examining your monthly expenses versus your income. Subtract your monthly expenses from your monthly income (after taxes of course), and you'll have a general idea of what you could afford to pay toward a mortgage each month. You do not want to exceed this amount when taking on a home loan. If you do exceed this amount one of two things usually happens; You will increase your income in some way, possible by taking on another job OR You will begin to fall behind on your mortgage payments and face foreclosure. This is not the type of situation you want to be in. So be honest with yourself when calculating your expenses and your income and don't exceed the final amount you're left with.
Some things to remember to include in your monthly expenses are:
- Car payment & auto insurance payment
- Grocery cost & other shopping expenses
- Credit card payments & other monthly loan payments
- Any ongoing healthcare cost you have
- Whatever you put towards savings & retirement each month
- Entertainment/leisure expenses (dining out, movies, etc.)
Crucial Step 3 – Save Money for Housing Costs
Most home buyers are unaware of the total cost along the way of buying a home. Loan application fees, home inspections, down payments, and homeowners insurance are just some of these fees….these things can add up pretty quickly. And for most home buyers can be a slap in the face if they are unaware of them. Some lenders even want you to have a "cash cushion" to help cover your first few mortgage payments. They will even go as far as checking your bank statements to verify this. So what does this mean to you? This means you should start saving you're money as early on in the process as possible. The more you save now, the better off you'll be later.
I bet you want to know what makes up all these fees, right? These fees are referred to as closing cost. Closing cost is the total cost of completing the transfer of ownership on a house. Remember these cost do not include the purchase price of the home. You can refer to them as "extras"; fees and expenses aside from the purchase price.
Closing costs vary depending on where you live and what mortgage lender you choose. But closing costs often include fees for the following (this list is not all-inclusive)
- Loan Origination
- Loan Application
- Appraisal
- Document Preparation
- Attorney's Services
- Escrow Agent's Services
- Pest Inspections
- Credit report/processing
Don't get overwhelmed and feel you need to calculate all these expenses on your own. Real Estate Settlement Procedures Act (RESPA) requires lenders to give you a good faith estimate of all the loan-related fees your likely to pay at closing. But keep in mind this is just an "estimate", actual closing costs may be more or even a little less than the good faith estimate. We want you to remember to shop around when looking for a lender. Your decision should not be made solely on interest rate, shop around for closing cost estimates as well.
For more of the Home Buying Process please go to The Home Buying Process part 2 blog.
Go to http://www.shanellrobinson.lnf.com/ to view my office listings, search for homes and MUCH more.
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