Buying a House? What You Need to Know
As a veteran, buying a house can be an exciting and emotional process. Before you get started on your home hunt, let’s make sure you understand the ins and outs of buying a home. From vet to vet, we want you to be empowered when you to make decisions that are the best for your family — and your wallet.
Is it a good time to buy a house?
Based on home trends and all-time low mortgage rates, it’s a pretty good time to buy a home and stop paying someone else’s rent. If you’re thinking of buying, it’s a great opportunity to lock in an extremely affordable mortgage. The 30-year fixed-rate mortgage hovered below 4 percent in early January of this year.
Now home prices. They aren’t getting any cheaper. The annual home price growth is expected to increase by 5.6 percent by September 2020, according to the real-estate data company, CoreLogic. This means you can grow your equity with appreciation right away. And waiting too long might mean getting priced out of the neighborhoods you like.
When should I buy a house?
It’s great to know when to look and where to look, so being financially capable is very key in this equation. Be sure to have your finances all organized and your credit in order so that you’ll be able to buy your home in a smooth fashion.
Now, for our fellow veterans out there, you get to enjoy a hard-earned benefit, zero down payment. But don’t be fooled by this term. Zero Down. This is only referring to the down payment that is usually required on most other loans. You will still need to have enough money set aside to cover the closing costs, which can range from 3 percent to 4 percent of the purchase price.
When budgeting for the monthly payments, factor in not only the principal amount and interest, but also property taxes, homeowners insurance, homeowners association fees and (if putting down less than 20 percent) private mortgage insurance. Don’t forget to set aside money for ongoing maintenance and those unexpected repairs that are bound to pop up.
Here’s a step-by-step guide to buying a house:
1. Check your credit score
Checking your credit score will help you determine your financing options; lenders use it to set your loan pricing and see if you’re able to repay your mortgage.
The better your credit history, the better the chances you’ll have of securing financing with the best terms and rates.
You can get your credit score from each of the three major credit reporting agencies — Equifax, Experian and TransUnion — for a nominal fee. Your bank or credit card company might offer free access to your score or credit report, as well. When qualifying for a mortgage, the lender will take the middle of the three.
You can also pull your credit reports from each of the credit bureaus for free every 12 months at AnnualCreditReport.com. If you discover any discrepancies, you will have to contact each agency and report the errors.
2. Save for Your Closing Cost
Closing costs include the fees for the services and expenses required to finalize a mortgage. You’ll have to pay closing costs whether you buy a home or refinance it.
Most of the closing costs fall on the buyer, but the seller typically has to pay a few, too, such as the real estate agent’s commission.
Average closing costs for the buyer run between about 3% and 4% of the loan amount. These costs include title fees, escrow fees, loan origination fees, homeowners insurance (prepaid for 1 year) and property taxes. So, on a $300,000 home price, you could pay anywhere from $9,000 to $12,000 at the close of escrow.
The most cost-effective way to cover your closing costs is to pay them out-of-pocket as a one-time expense. You may be able to finance them by folding them into the loan if the lender allows, but then you’ll pay interest on those costs through the life of the mortgage.
Look into a local or state first-time homebuyer assistance program to help with closing costs or your down payment.
3. Get PreApproved
Now, don’t be fooled. A mortgage pre-approval isn’t a promise that you’ll get the financing for the home you want to buy. A mortgage pre-approval only means a loan officer has looked at your finances—your income, debt, assets, and credit history—and determined how the amount you can receive, how much you could pay per month, and what your interest rate will be.
So, what’s so great about a mortgage pre-approval?
Once a lender has pre-approved you for a mortgage, you’ll get an email or a letter that you can show to sellers. This letter shows sellers you’ve already started working with a lender, and that the lender is willing to work with you. It gives sellers peace of mind to know they won’t be wasting their time with someone who couldn’t afford their house in the first place.
4. Find a real estate agent
An experienced real estate agent can save you time and money by helping you find your dream home and negotiate with the seller on your behalf.
You will want to make sure to meet with your realtor for a conversation about your needs so it’s very clear about your needs and wants in the home that you are going to purchase.
Someone with knowledge of an area can also tell if your budget is realistic or not, depending on the features you desire in a home. They can also point you to adjacent areas in your desired neighborhood or other types of considerations to help you find a house.
Agents can refer you to other professionals like home inspectors, contractors, appraisers and title companies. However, you should still shop around and compare fees from other professionals.
5. See multiple homes
Simply viewing listing photos can’t be a substitute for visiting homes in person and getting to know the neighborhood and its amenities.
Let your real estate agent know what specific homes you want to see, or search online yourself. The real estate agent can create your profile in the local Multiple Listing Service and set up automatic searches for homes that meet your criteria.
You may not be able to check off everything on your home amenity wish list, so you’ll want to prioritize what’s most important to you aside from location. Drive through neighborhoods you like to see what’s for sale, and attend open houses. Keep notes on each property you visit.
After a few showings, it’s easy to forget which homes you liked and why. Keep your schedule open so you can pounce when a great home is listed, especially in a competitive seller’s market. You could gain an edge over other buyers the sooner you see it and put your offer in.
6. Make an offer
Understanding how to make an attractive offer can increase your chances the seller will accept it, putting you one step closer to getting those coveted house keys.
Once you find “the one,” your agent will help you prepare a complete offer package, including your offer price, your preapproval letter, proof of funds for a down payment (this helps in competitive markets) and terms or contingencies. Adding a personal letter to the seller can help your offer stand out.
Typically, a seller has about 24 hours to counter on an offer. Sellers might counteroffer on your price, terms or contingencies. You can respond to the counteroffer or reject it and move on.
Once an offer is accepted, you’ll sign a purchase agreement that includes the price of the home and estimated closing date. You’ll need to pay an earnest money deposit, typically 1 percent to 2 percent of the purchase price. The seller may have a right to keep the money if you back out.
Contingency clauses are designed to protect the buyer and typically include appraisal, financing and home inspection. If a home inspection report shows major problems, you can often back out of the contract and get a refund.
7. Get a home inspection
A home inspection helps you get an overall picture of the property’s mechanical and structural issues.
The home inspection will help you determine how to proceed with the closing process. You might need to ask the seller for repairs or decide to back out of the deal if you have a contingency in the contract.
Get recommendations for home inspectors from your real estate agent, but also be sure to do your own homework before choosing one. Depending on your contract and state of residence, you’ll need to complete a home inspection 10 to 14 days after you sign a purchase agreement.
As a buyer, you’re responsible for paying the home inspector, and while the fees can vary, you’ll pay an average of $300 to $450, according to Angie’s List. To make sure the home inspector has enough experience, read online reviews, ask for past client references and look at their credentials. Look at the home inspection checklist to understand what is and isn’t covered.
8. Negotiate repairs and credits
Your home inspection report may reveal major or minor issues.
Major problems will likely need to be dealt with before a lender will finalize your loan, while minor issues can often wait till you take possession of the home.
Enlist your agent’s help to negotiate with the seller. Ask for the seller to either do the repairs or give you a credit at closing. If there are hazards like structural damage or improper electrical wiring, the lender might not approve the loan. You might not have the budget or desire to handle such repairs after buying the home.
9. Secure your financing
Getting final loan approval means you need to keep your finances and credit in line during underwriting.
Generally, it’ll take anywhere from 21 to 30 days to complete the financing process. Delays mostly happen when buyers either don’t respond to disclosures quickly enough or don’t provide the exact documents that the lender needs.
Respond promptly to requests for more documentation and double-check your loan estimate to ensure all the details are correct so there are no hiccups later.
You may need to submit additional paperwork as your lender completes the underwriting process, such as:
- bank statements
- tax returns
- additional proof of income
- gift letter or written statements explaining major deposits into your bank account
A preapproval doesn’t mean you’re in the clear until a lender has given the final stamp of approval. Keep your finances and credit in good shape from preapproval until closing day, and avoid changing jobs before closing on your new home, too.
Avoid running up credit cards, taking out new loans, closing credit accounts or changing jobs. Doing any of these things can hurt your credit score or impact your debt-to-income ratio, and that can imperil your final loan approval.
10. Do a final walk-through
A final walk-through is an opportunity to view the property before it becomes yours.
This is your last chance to view the home, ask questions and address any outstanding issues before the house becomes your responsibility.
Come with your home inspection checklist and other documents, like repair invoices and receipts for any work the owner conducted, to ensure everything was done as agreed upon and that the home is in move-in ready condition.
Ask your real estate agent to be there so they can act as a witness and help answer any questions you may have. If repairs or issues haven’t been addressed, have your agent communicate immediately with the seller and your lender. Your closing date might have to be delayed to ensure those issues are remedied first.
Step 11: Close on your house
Once all contingencies have been met, you’re happy with the final walk-through and the closing agent has given the green light to close, it’s time to make it official and close on your home.
Your lender will issue you a “clear to close” status on your loan.
Three business days before your closing date, the lender will provide you with a closing disclosure that outlines all of your loan details, such as the monthly payment, loan type and term, interest rate, annual percentage rate, loan fees and how much money you must bring to closing.
At the closing, you (the buyer) will attend, along with your real estate agent, possibly the seller’s agent, the seller, in some cases, and the closing agent. Depending on where you live, the closing agent may be a representative from the escrow or title company or a real estate attorney. This is also the time where you’ll wire your closing costs and down payment, depending on the escrow company’s procedures.
Before closing, review the closing disclosure carefully and compare it to the loan estimate to ensure closing fees and loan terms are the same. Ask questions about your loan and correct any errors (like your name or personal details) before you sign the closing paperwork.
On closing day, review all of the documents you sign carefully, and ask for clarification on anything you don’t understand.
Make sure you’ve been provided all house keys, entry codes and garage door openers before leaving closing.
You’ll leave closing with copies of the paperwork (or a digital file) and your new house keys. Store your paperwork in a safe place for future reference.
Once all of the paperwork has been signed, the home is officially yours and you’ll get those house keys. Congratulations! Now comes the fun part: moving in and making the house your home.
Buying a home involves a lot of moving parts and complex steps, but this guide — along with the professional expertise of your real estate agent and lender — can help you navigate the process smoothly. By doing your homework ahead of time, you’ll have more confidence in your decision and relish getting those coveted house keys on closing day.