Home Buyer Boot Camp

Are you ready to buy a home? From mortgages to real estate agents, the process of buying a home is complicated. In this article, Credit.com shows you the basics of the home buying process and gives you tips for getting the best deals. Start your training now!

Step 1: Deciding to become a homeowner

So, you think you may be ready to stop being a renter and start being a homeowner? How exciting! Owning a home is a big part of the American dream. It’s also likely the biggest purchase you’ll ever make. Before you start shopping for real estate agents, use the following checklist to see if you are really ready to own a home:

• How long do you plan to stay in the home? It’s best to think about buying a home if you plan to remain in the area for at least 3-5 years.
• How does your rent compare to your estimated mortgage payment? In some areas, renting may be much more affordable than owning a home. You can estimate the difference in costs using this free rent vs. buy calculator.
• Are you ready for the responsibility of owning a home? More than just making mortgage payments, being a homeowner also means paying insurance, making repairs, and sticking to a strict budget.
• Think about your reasons for deciding to buy a home. Are you considering buying because you are starting a family? Tired of renting? Trying to make money in real estate? Peer pressure?

Step 2: Check out your options

If you’ve passed Step 1, you are mentally ready to buy a home. Next, let’s check out the current home buying climate to see if it really makes sense to become a homeowner now. Use the following checklist to evaluate your financial position:

• Have you saved for a down payment? A down payment isn’t necessary for most first-time borrowers, but having one can help you save a lot of money on your mortgage. Ideally, you should have a down payment equal to 20% of the home’s price.
• Evaluate home prices in your area. Are there any areas that are more affordable? Do experts think home prices will increase or decrease over the next few years? You can use this home affordability calculator to see how much you can afford to buy.
• Take a look at mortgage rates and calculate some basic mortgage options. Are rates supposed to increase or decrease over the next few years? Is it better to have a fixed rate mortgage or adjustable rate mortgage?
• Research the home buying process online. Websites like www.hud.gov have all kinds of free information for people considering buying a home.
• Talk to people who have purchased homes in your area in the last few months. Ask them for their advice and opinions about buying a home. What challenges did they face? What tips do they offer?

Step 3: Obtain a pre-approved mortgage

Congratulations! Now that you have passed Step 1 and 2, you are ready to get serious about buying a home. Before you start going to open houses, however, you need to work with a lender to get pre-approved for a mortgage. Getting pre-approved for a mortgage will help you understand what you can afford to buy, will help your real estate agent narrow his or her search, and will help you negotiate with a seller. Use this checklist to obtain a pre-approval:

• Start by comparing mortgage rates online without applying. Visit the websites of some of a few online lenders to estimate your mortgage options. Also evaluate your options with a local bank and credit union. Many companies have “pre-qualify” systems to estimate what you may be able to afford. Pre-qualifying is a good step for evaluating different lenders but is not the same as pre-approving.
• Once you have narrowed your search down to a few lenders, apply for a pre-approved mortgage with each company. Each application can cause a small drop in your credit score, so apply with moderation.
• Your pre-approval is basically a promise from the lender that you can qualify to borrow up to a certain amount of money at a specific interest rate. This promise is subject to a property appraisal and other conditions, however.
• Remember, your pre-approval is for the maximum amount you can potentially borrow. This is not the amount that you should spend or that you can comfortably afford each month. Try to use less than the maximum to buy a home.
• Act quickly, if possible. Most pre-approval offers last between 60-120 days before they expire.

Step 4: Shop for a home

This is the fun step! Find a real estate agent and start hunting for a house that fits your budget and needs. Your mortgage pre-approval will assist you with any negotiations you need to make. Use this checklist to help maximize your shopping experience:

• What features are you looking for in a home? Write a list of things that your ideal home will have. How many bedrooms? How many closets? Appliances? Take this list with you when you go look at homes.
• Take detailed notes about each home you see. It can be easy to forget the differences between properties when you are looking at several homes a day. Make a note of anything that needs to be fixed so you can evaluate the cost of these repairs. You may also want to bring a digital camera along with you.
• Check out the estimated value of the home online. Don’t take the seller’s word for it; look up the value online with this free home valuation service.
• Negotiate the price. In many housing markets, buyers have the power to negotiate a reduced price for a home. Work with your real-estate agent to come up with a good bargain.

Step 5: Seal the deal

• When you find a home you love, work with your real estate agent to write a formal offer. This is usually a formal contract, so be sure that everything is accurate and correct before submitting your offer.
• Arrange for a home inspection. An inspection is a necessary step before you agree to buy the home. A $200-400 inspection could potentially reveal serious problems with the home that need to be fixed before the purchase or that could invalidate your offer.
• Evaluate your homeowners insurance and warranty options. Shop around for the best deal on these policies now. You’ll need to secure your homeowner’s insurance before the final closing.
• Obtain final loan approval from your mortgage lender. Since you were pre-approved in Step 3, this should be cinch!
• Work with your agent or attorney to prepare the closing documents. This is the last major step towards becoming a homeowner and the step that requires you to sign a bunch of documents. Take some time to review these agreements closely and ask questions about things you don’t understand.

Congratulations! You are a homeowner!

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