You’re sick of renting, and you’ve saved up enough money to finally buy the home of your dreams. But there’s so much confusing information out there, and you don’t know how or where to start your search. Where do you turn?
Never fear —- Equity Bank has your back. This guide will take you through the whole process step by step, from first moves to final closing and move-in. You’ll learn everything you need to know to become a home owner!
Step 1: Pre-Qualification/Pre-Approval
You might think finding the home comes first, but why shop before you know how much home you can afford? If you’re getting a mortgage (a home loan), now’s the time to find a lender you trust. They’ll ask you to provide some basic financial information: how much you earn, how much you owe, how much you have saved up, and the state of your credit. This informal calculation lets you estimate the basic budget you’re working with.
You can also go a step beyond this pre-qualification process and get pre-approved. Pre-approval means that your lender independently verifies all your financial information, so that they can give you a firmer sense of your loan amount and interest rate. When you have a pre-approval letter in hand, sellers will be more willing to trust your offer.
Step 2: Choose Your Mortgage Type
Conventional vs. Government: Conventional mortgages are offered by private lenders, and usually require that you pay at least 3% of the purchase price as a down payment (though you’ll likely need private mortgage insurance (PMI) for down payments less than 20%). Government-back mortgages let people who can’t afford a down payment or who have sub-par credit buy a home. That includes VA loans for military veterans, USDA loans for rural buyers, and FHA loans for lower-income buyers.
Fixed-rate vs Adjustable-rate: Fixed-rate mortgages stay at the same rate for the life of the loan. Adjustable-rate mortgages usually start at a lower rate for a set period, but then adjust up or down depending on how the economy is doing.
15, 20 or 30 Year Terms: You choose how long you want to take to pay off the loan. The shorter the term, the higher the monthly payment — but the less interest you pay.
Step 3: Choose Your Home
This is a great time to find a realtor who knows the market and who can help you navigate the buying process. Now that you know your price range, identify the features you want your new home to have. How many bedrooms do you need? What neighborhoods do you want to be in? Do you need a fenced yard for your dog? All these factors will help you narrow down the search so you aren’t wasting time seeing homes that don’t match your criteria.
Once you’ve found a place that feels like a fit, don’t wait — make an offer! You’ll work with your realtor to make a competitive offer that convinces the seller to choose you. Then it’s a waiting game to see whether they accept your offer.
But the process doesn’t stop when you make a successful offer. You’ll have to deposit “earnest money” (a small percentage of the purchase price) to prove you’re serious. Usually, this is also when you hire an inspector to make sure that there’s nothing wrong with the home. And the lender will also send an appraiser to make sure the home is worth what you’re paying for it. Depending on what the inspector and appraiser find, you might adjust the price slightly.
Step 4: Underwriting and Closing
Here’s where your lender goes to work. They do one last review of all your financial documents to make sure the loan meets all their requirements for approval. They check to see if there are any obstacles to finalizing the transaction. And if everything checks out, they’ll approve the mortgage.
At long last, it’s closing time! All the parties will agree on a day to meet up and sign a small mountain of documents. Everyone from realtors to attorneys to representatives of the title company could be there. You’ll read over and sign the documents one by one. Depending on when your lender transfers the funds, you might even get the keys to your new house that day!
The mortgage experts at Equity Bank want to support you through the long process of becoming a home owner. Contact us today, and we’ll work with you to find the right mortgage for your needs. With our help, you’ll be on your way to finding the home of your dreams.