Ten helpful tips for prospective homeowners
1. Weigh the pros and cons of buying a home
Owning a home can be a rewarding experience, but it's important to prepare for this major milestone. Carefully weigh the pros and cons of purchasing a home versus continuing to rent, and determine whether buying a home is the right decision for you and your family.
2. Look at the big picture
While buying a house can be rewarding, it can be labor intensive and expensive. Leaky roofs, plumbing issues and other home repairs can add up. Consider the cost of general maintenance and unexpected expenses when determining if you're ready for homeownership.
3. Check your credit
Take a look at your credit report and FICO score. They will impact your overall loan costs. Once you get your free annual credit report, comb through it for any errors or unresolved issues and contact the appropriate credit-reporting bureau - Experian, Equifax and TransUnion - to ensure they are corrected. You can obtain your credit report from each of these bureaus by visiting AnnualCreditReport.com
4. Get pre-qualified
Your Mid America Mortgage Services, Inc loan officer can help you determine the loan amount you might qualify for through a pre-qualification process. Being pre-qualified before searching for a home is very useful because it helps you look for homes within your price range. Real estate agents also appreciate buyers who submit offers on homes with a pre-qualification letter. Call Mid America Mortgage Services, Inc today to start the pre-qualification process.
5. Prepare a budget
While pre-qualification can serve as an estimate of what you may be able to borrow, it's equally important that you feel comfortable with your monthly payments. Before applying for any loan—and especially for something the size of a mortgage—it’s important to determine how much you can afford to pay each month. Look at all current monthly expenses, as well as how much you save each month. Typically, it’s recommended that you spend no more than 28 percent of your monthly income on housing expenses, including your mortgage, taxes and insurance costs. Our mortgage calculator can help estimate the cost of your monthly payment so you can set a budget that works for you.
6. Don't forget taxes and insurance
Contact a local insurance agent for an estimate on a comparable property in the area you’re considering. To get a better idea of what you’ll pay in taxes, check the local property assessor’s website. Remember that the amount of taxes a homeowner is currently paying and what you can expect to pay may differ depending on exemptions and local tax laws.
7. Putting money down
Most mortgage programs require you to make a down payment when you purchase a home. The amount of the required down payment will vary, depending on the type of mortgage program.
8. Begin your home search
Decide on a location and identify the features you want in a home. Check local listings, compare prices of similar homes and consult with your real estate agent to help determine the amount you can expect to pay. If you’re not already working with a real estate agent, consult with friends, neighbors or a local real estate agent association for help finding one that specializes in housing options in your area.
9. Loan application process
In addition to determining the type of mortgage you'd like to pursue and determining your interest rate, gathering the right documents is a critical step that can save time and frustration down the road. To ensure a smooth loan application process, you’ll likely need to collect:
- Name and address of employer(s) for the past two years
- Pay stubs for the last 30 days showing year-to-date and current period earnings, as well as any documentation of additional income
- Checking, savings, retirement and investment account statements for the past two or three months
- Credit cards, loans and other debt-related documents
10. Closing the deal
Once you've found the home of your dreams, there are steps related to sealing the deal, including negotiating a purchase price, getting an appraisal and scheduling an inspection. Once you and the seller reach an agreement, you’ll want to consider closing costs. They typically include origination fees, title and settlement fees, taxes, and prepaid items like homeowner’s insurance or association fees. Your realtor can help you determine all property-related costs.
4 Costs That Surprise Many First-time Homebuyers
You’ve stacked your budget against a home’s sticker price and are ready to make an offer. Well done! But before you book the moving truck, know this: The sale price is just one piece of the pie. But when it comes to underestimating other associated costs, first-time homebuyers are particularly vulnerable.
Knowing all the hidden costs of home buying is key to budgeting for those expenses. Here are four expenses you may not have expected.
1. Home Inspection
While not always required, most real estate experts agree that a home inspection is a must before you close on a home—even if it’s new construction. “Homebuyers really don’t understand how important it is to see what repairs are needed upfront,” says Harrine Freeman, a financial planner and owner of H.E. Freeman Enterprises. Hiring a pro to tell you the attic is full of termites or the plumbing is older than the huge oak tree out back is something that has to come out of your pocket—even if the inspection ultimately deters you from moving forward with the purchase. “Depending on where you live, home inspection fees could cost between $200 and $2,000,” says Brendon DeSimone, a real estate expert and author of “Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling.” Yes, that’s a hefty price tag. But if the inspection reveals something major, you might be able to negotiate more aggressively on the purchase price—or walk away from a potential money pit altogether. And if all is good, you’ll come away with peace of mind. Money well spent either way.
2. Appraisal
Mortgage lenders don’t want to be on the hook for a home that’s radically overpriced (and neither do you), so before they provide a loan, the lender requires an independent appraisal to determine the home’s worth. Appraisals are used to verify that the sale price of the home is equal to or lesser than the fair market value. The appraisal is ordered by the lender and is part of your closing cost and typically cost less than $500.00.
3. Closing Costs
Think of “closings costs” as a giant umbrella term that covers everything from attorney’s fees for handling the home buying contracts to taxes and association fees. Closing costs can be paid for by either the buyer or the seller and, depending on the arrangement, can typically range from 2 to 5 percent of the sale price. That may sound like peanuts at first blush, but if you’re eyeing a $250,000 home, you’re looking at anywhere from $5,000 to $12,500 depending on the type of loan program. One way to ease the sting: Be prepared. When you first meet with your lender, you need to ask about the general closing costs and loan fees to be expected given your pre-approval amount. You shouldn’t wait until you have a home tied up to know what those closing costs are.
4. Escrow Fees
Some mortgage lenders will require you to open an escrow account along with your mortgage agreement. (Escrow accounts are mandatory if you have a Federal Housing Administration loan.) That account will set aside funds each month for expenses that aren’t related to the actual mortgage (think property taxes and homeowners insurance). Not having to make one giant tax or insurance payment each year may save you some stress. You might have to make an initial escrow payment (typically one-twelfth of the estimated annual bill for taxes and insurance) during the close.
