How do You Buy a Home?
Where to Start as a First Time Home Buyer
Buying a home may seem like a daunting task, but it doesn’t have to be. Here at EDGEhomes, we want to make the process as easy as possible, while also making sure you get the home you have been dreaming of. There are many questions when you’re just starting the hunt for a new home: Do I need to be pre-qualified for financing before I start looking? Is my credit score important? How do I choose a sales agent to work with? What mortgage company should I use? The questions are endless, but EDGEhomes is here to help.
Buying a home is one of the biggest financial decisions someone can make and it requires a lot of financial planning. Some of the things to be thinking of are a down payment, mortgage payment, closing costs, as well as additional items in your budget like income, outstanding debt, monthly bills, etc.
One of the financial benefits of owning a home is having a locked monthly mortgage payment, that you know is going to be the same every month. Unlike rent that can go up from year to year, once you lock in a fixed-rate mortgage payment on your home, it will stay the same from month to month. You can also take comfort as your home appreciates in value while you pay back your home loan. Unlike renting, your money is not being thrown away.
When you build a new home, you also won’t be spending money on remodeling in order to make the home yours. With EDGEhomes you can build your home to fit your needs and style from the very beginning.
If you are a first-time home buyer, you may have questions about how much money you will need for a down payment on your home. The more money you can put down on your home, the better your interest rate will be and the lower your mortgage payment will be.
Traditionally, banks expected a 20% down payment for a home loan, especially for first-time home buyers. There are now multiple options, but it is still important to start saving for a down payment. A 5% down payment gives you some good loan options, but mortgage insurance will be required. Mortgage insurance will be required unless you put 20% or more down on a home. Certain guidelines may even allow to you qualify for a 0% down payment.
Another important factor in the home buying process is your credit score. Credit scores can affect interest rate and the mortgage loan you can receive. It is best to get your credit score checked by a mortgage professional. Credit checks for mortgages are more detailed than they are for an auto loan, student loan, or credit card because they can show different information. By sticking with a mortgage professional, you will get more accurate information than you would from a site like Credit Karma. It is also important to consult your mortgage professional before making any major changes to your outstanding credit to ensure it is something that will actually increase your score, instead of decrease it. It may sound counterintuitive, but sometimes paying off a collection could be harmful rather than helpful to your credit score.
Knowing what you can afford is crucial to the home buying process. One of the best ways to determine how much home you can afford is to get pre-qualified by a mortgage professional. The lender will look at your financial history and current finances to determine how much loan you can qualify for. When applying for a mortgage pre-qualification you will need to include the following documents:
- W-2 forms from the past two years
- Pay stubs from the past 30 days
- Proof of other income sources
- Federal tax returns from the past two years
- Recent bank statements
- Information about long-term debt like student loans
- Identification card and Social Security number
Once you know how much you can afford, it is also important to determine your “must-haves” for a new home as well as items that can be compromised on. These two items will help during the home search.
There are several different types of mortgages. Low or even zero down payment loans are offered by mortgage lenders backed by the Federal Housing Administration, Department of Veteran Affairs, and Department of Agriculture. First-time home buyers can also receive a conventional loan with low to zero down payment options. After you have chosen a loan with your lender, you will be able to decide whether you want a fixed-rate or an adjustable-rate loan. The rate of your loan stays the same over the period of repayment with a fixed-rate mortgage and the interest may be higher than an adjustable rate-mortgage where the interest may go up or down over the period of repayment with an adjustable-rate mortgage.
Most mortgages offer 15-year and 30-year loan terms, but some offer 10-year and 20-year. There are pros and cons to each of these options. It is best to work with your mortgage professional to find out what is best for your situation.
Luckily, EDGEhomes’ preferred lender, First Colony Mortgage, is here to help you sort through all of the different loan types to help you find what works best. First Colony Mortgage has been working with EDGEhomes for a long time and can ensure that the loan process is a smooth one. Not to mention that by working with First Colony Mortgage, EDGEhome buyers also receive an incentive to put towards upgrades in their home.
Shopping for Your Dream Home
Once you have figured out what your budget is, it is time to start shopping for a home that fits into your life. To start, you will want to find an agent to help you in the home shopping process. The EDGEhomes real estate agents understand your needs and are determined to help you find your dream home.
There are many areas to look for when shopping for your new home based on your priorities. Some of these may include location, floorplans, number of bedrooms, or yard size. One area that is important to most home buyers is location. It can be almost as important as the house itself. If you don’t like the location you are living in, you most likely won’t enjoy living in the house. Do some research on the locations you are looking at to make sure they would be a good fit. Your real estate agent will be able to help you sort through priorities and find the best possible house for you.
Writing a Purchasing Agreement
Once you have found the home for you, it is time to write a purchase agreement. You may be facing some competition from others so make sure you work with your EDGEhomes agent to submit your purchase agreement quickly.
Closing on Your Home
Closing costs can be divided into two sections, basic closing costs and origination fees.
Basic Closing Costs – There are basic fees that all mortgage lenders have including: loan processing and underwriting fees, home appraisals, title settlement fees, and insurance. These costs generally don’t vary too much from one lender to another.
Origination Fees – Origination fees or origination points are paid on top of other costs. Usually these are used to buy the interest rate down and this is where you can see variation from different lenders.
Typically, total closing costs range from 2 to 5% of the home purchase price.
As you are looking for a home loan and apply with a particular lender, the lender is required to give you a Loan Estimate within 3 days of your application. The Loan Estimate will show the terms of your loan, payment, and estimates of what closing costs will be on your particular loan so you know what to plan for before closing on your home. The Loan Estimate is an estimate of these costs and not final numbers. A few days before your home closing, you will receive a Closing Disclosure that gives final numbers of your loan payment and closing costs. You should compare this document to your original loan estimate to make sure they match closely. If you have any questions make sure you talk with your loan officer. You don’t want any surprises when you go to sign on the loan.
Once you’ve got your new house keys in your hands, it starts feeling real—you’re a homeowner! From here, the customer service team at EDGEhomes will make sure you feel comfortable in your new home. A customer service representative will even walk you through your home to ensure you understand which home repairs are your responsibility, and that you know which items are covered by EDGEhomes’ warranties.
Once you feel comfortable in your new place and move your things in, you’ll finally have the home of your dreams!
To learn more helpful first-time home buyer tips, turn to EDGEhomes. With many years of designing and building experience, EDGEhomes is the leader among Utah home builders. Contact us to see how we can help you along the home-buying process.