Purchasing a home is one of the biggest investments you’ll likely make in a lifetime. In the fourth quarter of 2021, approximately 65.5% of the U.S. population owned a home.
Whether you’re a first-time buyer or you’re looking to move from one property to another, understanding the home buying process is vital to your success.
Read on to learn more about buying a home so that you can make the smartest investment for yourself.
What to Expect During the Home Buying Process
Before you pick a real estate agent and start scouring listings, it’s important to know what to expect during the process. First, you’ll want to make sure that you have good credit and money saved for a down payment.
Look for a mortgage lender that you can contact to get pre-approved. You’ll also want to compare current mortgage rates to ensure that you’re getting the lowest rate possible.
Lenders have certain requirements in order for buyers to qualify. Contacting a savvy mortgage broker is a great way to get some help finding the best possible mortgage for your needs and financial situation.
You’ll need to talk to a lender or broker to determine how much home you can afford. That way, you’re only looking at homes within your price range. Some home builders work with local lenders to help buyers get into a new property with incentives and closing cost assistance, too.
Now is also a great time to write down your list of must-haves. Think about the location of your new home, features that are important to you, and what you can live without to help narrow down your choices.
Saving for a Down Payment
Virtually every type of mortgage requires some form of down payment, with only a few specific exceptions. You’ll need to make sure that you have ample cash saved before you start the home buying process.
If you want to avoid paying PMI (Private Mortgage Insurance) every month, most loans require a down payment of 20% or more. Not only will having a decent down payment help you avoid PMI, but your mortgage balance will be lower, too.
Look for ways you can cut costs and create a separate savings account. Put as much money into this account as possible until you’ve reached your home down payment goal.
Conventional loans (via Fannie Mae and Freddie Mac) only require a 3 percent down payment. Some government loan programs like VA and USDA loans have no down payment requirement.
A Note About Earnest Money
You’ll also need to put some “earnest money” aside in addition to your down payment. This money goes toward the purchase of your home, and it “holds” the home while you wait for the contract to be approved.
Earnest money is a good faith effort that shows sellers you’re serious about buying the home. In most cases, it’s a reasonable amount and will always go toward the final purchase.
Expect to pay around 1-3 percent of the purchase price in earnest money. In a competitive market, you could end up paying as high as 10 percent.
Hire a Real Estate Agent
Once you find a lender and you’ve saved for a down payment, it’s time to find a professional real estate agent. Your agent will help you look at houses and walk you through the contract process when you’re ready to make an offer.
Make sure that you choose an agent who is familiar with your market and the local area. They will be your ally throughout the home buying process and serve as the “middle man” between yourself and the seller’s agent.
The agent is also responsible for helping you negotiate the price and will help you make an offer via contract to the seller. For example, if you find some issues during the home inspection process, your real estate agent can help you ask for a lower price.
It’s also important to understand more about property value and what it means. A knowledgeable agent understands which homes are worth the asking price, and which ones you might want to walk away from.
Understanding Closing Costs
So you’ve secured financing, have your down payment ready, and you’ve found a new home with your agent that you want to buy. Now it’s time to wait for the closing day so you can get the keys to your beautiful new house.
Part of the costs of buying a home is the closing costs. You’ll receive a closing disclosure from your lender three business days before the closing date.
The closing disclosure shows you all of the important financial details. These details will include your total monthly payment, the loan term, your interest rate, loan fees, and the bottom line that you’ll need to bring with you for closing.
It’s important to go over this paperwork carefully in case you notice any discrepancies. On the day of the closing, you’ll be there to sign the final paperwork, and your real estate agent or an attorney may also attend.
When you close on a home, a title and escrow company will receive the money and transfer it accordingly. After all the paperwork is signed, you’ll get your keys to your new home!
Home Buying in a Nutshell
Remember these key takeaways as you’re going through the home buying process. With good credit, a great lender, and some perseverance, you’ll be able to secure the new home of your dreams.
To learn more about our homes in Western Wisconsin or Eastern Minnesota, or to view the current list of available homes, be sure to explore the rest of our website today.