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How Do I Buy a Home?
The Home Buying Process- Step by Step in Central Florida
Buying a home can be a very intimidating process, especially if you've never done it before. So the first thing you should do before you start the home buying process is to figure out whether owning a home is right for you. It may or may not be and this decision depends on you and what your circumstances are. Take into account that if you do buy a home, there are extra responsibilities and costs that go along with owning a home-such as lawn care, home maintenance and repairs, etc.
Step 1: Check Your Credit Report & Score
Before getting a mortgage or any kind of loan, you should always check your credit score. According to the law, you're allowed to receive one free copy of your credit report per year. You can do this by visiting Annualcreditreport.com. Scores range from approximately 300 to 850; generally, the higher your score, the better loan you'll qualify for. Don't forget to check your report for errors. If there are any, dispute them. It may help your credit score. Once you choose a lender, they can assist you with any needed disputes.
Step 2: Figure out How Much You Can Afford
Talk To Your Lender....First!
After you decide how much you are putting down, then use a mortgage calculator to "play" with the numbers. A mortgage calculator will give you the payment, comprised of the interest and the principle. To this figure, ADD the taxes and insurance, which are not normally known until you find your house.
Rule of thumb for Central Fl area:
For a house costing between $100 - $150K add $300 per month to the figure the calculator gave you. If a property is not homesteaded it will cost slightly more. I will be glad to help you figure all of this out when the time comes.
You can calculate how much you can afford by starting online. There are several online mortgage calculators that will help you calculate an affordable monthly mortgage payment. Remember that you don't always have to put down 20 percent as your parents once did. There are loans available with little to no down payment. An experienced home loan expert can help you understand all your loan options, closing costs and other fees.
Once you calculate the payment, know that it only consists of the principal & interest. Most house payments here in Central Florida also consist of the taxes and insurance, called escrows. They are sent in with your payment (one bill), and your lender pays them for you at the end of the year.
These 2 figures will vary greatly between homes. A safe rough estimate, though, would be $300 per month for both taxes & insurance. If you are buying a home with a Home Owner’s Association (HOA) you will need to factor in the monthly or quarterly fee. Condos can run upwards of $300 per month in this area, whereas a single family HOA with no community pool etc, will only run $150-$200 per year.
Step 3: Find the Right Lender and Real Estate Agent
To find the right mortgage lender. It's best to shop around. Talk to at least two or four mortgage lenders. Ask lots of questions and make sure they have answers that satisfy you. Make sure to find someone that you are comfortable with and who makes you feel at ease. Do not worry that your credit score will drop because you have had several lenders pull your credit reports. These are typically viewed as one pull when done within a short span of time.
Once you have the right mortgage lender, make sure you at least get a pre-approval, A commitment in writing from a lender that a borrower would qualify for a particular loan amount based on income and credit information.
A pre-qualification is only a guess based on what you tell the lender and are no guarantee, whereas a pre-approval will give you a better idea of how big a loan you qualify for. The lender will actually pull your credit and get more information about you. However, you could even take it one step further by getting an actual approval before you start home shopping. That way, when you're ready to make an offer, the seller will know that you are serious. You would not want to go shopping without first knowing how much money you have to shop with. These same principals apply when home shopping.
Step 4: Look for the Right Home. There are “Must-Haves” & There are simply “Wants”
Make a list of the things you'll need to have in the house.
How many bedrooms and bathrooms you'll need and get an idea of how much space you desire.How big do you want the kitchen to be? Do you need a garage? Most 2 car garages in new homes today measure 20 feet across by 21 feet deep…..NOT large enough for 2 cars. Your realtor can check public records for the measurements.
Do you need lots of closets and cabinet space? How about a home office?
Do you need a big yard for your kids and/or pets to play in?
Would you rather have someone else mow the lawn, such as in a condo?
Once you've made a list of your must-have's, then consider the neighborhood you want, types of schools in the area, the length of your commute to and from work, and the convenience of local shopping. Take into account your safety concerns as well as how good the rate of home appreciation is in the area. Also, look at the walk factor if you choose to live near work, shopping, restaurants.
Step 5: Make an Offer on the Home
Now that you've found the home you want, you have to make an offer. Every market differs. What this means, is that in some markets, homes are priced a bit high expecting that there will be some haggling involved. In other markets inventory is low and sellers can demand higher prices. Still, other markets are so loaded with inventory that buyers are in the driver’s seat and can command the price they are willing to pay. GET A REALTOR. They understand which market you are currently in. It costs you nothing to use one, unless they are a buyer’s agent, so ask. Your realtor can provide you with a list of comparable homes that have sold in recent months. Once you've made your offer, don't think it's final. The seller may make a counter-offer to which you can also counter-offer. But you don't want to go back and forth too much. Somewhere, you have to meet in the middle. Once you've agreed on a price, you'll make an earnest money deposit, which is money that goes in escrow to give the seller a sign of good faith. Escrow is money deposited by a potential buyer to show that he or she is serious about purchasing the home. Depending on the agreement, it becomes part of the down payment if the offer is accepted, may be returned if the offer is rejected, or may be forfeited if the buyer pulls out of the deal.
So, NO MONEY IS DUE UP FRONT, except the earnest deposit, typically 1% of the purchase price, plus $400 you will pay for your home inspection, and $400 for the appraisal, given to your lender usually. These are rough estimates, but after 18 years of selling real estate in the Central Fl area, they are averages in the Central FL area.
Step 6: Get the Right Mortgage for Your Situation
There are many different types of mortgage programs out there, but as a first-time home buyer, you should be aware of the three basics: adjustable rate, fixed rate, and interest-only.
Adjustable rate mortgages (ARMs) are short-term mortgages that offer an interest rate that is fixed for a short period of time, usually between one to seven years. After that, the interest rate can adjust every year up or down, depending on the market. These are good for people who don't plan on living in their home very long and/or are looking for a lower interest rate and payment.
Fixed-rate mortgages are more traditional and offer a fixed interest rate (and thus a fixed monthly payment) for a longer period of time, usually 15 or 30 years, though they're available in 20 or 25 year terms. These are good for people who like a predictable payment and plan on living in their home for a long time.
Both fixed and adjustable rate mortgages can have an interest-only payment. What this means is that for a certain amount of time during the loan term, you're allowed to pay only enough to cover the interest portion of your payment. You can still pay principal when you wish, but don't have to if your budget is tight. There is a myth that with interest-only mortgages, you don't build equity. This is not necessarily true, since you can build equity through home appreciation. The benefit to interest-only mortgages is that you increase your cash flow by not paying principal.
There are questions to ask your lender, after you choose one, that they are best versed at answering. Remember to ask your mortgage lender or mortgage banker lots of questions about which mortgage is right for you and your situation.
Step 7: Close on Your Home
After you go under contract there are several things which your realtor will guide you through. Sometime during the first 7-15 days of having a contract, you will want to get your home inspection. It will be well-worth the money spent since it ensures the property's structural soundness and good condition. For a 2000 square foot home with a pool, they typically will cost between $375-$450. This is paid ahead of time, to the inspector directly.
When you write your offer, your realtor will need to know how to help you choose your closing date. The closing date is the date that the house becomes yours and you can move in. Things to consider in choosing this date are:
Do you have to wait until your rental agreement runs out in order to move? When will a possible new job start if you are relocating to new area? Sellers will also have to agree to the closing date, as they will need to vacate the premises on that date, and the seller may have to wait until they close on their new house.
You will know the closing date as soon as you have a contract, as it is part of the contract terms.
Be sure you talk to your mortgage banker to understand all the costs that will be involved with the closing so there are no surprises. Closing costs will likely include (but are not limited to) your down payment, title fees, appraisal fees, attorney fees, inspection fees, and points you may have bought to buy down your interest rate. When your lender gives you your pre-approval letter you will know these costs. Most loans allows for the seller to pay them for you, and must be written into your offer. This way, both you & the seller will have agreed to the figures ahead of time.
Step 8: Move In!
You've got your mortgage, closed the deal and now it's time to move in! Whether you use a mover or not is up to you, depending on your financial situation and how much stuff you have to move; perhaps also, whether you have a lot of friends willing to help you move. Either way, you're done with the home buying process! Just start unpacking and start enjoying your first home! Buying a home for the first time doesn't have to be a hassle if you're prepared and you know what to do and when to do it. Choose an experienced home loan lender and a friendly, knowledgeable real estate agent-they are the key to helping you have a smooth home buying experience!
I have assisted buyers and sellers since 1998 in the home buying process. I love what I do.
I welcome the opportunity to assist you today.
Donna Tripp PA