Buying a new home, especially for the first time homebuyer, is exciting. This experience may turn into a stressful and costly process if you don’t know how to make a well-informed decision. One wrong move can lead to a failed deal.
Mortgage lenders are there to provide a variety of options to your home buying decision. The first step is to know how you should decide to make use of the various options they offer. Here is a guide to make your first home buying decision simple.
The first thing to consider for a first home buyer when buying a new home is to know how much you can afford. Consider your household income and expenses to know how much you can borrow.
Many first-time homebuyers decide to buy a home when they think they are ready for a mortgage. What they don’t realize is that their mortgage payment might be much more than what they believed it to be.
There are many associated costs that you might have to bear. Property tax and insurance have the tendency to go up every year. Ask yourself if you are ready to afford the increased cost. You must have enough resources to pay out the following costs.
The down payment is a necessary part of every mortgage loan especially if you are a first time home buyer.
Note, the down payment is not included in the amount of your mortgage loan.
The closing costs you might need to pay for are:
Prepayments include interest from the date of the closing to the date of first payment, prorated property taxes, mortgage insurance premium, hazard insurance premium, and flood insurance premium.
Mortgage Lender’s Fees include loan origination fee, credit report fee, commitment fee, appraisal fee, and loan discount points.
Additional Fees include attorney fee, recording and transfer fee, title charges, home inspection, termite inspection, and survey fee.
Once you know the costs you might have to bear when buying a new home, look for the most appropriate mortgage option for yourself. Knowing that you may not afford the house you love may be heart-breaking. It is better to get pre-approved and then look for a home. This way you might make a more practical and better decision.
After finding the home you want to buy, go to the lender with the right documents and submit your application.
Once your application is complete, the lender will perform necessary checks and prepare for closing. Your lender will consider factors including your credit history, income-to-expense ratio, assets, and appraised value of home.
Lenders will determine your ability to pay a loan by calculating a certain percentage of your monthly gross income which is known as ratio. Your housing debt comprises the cost of principal amount plus interest, the real estate taxes, homeowner’s insurance, mortgage insurance, and other related expenses. This is known as PITI – Principal, Interest, Taxes and Insurance.
You are required to apply a certain percentage of your gross income to service the loan. There is a limit to how much income you could spend to your total debts which is called recurring debts. Recurring debt includes payment of credit card, various loans installments and other types of debts. Your recurring debt plus monthly housing debt should not exceed 43 percent of your gross income.
After evaluating your application and due diligence, the lender makes the approval decision. If your loan is approved, the lender issues an approval letter. The letter carries the information of the transaction in detail along with the conditions under which the loan has been sanctioned.
If the loan is not approved, the lender issues a written explanation. You can re-apply after taking corrective actions. The lender may also present a counteroffer which may contain changed terms or loan amount.
After approval, the seller is paid and the ownership of the house is transferred from the seller to you.
You can seek help of a real state attorney during the process of buying a new home. However, leaving everything to him is not right. You should have enough information to make a decision in the best interest of you and your family.