Avoid the stress from the complications of home buying. How to successfully buy a home involves the following steps:
Examine your Credit Report and Credit Score
Examine your credit report before you contact a mortgage lender. The law allows you one free credit report per year. Go to Annualcreditreport.com which gives you information from these three credit report agencies: Experian, TransUnion, and Equifax.
Once you get this report review it to make sure everything is accurate. Challenge any missing information or errors with each agency. The Federal Trade Commission (FTC) publishes an excellent guide on “How to Dispute Errors on Credit Reports”.
Your credit report provides the data to FICO (Fair Isaac & Co.) which gives a credit score. The credit score ranges from 350 to 850. The highest credit score ensures a lower interest rate for your mortgage. Lower rates indicate you as risky deserving a higher interest rate.
Your credit scores depend upon:
- Amounts owed – The total of your debt;
- Payment history – Whether you timely paid your debts;
- Credit history length – The length of time you borrowed money as lenders prefer a credit history over a long period of time;
- Credit types – Lenders like a range of debt types like car loans, bank cards, and student loans; and
- New credit – Did you recently apply for new credit?
What’s a Decent Credit Score?
Above 720 – Gets you a lower mortgage interest rate.
Above 580 – Qualifies you for an FHA loan with favorable interest rates.
Read this blog post about how to raise your bad credit score if you need to.
Figuring Out How Much You Can Pay
Determining how much you’re able to pay. Qualifying for a large mortgage loan shouldn’t mean you want to make those higher monthly payments.
Use this free online mortgage affordability calculator which helps you to see what you can afford.
Now find a local Realtor who can research your local housing market based on your affordability.
Finding a Good Realtor
Do you know the difference between a Realtor and a real estate agent?
A real estate agent licensed in your state to help you buy, sell, or lease real properties for a fee or a commission.
A Realtor is a real estate agent who joined the National Association of REALTORS® (NAR). This association produces a Code of Ethics requiring ethical standards of professionalism and practice for its members.
In addition, NAR provides valuable training and resources for its over 1 million members across America.
Read our Blog post about the difference between Realtors and real estate agents.
Contact local Realtors and meet with them to see if they fit with your desire for a confidante, advocate, and hand-holder in your home buying process.
Lender Pre-Approved Letter
Don’t wait to make an offer on a home before contacting a bank or another financial institution mortgage lender. Getting pre-approved for a mortgage written by a lender makes you confident. It also gives you bargaining power when negotiating with home sellers.
To get a lender pre-approved letter allows the lender to obtain all your credit data (Step 1 above) and assessing your financial status. A pre-approved letter gives the amount the lender will loan you.
Often, multiple offers from different buyers occur where your pre-approved lender’s letter makes you stand out amongst your competitors. This letter gives your seller confidence that your mortgage loan approval for the sales price means you can buy the home.
Getting a lender pre-approved letter does not mean you must apply for a mortgage with that lender. In fact, it’s a good idea to compare different lenders fees and interest rates before officially applying for a mortgage.
Look at Homes
After following all the above steps, the serious home shopping begins!
Talk with your Realtor regarding what you really need and want in your home. Your Realtor will take this information and research the local home market to create top candidates for you to see.
Touring homes also helps you to see the pros and cons of the many features available homes offer. Refining your wants and needs makes finding the right home easier.
Read our Blog post about the types of things to consider when looking for a new home.
Making an Offer
Finally, you find the perfect home for you and your family.
Sit down with your Realtor to create an offer. That’s right, you don’t just make an offer on price. Other factors related to home purchasing exist. For instance, requiring a professional inspection to look for hidden defects, or asking for cosmetic updates, or including furniture and appliances.
Your Realtor understands the home market and helps you with crafting an appealing offer whether at or above the listed sales price.
After submission of the offer, you wait. The seller may accept your offer, or reject it, or make a counteroffer with new conditions or a different sales price. Again, you go over the entire counteroffer or if rejected come up with a new offer.
Many Realtors describe this process as a dance. You make the first step and the seller swings you around with a rejection or a counteroffer. You then make your next move. The dance may end up with an outright rejection or a “Yes” where you celebrate!
The Home Inspection
Go with your professional inspector as he or she looks over the entire home to see if any unseen defects need repairs. These may require further negotiations with the seller about who makes the repairs and when (before or after the Closing).
More important than finding hidden defects, the inspection gives you the only opportunity to spend time in your new home before you own it. Take measurements of the kitchen to figure out what size appliances you need. Look at the closets to see if they are big enough for your needs. Which rooms serve what purpose? Does the front and back yards need fencing or landscaping?
Read our Blog post to learn more about the home inspection process.
If you’re a home owner contact your insurance agent to let the company know you may be purchasing a new home. The company issues a new policy.
If you don’t have an insurance agent find one to provide homeowners insurance as required by your mortgage lender. Even if you don’t need a mortgage, home insurance protects your investment.
Contact Utility Companies
Before your closing date contact all the utility companies of your move-in date to set up services. You don’t want to move into a dark, cold home.
The same goes for internet and cable TV services and any other services needed for your new home.
Your big day arrives. Read all the escrow closing documents and ask the escrow officer about anything you don’t understand. Then sign all the documents.
You’re near the finish line!
Read our Blog post explaining San Diego Closing Costs.
You did it! The title deed recorded with the local government gives you title as the new homeowner. Your Realtor obtains the keys to your new home and gives them to you.
The purchase contract normally specifies how many days after the closing you can move in. Possession may occur right away or the contract gives the seller time to move everything out after the closing.
Once you take possession of your new home it’s time to celebrate! Don’t forget to invite your Realtor to your celebration.
How to successfully buy a home involving the steps provided here makes the entire process easier. Here’s how:
- Looking at your Credit Report and Score includes challenging any errors;
- Figuring out how much you can afford:
- Finding a good Realtor;
- Getting a Lender Pre-Approved Letter;
- Looking at homes;
- Making an offer;
- Home inspection;
- Getting insurance;
- Contacting utility companies;
- Closing day signing escrow documents; and
- Moving In.
Finding a Good Realtor Is Easy
- Easy Online Home Search;
- You Pick the Favorites; and
- We Let You In.
Also, we provide you with Spotlights on all the important neighborhoods and communities in the greater San Diego area to learn valuable information about each one. Visit our Blog to choose which community appeals to you and your family.
Steven Rich, MBA – Guest Blogger
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