So you are looking to become a homeowner and you have no idea where to start, am I right?
Great, I can help you with that!
Buying your first house is a very big step and the journey isn’t always easy, but when you get the keys to your new home it is the most rewarding feelings ever.
Home Buying in 12 Steps
The Home Buying Journey
Knowing what tools are at your disposal should be the first step to research.
How do I do that?
Very easy, by creating a relationship with experts, this will help you get the job done and the protection you need!
Which Experts Am I looking for?
- Real Estate Agent
- Loan Officer
- Home Inspector
- Attorney and/or Closing Agent
1-Real Estate Agent
Ok, but I cannot really afford a Real Estate Agent to help me with the process of the house buying. So I prefer to skip that part.
Not so fast! Unless you chose to personally compensate an agent, you don’t have to pay your real estate agent. What I mean by that is if you get a real estate agent to help you with for sale by owner or any other property not listed by a realtor, then yes, you would be responsible for the real estate agent commission.
Otherwise, the buyer’s agents are paid from their broker who receives the commission from the listing broker. The real estate commission is pre-determined by the seller in the listing agreement, so it is not coming out of your pocket!
A loan officer plays a big part in the process. Nowadays most Realtors will not show you houses unless you have a mortgage pre-approval on hands.
What Does Mortgage Pre-Approval Mean?
A mortgage pre-approval is a commitment from your lender that after verification of the documents submitted to them, they will provide you with home financing up to certain loan amount.
How do they determine the amount that they will lend me?
There is a formula the lenders use to qualify you based on the gross income (before taxes)
Most of the lender will use 28-36 rule to determine what you can afford and how much money they’re willing to lend you. It is also known as the front-end ratio and the back-end ratio.
Here’s how it works:
They will take the new housing expenses (PITI=Princial Interest Taxe and Insurance) and divide it by your gross monthly income which will determine your front end ratio.
The back end ratio will be determined the same way, but this time we will be adding all your monthly debts to your new housing expenses and divide it by your gross monthly income.
This rule applies to conventional loan only. There are many other loans available to first time home buyers with a slightly different ratio, FHA and VA also use different ratios.
Who pays for the home inspection?
The buyer pays to have the house inspected.
When do I set up the house inspection? Is it just before closing?
No, when writing up the offer, your agent will normally set it up like “inspection to be done within 3 to 5 business days from the acceptance of the contract”.
The buyers hire their own inspection company. Your Realtor can certainly refer you some companies that they have been working with in the past, but it is totally up to you to decide who will inspect the house as long as they are licensed certified inspector.
Remember: A Home Inspector Is Your Protector!
They help you make sure that the house isn’t hiding anything.
They will also identify any reasonably visible problems with the house like a leaky roof, faulty plumbing, etc. Hiring an inspector, it is you, doing your due diligence.
Before an inspection, the home inspector will review the seller’s disclosure. (Each state has its own requirements for what sellers must disclose on these forms; some have stronger requirements than others.)
What is the duty of a home inspector?
- Identify problems with the house
- Suggest fixes
- Estimate how much repairs might cost
- He or she produces a written report including photos, that details any issues with the property. This report is critical to you and your agent — it’s what you’ll use to request repairs from the seller.
Now that you received your inspection report it is time to negotiate!
By law, there are certain repairs that the seller is obligated to effectuate, but, again the law is not the same everywhere.
Most sales contracts require the seller to fix:
- Structural defects
- Building code violations
- Safety issues
4-Attorney and/or Closing Agent
The big day has arrived! Soon you will become a Homeowner! How exciting!
3 Days Prior To Closing
Your lender must provide you with a Closing Disclosure, which will look very similar to your Loan Estimate.
Make sure to double check the interest rate and all other personal information for accuracy. Contact your lender immediately if something appears different than what you were told!
Double check again the mortgage note rate at closing to make sure it is the rate you were told after they lock in the loan!
The Closing Disclosure will detail information about your mortgage loan and the exact amount you’ll need to bring to closing to cover closing costs.
On the day of closing, you’ll receive the following paperwork:
- Mortgage note stating you agree to repay the loan
- Deed of trust to secure mortgage note
What do I need to bring at closing?
- Picture ID
- Cashier’s Check in the amount that the closer would have told you to bring. DO NOT bring cash nor personal check!
- Homeowner Insurance
- Any other document required by your lender