Buying your first home is a huge step. It’s also a big financial commitment, especially with mortgages that last 30 years.
Buying a home is more than four walls and a roof, though. It’s about choosing the right home for you, from its size to the neighborhood. Buying a house requires hard work, dedication, and patience.
Get Preapproved for a Mortgage
While perusing elegant real estate listings online may stoke hopeful homebuyers’ dreams, it’s critical to start buying a home Lake Zurich, IL seriously as soon as possible by obtaining mortgage pre-approval. Your mortgage payment range, budget, and potential interest rate are all determined by this nonbinding process. Along with making the home-buying process considerably more manageable, it also proves to sellers that you are a qualified buyer.
A mortgage preapproval involves filling out a loan application, and lenders will verify your financial and credit information. You’ll receive a document showing the maximum amount you’ll likely be approved for, along with your expected monthly mortgage payment based on your home price, down payment, loan term, property taxes, and homeowners insurance, all of which will depend on your debt-to-income (DTI) ratio.
Your mortgage pre-approval is valid for 90 days, but you can request a renewal by providing your lender with current documentation. DTI is an essential factor in determining your approval, and it’s important to avoid taking on additional debt or increasing existing debt while you’re house hunting.
Get a Down Payment
A mortgage lender typically requires a down payment of 20% or more. The cash needed for a down payment varies by mortgage lender and loan type.
The higher the down payment, the less you’ll need to borrow, which can lower your interest costs. It also shows the lender that you’re committed to homeownership and are less likely to default.
Aim for a down payment of at least 3%, but make sure you’ve also budgeted for closing costs, which usually total 2-5% of the home’s purchase price. If you run out of money for your down payment, a personal loan or credit card cash advance may be an option. But be careful not to sink all your savings into a down payment, as new homeowners often need to make other repairs or upgrades soon after moving in.
Get a Home Inspection
During a home inspection, an inspector will look at the home’s condition and identify any issues that must be addressed. A buyer can then use the inspection results to negotiate with the seller or, if necessary, walk away from the sale (provided the contract’s contingency clause allows for it).
Typically, buyers pay for the home inspection. However, an excellent real estate agent can help find a qualified home inspector. Ensure your real estate agent doesn’t receive any compensation for recommending a particular inspector and that they’ve worked with buyers like you before.
It’s essential to attend the home inspection and ask questions. It will allow you to become familiar with the inspection report and understand what it’s telling you about the property. It also saves you money, as you can convince the seller to cover repair costs or lower the purchase price.
Get a Home Loan
The last step before you buy your first home is to obtain a mortgage. During the process, lenders will ask you to prove you can afford a mortgage payment and other homeownership costs. They’ll want to see your bank statements, employment history, and other documentation.
If family members are helping you with your down payment, you’ll need to provide a letter indicating the relationship and amount of money received. Lenders will also require that you obtain homeowners insurance to protect your investment.
Buying your first home is an exciting endeavor. With the correct information and guidance, you can be confident in your decision. And remember: Wait to shop until you know how much you can spend! If you’re not ready, the dream of homeownership might never come true.