Do you know if you’re ready to buy your first home? This often is one of the biggest decisions you will make in your lifetime. Home buying is exciting, but it can also become stressful if you are not prepared for the process.
Below are some home buying steps to help get you ready. And, remember, we’re here to help. You can use VCB’s online calculators to research payment amounts, affordability and more. Call a VCB Mortgage loan specialist at (703) 961-0160 (Option 0) or visit our VCB Mortgage web pages to learn more.►Consider the benefits of buying.
When you buy a home, it’s more than a home…it’s an investment. Because your home can build equity every month, you could make money when you sell it. If you're currently renting, buying a home may be an added tax benefit (consult a tax advisor). Also, owning a home gives you the opportunity to renovate or remodel as you wish as well as have stronger connection to your community.►Know the costs of owning a home.
Make a realistic financial assessment before you begin looking at houses. Know your current budget and add in the future costs of owning a home. Will you be able to maintain a home and make any needed repairs? If you’re thinking of a bigger living space, are you factoring in bigger utility payments as well? Also, remember your down payment and closing costs as well as moving costs. Our mortgage loan specialists can help you determine total costs so that you can find the best home for your budget.►Run a credit check.
You’ll most likely need a loan for your new home, so you need to be aware of your credit. You should run a credit report on yourself before speaking with a lender to make sure that your payments are current and to correct any misinformation. To order your free credit report each year from the three major credit bureaus, visit www.AnnualCreditReport.com or call 1-877-322-8228. You can also write: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.►Get pre-approval.
A pre-approval letter can reduce future stress by letting you know how much home you can afford. Also, getting pre-approved lets sellers know that your offers are serious. A VCB lender can help you research mortgage options now and obtain a pre-approval letter so that you’re ready when you find the home you want.
The two major types of home loans are the adjustable rate mortgage and the fixed rate mortgage:
A fixed rate mortgage, or FRM, is a loan in which the interest rate on the note will remain the same throughout the entire loan term, or for a specified length of time, as opposed to mortgages in which the interest rate may adjust or "float.” Generally, fixed rate mortgages come in 10, 15, or 30 year terms and are the most popular mortgage type.
An adjustable rate mortgage, or ARM, is a loan in which the rate will change and adjust on a specified schedule after the initial "fixed rate" period. Considered riskier than the fixed rate mortgage, an ARM payment can fluctuate significantly; however, your initial rate is often much lower than market rates for the 30-Year Fixed Rate Mortgages.►Make an offer.
Once you find the home you want, carefully consider how much to offer. Remember that the market conditions really affect sale prices. You or a real estate professional should perform a comparison market analysis on recent home sales. Sometimes, sales information is available online through your county tax office, or you may have to make a trip to the courthouse. Real estate professionals often have easier access to information since most of the sales information is recorded in the Multiple Listing Service for your area. When working with a real estate professional, ask to see the residential property disclosure on the home to find out:
- What’s the difference in asking price versus selling price in recent sales?
- How long are the houses in the neighborhood typically on the market?
- How long has the house you’re considering been on the market?
- Has the price been reduced and by how much?
- Do you know of any prior offers on the home?
This information will help you make a reasonable offer. Although everyone wants a deal, a seller may not take a low offer seriously enough to offer a counter. Be prepared to go back and forth during the negotiation process until you can agree on a final number. Generally, verbal offers concerning real estate aren’t binding, so make sure that all changes to your offer to purchase contract are put in writing and are initialed by all parties.►Plan for an earnest money deposit.
With your offer, you should include an earnest money deposit to show “good faith” that you intend to buy the home. You and the seller determine the exact amount, but it’s usually is 1 to 4% of the offer price. At closing, the earnest money is applied toward the purchase price or closing costs of the home.►Get your loan.
To buy the home you choose, you need to secure the necessary financing for the home. If you’ve been pre-approved, this is a quicker process. If not, get your personal papers in order:
- Current pay stubs, including year-to-date income
- Current W-2 or tax returns, if self employed
- Bank account statements for three months
- Credit card information — lenders want to see if your account is current along with the number of open accounts, outstanding balance and monthly minimum payments due
- Other loan information — car, existing mortgage, student loans, etc. — the same guidelines apply as for credit cards
- Investment Information — include any account numbers, current values and three months of statements
Most lenders, including VCB, requires that the home you want to purchase must pass an inspection and your loan amount will be based on the lesser of the appraised value or sales price.►Close on the home.
Hang in there; you’re almost home! Your closing agent will prepare a closing statement detailing all of the expenses for the day of closing. They will provide full instructions, but here are some standard settlement items. Know ahead of time how much money you need for closing costs because the funds must be in the form of a certified or cashier’s check. It’s also a good idea to bring your personal checkbook to settlement in case there are incidental expenses that must be covered. Plus, you’ll need to provide a copy of your homeowner’s insurance policy and evidence showing you’ve paid one year’s worth of homeowner’s insurance.
Your closing agent will also make sure the title to your home is being transferred clear of any disputes or liens. Ask for the receipts in case you need to contact the provider in the future. All that’s left is the exchange of keys, and you’re ready to move. Enjoy your new home!