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First Time Home Buyers Guide

First Time Home Buyers Guide

Buying a house is one of the most stressful life events a person can go through. The process can be very lengthy and detailed, but it’s quite worth the trouble when you finally get to own your dream home. Along with being one of the largest purchases most people will ever make in their lives, there are additional stressors that come along with purchasing a house such as meeting deadlines, securing loans, and having attorneys review all necessary documents before signing them.

In this article, we will guide you through everything from pre-approval to the final steps when buying a house. We have broken down this whole process into simple steps so anyone can understand what needs to happen during each phase of the transaction. After reading this article you’ll feel more confident about the whole mortgage process.

The first step you’ll take to buying a house is pre-approval. Getting pre-approved for a loan means that the bank has looked at your income, credit history, and current bills to determine how much they are willing to lend you toward purchasing a home. You won’t be able to find the actual number until after an appraisal has been completed on the property you want to purchase. This is called “Pre-qualification.”

Pre-Approval vs Pre-Qualification

It’s important not to confuse pre-qualification with pre-approval. While both indicate that someone is well qualified for a mortgage, only pre-approval involves looking into your financial history in detail by doing things like pulling your credit reports, verifying your employment, and assessing your monthly bills. Pre-qualification is much less involved because it just determines whether or not you would likely qualify for the loan. Lenders will usually do this over the phone or by looking at a brief application that asks for basic information on income and assets.

Preapproval doesn’t guarantee that you’ll get a loan, but it does mean that you’re well qualified from a lending standpoint. In other words, the lender has vetted you to make sure there aren’t any obvious reasons why they shouldn’t give you a mortgage. For example, if your debt-to-income ratio exceeds 45%, they probably won’t want to lend to you because it could be very risky for them.

When you are pre-approved, the lender will give you a letter indicating how much they are willing to lend you based on your income and assets. You should have this letter handy when shopping for houses so you can use it as leverage against other bids.

How does getting pre-approved help?

Getting preapproved is important because it helps streamline the mortgage process later on. When house hunting, sellers typically want to see that buyers have been pre-approved. This indicates that their offer to purchase has some degree of merit, which may sway them in favor of accepting your bid over another buyer’s offer.

It also saves time by showing the seller right away that you’re serious about buying. If they like what they see regarding your financial qualifications, they’ll be more likely to negotiate the price of the home with you rather than another potential purchaser. For a smooth and efficient closing, it’s also a good idea to have preapproval from your lender before applying for a specific type of mortgage. This will ensure that you’re qualifying for as much as possible, as opposed to only getting pre-qualified which is less comprehensive.

In addition, it can prevent delays in processing your loan because lenders won’t have to do as much legwork. Be aware that this process takes time since lenders will need time to verify your information and look over your financial documents.

What are some common methods for putting a house up as collateral?

A bank or other lending institution may require a lien placed on a house as a means of securing a loan. This can be done via the following methods:

1. Deed of Trust (US) or Law of Contract (UK): as per Wikipedia, “A deed of trust is an alternative to foreclosure for those unable to afford it”. This security instrument must be recorded at the county registry and contains information such as name and address of borrower, legal description and location of property, trustee’s name and address (who may be the lender), and terms and conditions under which home will be sold in case borrower defaults.

2. Mortgage: As per Investopedia, this “is a debt instrument, usually backed by some type of collateral such as real estate that is made for the purpose of borrowing money.”

3. Title Charge: This is a type of title insurance offered by lenders to protect them against any damage that might result from the property’s history or other legal problems.

What are some common costs associated with buying a house?

Homebuyers can expect to cover the following expenses when they buy a home. Keep in mind that these costs vary depending on where you live and the size of the home you’re purchasing, as well as which loan program you use.

Documentation fee: You’ll likely be charged this fee at closing if you choose not to shop around for better rates elsewhere. It covers your lender’s cost for processing your loan application (such as appraisal fees, document preparation charges, etc.).

Points (also known as discount points): This is the fee you pay your lender in exchange for a lower interest rate. Your lender may charge two points, which means that one point equals 1% of the loan amount.

Property appraisal: You’ll have to have an appraiser determine the value of your home before closing so everyone knows how much it’s worth and if there are any liens against it.

Mortgage insurance: If you put less than 20% down on your home purchase, you’ll need to buy private mortgage insurance (PMI). You can opt to cancel this once you’ve paid off 80% or more of your loan.

Appraisal fee: As part of the property appraisal process, you will also incur an appraisal fee which typically ranges from $300-$500.

Survey fee: If you’re purchasing a newly purchased property, you may be required to have it surveyed by a professional in order to learn its boundaries.

Title insurance: This is often offered by lenders to protect the buyer against any claims that might arise because of defects or problems with the title to the property.

Closing fee/Escrow fees: You’ll need to pay various costs at closing including, but not limited to, surveys, notary public fees, transfer taxes, and recording fees.

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