Find a Lender
The first thing you'll want to do, even before you begin shopping for a home, is to meet with a lender. In fact, this should happen before you meet with an agent and will help the process go more smoothly later for a number of reasons. For instance, there have been many changes in guidelines since the financial crisis. So, if this isn't your first home purchase, some of the requirements from your previous home purchase may have changed. And if you are a first-time homebuyer, you could qualify for special programs.
Find the Right Agent
An experienced agent who specializes in the area where you're looking can prove invaluable as you navigate the shopping and home-buying experience. And keep in mind that as a homebuyer, working with an agent costs you absolutely nothing out of pocket, because agents are typically paid by the home seller from the proceeds of the sale.
Financing Your Home
Once you and the seller agree on a price, you will sign a purchase and sale agreement, which stipulates the price and the target closing date, among many other details. At this time, you will likely be required to pay an agreed-upon amount of money that's known as "earnest money" into an escrow account as a good-faith gesture and deposit.You will likely then shift your attention to financing your home.
Unless you've saved up enough money to buy the home outright with cash, you'll finance it with a mortgage from a bank or mortgage company.
There are many different varieties of mortgages, but they all fall into one of two broad categories: fixed-rate mortgages and adjustable-rate mortgages (or ARMs). As the names imply, the interest rate on a fixed-rate mortgage stays the same throughout the life of the loan, while the rate on an ARM will change to reflect current market rates after a set period of time, which usually ranges anywhere from one to 10 years.
Leading up to the Closing
The time period from the signing of a contract to purchase a home until the closing date will be a busy one. Here are a few of the most important things you'll need to accomplish during this time:
- Continue working with your lender
You'll need to pull together a wide variety of financial and employment information, including recent pay stubs, investment and savings account statements, and tax returns for the past two years.
- Arrange for homeowner's insurance
Coverage needs to begin on the day you take possession of the keys. Talk to your insurance agent about coverage: you may be able to get a discount by using the same company through which you have car, life and other insurance. Your agent will also help you determine what additional protection you may need, such as for contents or added liability coverage.
- Schedule a home inspection
While not required, most experts recommend that buyers hire their own independent inspector to professionally inspect the home before closing. This will help uncover any potential problems or repairs that aren't obvious to your unprofessional and untrained eye.
- Prepare to move
In the midst of the excitement of buying a home, you also need to start packing up all your belongings and preparing for the big move. Start early and try to accomplish a little bit each day so you're not overwhelmed the last few days before moving day.
At the Closing Table
Before the closing, your lender will provide you with a good-faith estimate (or GFE) that details all of the various charges and fees that will appear on the settlement statement (also known as a HUD-1) you'll receive at closing. Review the GFE carefully and ask your lender or settlement agent if you have any questions about it.