The first step to undertake when you make the decision to buy a home is to wrap your head around the costs involved in the process.
A good rule of thumb is you should spend no more than 30% of your gross monthly income on housing. As for what you will need to come up with for a down payment, it can range from 3.5% of the purchase price through FHA financing, to a more typical 5-20% for conventional loans. The more you put down, the better the interest rate and if you put down 20%, you avoid the dreaded private mortgage insurance (PMI). PMI is how the lender giving you the loan ensures he’s covered for at least 20% of his loss if you default (stop paying your bills and go into foreclosure). So if you are purchasing a home that cost $150,000 and you want to put 20% down, you would be putting $30,000 down when you purchase the property.
Before picking up the phone and calling your lender, here are some lending basics to help you feel comfortable about the pre-approval process.
Once you establish a basic understanding of your financial obligation, your next call to finish this step is to a good mortgage lender (ask your realtor for recommendations). The lender will tell you how much your property’s interest will cost on a monthly basis, what financing options are available to you, and how much this is all going to cost. You should feel empowered and educated after this phone conversation. If you don’t, keep asking questions until you’re 100% comfortable. Once this conversation is over, the lender will provide you with a Good Faith Estimate –a legally binding form which spells out the financials involved with your loan, so it’s 100% crystal clear what you’re signing up for.
Wow, that was easy! Now that you have found me, let’s make this a fun process!
Did you know that you do not pay your realtor a commission? The seller does–so you do not need to factor this into your budget (Yes, you get the assistance of a top-notch realtor for free when you buy your home–how awesome is that?)
Ok now you’re cooking–you know how much you can afford, you know how much this is all going to cost, and you have picked the best realtor in the entire world to represent you using the amazing tips I’ve given you above–congratulations! Now the fun part can begin!
We will start with an in-person meeting to set up your search of available properties. You want to have maximum impact and see how your agent is setting up your search so it’s exactly the way you want it.
Once the search is set up you’ll have a bit of homework to do. I ask that you select around 10 properties that best fit the needs we discussed in our meeting and that you drive by those properties to get a feel for the neighborhood. After you have done this we can narrow the list down to 5-7 properties you would like to see. My job is to schedule the appointments, make sure everything runs smoothly, and to answer questions you have along the way (or get answers if I don’t know them). Depending on your schedule, the process of actually looking for a home can take from 1 week to several months.