1. Before you start looking for a home, get pre-qualified for a loan. Banks, credit unions and mortgage bankers make home loans; mortgage brokers process them. The lenders will take an application, process the loan documents, and see the loan through to the funding stage. A pre-qualification does not require you to run your credit….that is a pre-approval. I suggest getting pre-qualified to see what you can afford and what you would be most comfortable spending.
2. If you have marginal or bad credit, consult your lender. You may be able to qualify for a loan depending on how long ago and what reason(s) caused the bad credit. A lender should be able to advise you on whether your credit history will prevent you from qualifying for a home loan.
3. You will need a down payment. Down payment requirements vary depending on the type of loan. Many down payment assistance programs exist. These programs may loan or grant you the funds necessary for the down payment.
4. You will need funds for closing costs Closing costs are charges for services related to the closing of your real estate transaction. They include, but are not limited to:
a. Escrow fees charged by the company handling the transaction
b. Title policy issuance fees charged by the title insurance company
c. Mortgage insurance fees
d. Fire and homeowners insurance
e. County Recorder fees for recording your deed
f. Loan origination fees
5. Some loans have "points" and some do not. A point is a loan origination fee equivalent to 1% of the loan amount. Together with the interest rate they constitute the yield on your loan for the lender. Some lenders charge a higher interest rate to compensate for charging no points. It is important to comparison shop lenders to make sure your loan is at a competitive yield.
6. Be aware of the two main types of loan categories.
a. Conventional Loans. Conventional mortgage loans are available with fixed or adjustable interest rates. Some loans may require mortgage insurance. A conventional loan is for loans $417,000.00 and below. Any loan amount above $417,000.00 is considered a jumbo loan.
b. Government Loans. These include Federal Housing Administration (FHA) fixed and adjustable rate mortgage loans, and Veterans Administration (VA) fixed rate mortgage loan (you can only get this loan if you or your spouse is a veteran).
7. Why might you have to pay mortgage insurance? Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. Generally, conventional loans that require larger down payments do not require mortgage insurance. Mortgage insurance is always required on FHA mortgage loans. You will pay PMI if you do not own 20% or more of the home.
8. Make a list of must haves (non negotiable), wants (willing to compromise on), and absolute cannot live with.
9. Determine if you and your family would be comfortable living in a home that needs some fixing up, a remodel, or is turn key. Keep in mind that turn key homes will have a premium price tag because you are ultimately paying for the renovation. Purchasing a home that requires some fixing up will come with a lower price tag but requires some sweat equity. If you are feeling very adventurous you can consider purchasing a home in original condition. You will be able to get more house and land for your money, but you will have to put more work into it. The upside is the property value will go up more significantly, and you can make the home exactly as you want it, the down side is that it will be a lot of work, time, and money (still a better deal than turn key though)
Taking the time to fill out the table below may be pivotal in helping you with the home searching process. Keep in mind what you are willing to negotiate and what you must absolutely have. This will help the process become more streamlined and less aggravating for you along the way!
Can Live With/Without
Number of bedrooms
Number of bathrooms
Number of stories
Turn key, fixer upper, needs some work