What Every Home Buyer Should Ask Themselves

Buying your first home can be a stressful experience, and considering it will most likely be the largest single purchase of your life, it's smart to be educated about the process. The following are the 10 key questions any first-time home buyer should ask themselves:

 How Much Can I Afford? As a first-time home buyer, it's important to have an accurate idea of how much home you can afford and how much you are qualified to borrow. Few things are more frustrating than falling in love with a home only to discover that it is not in your price range. But, how do you know what you can afford? Many online lenders offer calculators on their Web sites which you can use to find out about how much you can afford based on your income and expenses. For this, try using the Home Affordability Calculator.

Should I Get Pre-Approved, Pre-Qualified, or Qualified? Often a broker or lender will tell a potential buyer they are "pre-qualified" or "pre-approved" for a loan. Those terms can confuse potential home buyers, but they mean the same thing. When a borrower provides income information and their credit report is checked, a preliminary loan amount is given by the lender based on that. However, the borrower may find a house, only to later learn that the amount they were "pre-approved" for wasn't what they could actually afford.

To fully approve a borrower, a lender will complete the application process by pulling credit and verifying income and assets. Lenders offer a Mortgage 1st program whereby you are fully approved before you shop for a home. That way, you're in a better position to negotiate because the seller knows that your financing is in place and that your offer is solid. It also saves you time because you already know how much you can spend and don't waste time looking at homes outside your price range.

What Is My Credit Score? Before applying for a home loan, first-time home buyers should obtain a copy of their credit report and review it. If there are errors or issues that need to be fixed, it's easier to address them before a house has been found, rather than dealing with it when trying to close on the loan.

If there are a few blemishes on your credit, as a first-time home buyer, you should talk to your lender for advice.

What Kind of Loan Options Are Available to Me? For first-time home buyers, all of the mortgage lingo can be a bit confusing and overwhelming. Ask your banker a lot of questions. A good mortgage lender will ask lots of questions to become familiar with your financial situation and your specific needs so that they can fit you with the most appropriate home financing options and explain the process in a way you can understand.

Deciding what mortgage loan is best for you will depend on a few key factors:

 

       Your current financial situation 

      Whether or not you expect your finances to change

      The length of time you plan to stay in your home

      If you are financially able to adjust to periodic changes in your monthly payment

 

Note that an interest-only loan gives home buyers flexibility and allows you to afford more than a traditional principal and interest loan. Because interest-only loans are fairly new in some markets, some people are wary. Make sure you research all loan options before making a decision.

What Documentation Do I Need to Have? To make the loan process faster and easier, you should have these items available when you're ready to complete your application:

•  W-2s
• Pay stubs
• Bank statements 
•   Written verification documenting where the down payment will come from

Some loan programs are more flexible and require less documentation, so if you are self-employed, work on commission, or have difficulty documenting income you do have other options for processing your loan.

I Found My Dream House! How Do I Know What Is a Reasonable Offer? When deciding how much to offer, you should weigh several factors: asking price vs. comparable home sales, market conditions, other potential offers, the home's condition and whether you're approved for a loan. A real estate agent can be very helpful in deciding how much you should offer.

What Is a Purchase Agreement? This document indicates the amount of your offer and may also include details that stipulate, for instance, which appliances stay and when you'd like to take possession of the house. The seller or selling agent will need you to sign a purchase agreement and put down "earnest money." Earnest money is a deposit showing that you're willing and able to buy the home; it's usually a small percentage of the asking price and later applied as part of your down payment. It is a check written to the seller that your agent holds on to until the offer has been accepted.

Title companies can also prepare a purchase agreement. If you choose not to work with a realtor, seek the advice of an attorney to help you prepare your documents.

Should I Have the Home Inspected? Yes, you should. You have a right to inspect the home you've made an offer on, and most purchase agreements are contingent upon inspection. Hire a qualified professional to inspect the home--it's the best way to ensure the home is in good condition.

A thorough inspection is an objective examination of the home, from top to bottom, inside and out. It includes:

        Heating and cooling systems

       Plumbing and electrical systems

       Structural integrity of walls, floors, ceilings, foundation, roof

        Condition of gutters, spouts, insulation and ventilation, major appliances, garage, etc.

The home inspector should check everything and leave you with a very detailed report listing the condition of each item, as well as recommended repairs.

It's best to be there when the home inspection takes place. It usually takes a few hours and you'll learn not only about the condition of the house but how everything works and you can ask questions as you go along.

If there are problems, don't panic. Most inspections of older homes can reveal a number of items that aren't quite right. It's up to you to decide whether to deal with them or renegotiate with the seller. For example, a seller may adjust the purchase price of the home or simply repair the problem, depending on what it is. There's always a chance that the home is in such bad shape or has some monumentally costly problem that it's out of the question. If that's the case, get your deposit back and resume your house hunting.

Do I Need Homeowner's Insurance? Yes, you'll need homeowner's insurance before you close on your home. No reputable lender will give you a mortgage without it. Once your home is inspected and you've decided to go ahead with the purchase, the loan processing will go forward. It's at this time you'll need to show proof of homeowner's insurance.

What Are Closing Costs? This is one of the most asked questions by home buyers. Lenders are required by law to disclose in writing your estimated closing costs and fees. This is known as a "good faith estimate." Additional costs might apply depending on your state, loan and down payment amount. For instance, title companies handle most closings, but there are some states that require an attorney to conduct the closing. In those states, borrowers are not required to pay a title company closing fee.

Before your closing, you'll receive a document that outlines the costs you'll pay at closing. You'll be asked to bring a valid picture ID, a certified check (if applicable) and any other additional documents that your circumstances may require.

It's customary to take a final walk through of the property shortly before the closing to make sure the home is in the condition you expect it to be.

Any number of people may attend the closing--you, your lender, the seller, the seller's mortgage holder, respective attorneys, the real estate agent, the transfer agent (if it's a co-op), the managing agent (if it's a condo) and the title company representative. Once everyone signs the appropriate documents and the checks are exchanged, you'll be given the keys to your home and that's it!

Now that you know the basics, you're on your way to being better prepared for getting a mortgage and buying your first home. Make sure you do your research and ask lots of questions and ask your friends and family which mortgage lender they would recommend. Good luck and good hunting!