So You Want to Buy a House, Now What?

As a RED BaRN Realtor®, one of the most common questions I get asked is, "What do I need to buy a home?" There are so many steps involved when buying a home; it's not uncommon for first time homebuyers to completely overlook one or more of them.

Here’s a breakdown of the 5 things you will need to purchase a home....

1. Mortgage Loan Pre-Approval

The first step in buying a home is to acquire the money to buy a home. For most people, that means getting a mortgage. A mortgage is a type of loan used to buy a home. So how do you get a mortgage pre-approval? There is no end to the number of places you can go online to get a mortgage pre-approval. In Woodstock, we have some excellent mortgage lenders who we regularly recommend. One in particular is our in-house lender, Black Oak Mortgage. The right mortgage lender will help you understand all of your borrowing options and make the whole process as easy as possible. Shopping for a mortgage lender is always recommended to ensure you get the best rates possible.

Once you have found a mortgage lender, they will run a credit check, ask you some questions about your current financial situation, and determine your eligibility based on these answers. They will work with you throughout the buying process once you have found a house. They will also issue you a pre-approval letter to share with your Realtor®. This pre-approval letter is required in order to make an offer or begin the home search. The letter lets everyone know that you are qualified and can purchase a home within the price range recommended by the lender.

2. Earnest Money

Earnest money is money that you must provide upfront when you buy a home. Think of earnest money as your way of saying, "I EARNESTLY want to buy your house, so I am putting this EARNEST money with my offer." It's kind of like a deposit to prove that you are serious about purchasing the seller's home. In Georgia, the earnest money is usually around 1% of the purchase price of the home. If all goes well and you get to the closing table with the seller, that money is credited back to you at closing. If you terminate your sales contract within your inspection or loan qualification deadlines, you will typically receive your earnest money back. If you are past those dates, it's much harder to get your earnest money back, if at all. Earnest money is usually held by the title company or listing agent's office.

3. Money for Down Payment

Once you talk to a mortgage lender about your pre-approval, they will be able to tell you what amount you need as a down payment to purchase a home. There are different loan types, like VA loans or USDA loans, that do not require a down payment and offer 100% financing. You will need to check with your loan officer to determine which type of loan product you are eligible for. The most common down payment amount required is usually between 3% to 5% of the purchase price. Some lenders will require a 20% down payment, if you already own a home and are looking to purchase a second home. There are many different options available that your lender will help you navigate. Down payment money can come from your savings, the money you get when you sell your current home or gifts and grants from family, employers, and nonprofit organizations. Borrowers who put less than 20% down will most likely require PMI-private mortgage insurance.

4. Money for Closing Costs

When you purchase a home with a mortgage, your mortgage company will have fees that they charge for originating and generating your loan. These can be anywhere from 1% to 4% of the loan amount, depending on the type of loan that you choose. Talk to your loan officer to get a reasonable estimate of what your closing costs might be for your loan type. It is also possible to ask the seller to contribute to your closing costs when your Realtor® writes the purchase contract. This option will be dependent upon market conditions and the demand for homes in your price range. If homes are selling in a day or two, it's challenging to get a seller to agree to offer money towards your closing costs. I typically advise finding a way to save up that money just in case you find the perfect house, but the seller will not offer any closing cost assistance.

5. Money to Hire a Home Inspector

Once you have found a home and you have an executed binding contract with the sellers, you'll need to hire a home inspector. In our area, we usually write a 7 to 10 day inspection period, aka due diligence period, that allows enough time for homebuyers to hire a home inspector to make sure that there are no significant issues with the home. It is okay to ask the seller to make needed repairs during your inspection period. If seller agrees to said repairs, they must be completed within a certain time frame before closing. The average cost of a home inspection can be from $350 to $600+ depending on the size of the home. Depending on the type of property you are purchasing, you may also consider hiring radon, septic, well, structural, mold, or pest inspection. If you require multiple inspections, make sure that you write enough time into your Inspection Deadline to complete all of them.

FINAL THOUGHTS

Buying a home is a huge commitment. It's not like purchasing any other item. You can't take it back later if you have buyers remorse. For this reason, it's wise to research as much as you can before buying a home. Research your loan officer and Realtor online before committing to work with them. Don't move forward until you have all of the proper pieces in place.

Now that you are prepared for these five critical things that you need to purchase a home, you can be sure that you have what it takes to get into the home of your dreams!