Buying your first home is an exciting prospect, especially if you’ve been renting for years. While you’re daydreaming about paint colors, herb gardens and a world without landlords, however, keep in mind that with all the excitement comes a lot of preparation — and paperwork. There are many steps you’ll have to take if you’re purchasing a home for the first time. Moreover, from pre-qualifying for a mortgage to closing, the process can take weeks. It requires careful planning, but the end result is a property you can finally call home sweet home.
Here at Caliber Home Loans, we take pride in the fact that we can provide some of the quickest closing times in the industry. As a continuation of that commitment to excellent customer service, we’re happy to walk first-timers through the home buying process.
Research — literally doing your homework — is vital. You don’t want to end up buying a house that you’re unhappy with just because it was the first one that caught your eye. Before you hit the MLS listings or start driving around your dream neighborhood looking for signs reading “For Sale,” you need not only to know what you want, but also to establish what you can afford.
A great way to narrow down your options is to start with a needs and wants list. List any non-negotiable factors under your “needs” column. If you have a large or growing family, this may be a specific number of bedrooms. If you’re a car enthusiast or a woodworker, the size of the garage may be a deal-breaker for you. If you or someone in your family has limited mobility, it may be crucial that your new home be a single-story structure. It’s necessary that you discuss these factors as, otherwise, you may find yourself in a perfectly attractive home that simply doesn’t work for you.
On the other hand, the “wants” column should be reserved for those things you may desire but which you’re ultimately willing to live without. Maybe this is a double sink in your master bathroom, a large yard for the dogs or even an extra bedroom for that home office you’ve always dreamed of having. Documenting these needs and wants in a ranked list will help you determine what’s essential and make the process of selecting a home much easier.
Residential properties come in many varieties, and you’ll need to determine which kind is best for you and your family. Duplexes, condos, townhomes and co-ops are all located in attached multi-family buildings, putting you in very close proximity to your neighbors. However, these properties may cost less than a single-family home. Single-family homes can provide more privacy but may come with more upkeep and maintenance duties, from keeping the lawn mowed to fixing those leaky faucets.
Beyond type of home, you’ll also have to consider whether you prefer new construction, an existing home or maybe even a fixer-upper (if you’re handy). Each has its pros and cons, all of which should be weighed before you make a decision.
Buying a house is a big expense but can be a worthwhile investment. The cost of the home itself is just one item for which you need to budget. You should consider the cost of hiring a home inspector, having the home appraised and paying closing costs, just to names a few examples. Before embarking on the home buying journey, it’s vital that you perform an honest evaluation of your assets and income. Otherwise, you won’t be able to make a realistic determination about what you can afford. The evaluation is needed regardless of if you are purchasing the home outright or financing the purchase with a mortgage, which is the most common way to purchase a home. And, there’s a lot to consider before applying for a home loan.
When buying a home, first take account of your upfront costs. Upfront costs will include your earnest money, down payment, and closing costs. The closing costs include appraisal fees, origination fees, points, homeowners insurance premiums, and title fees to name a few. Closing costs may not be covered by your mortgage in most cases and will need to be paid out-of-pocket at the time of closing.
Your down payment will vary based on your financial situation, credit worthiness, the value and price of the home being purchased, and the loan program for which you are approved. For example, conventional loans will require a down payment anywhere from 3 percent to 20 percent of the purchase price of the home. Putting 20 percent or more down will likely lead to savings on your monthly mortgage payments. Closing costs vary by mortgage principal and term. The most common home loan terms are 15 and 30 years.
You have several options for financing your home purchase with a home loan. A conventional mortgage conforms to government standards determined by Fannie Mae and Freddie Mac. Federal Housing Administration loans (FHA) are also government-managed and come with additional qualification requirements. Many FHA loans also have lower down payment requirements, depending upon the borrower’s financial situation. The VA Loans program is a special program to help active military and veterans of the U.S. Armed Forces purchase a home. VA loans can require no down payment at all in certain cases.
To determine which kind of loan makes the most sense for your budget, it’s best to consult with a mortgage professional.
When purchasing your first home, it’s both wise and prudent to lean on those who are familiar with the industry. A real estate agent will help you find a property that meets your specifications and requirements. They’ll also help you negotiate and can answer market-related questions such as when is the best time of year to be looking to buy a home. However, it’s your mortgage Loan Consultant that will be among your most important resources once it’s time to turn your offer into a purchase.
Your mortgage lender, also referred to as a mortgage company, will employ your Loan Consultant. This industry professional will liaise with key players in the real estate finance transaction to help you obtain financing for your home. Beyond helping you attain the funds to purchase your first home, your Loan Consultant can identify programs that fit your unique needs and help to ensure that the process goes seamlessly from start to finish. Some states and other entities even sponsor special home loan programs for first-time buyers that can benefit you greatly. Ask your Loan Consultant what is available in your area.
Before hitting the open houses or even considering making an offer on your dream home, it is a good idea to meet with your Loan Consultant to pre-qualify you for a loan*. Doing so will arm you with the knowledge of how much of a house you could afford based on the information you provide. You will also be provided a pre-qualification letter that can provide sellers an added level of confidence that you will be able to purchase their home.
Now, it’s time to find the home that will fit your needs. Your real estate professional will help with this part of the process. Once you find your home, make an offer and get under contract, the next stage begins – applying for your mortgage loan and going through the remainder of the mortgage process.
Obtaining a mortgage requires a deep dive into your finances, including examining pay stubs, W2s, past tax returns, bank statements and more. This process will begin after you submit your mortgage loan application. Gathering all of this information can be overwhelming, but your Loan Consultant will be there to help. Additionally, Caliber’s Ultimate Home Buying Experience can help expedite the gathering of some of this information.
Now it is time to determine the loan programs for which you may be approved. Your Loan Consultant will provide you with program details, loan comparisons, and pricing to help you decide. Some states and other entities even sponsor special home loan programs for first-time buyers that could benefit you greatly. Ask your Loan Consultant what is available in your area.
Once you have designated a program you feel is best, your Loan Consultant’s team will prepare your request and submit it to underwriting. If approved, you may be asked to supply additional documentation such as documentation of your down payment source, further information on your income, etc. Your loan approval will also require documentation from other sources to achieve a full approval and clear to close decision. Let’s cover a few of these examples.
Once your dream home’s sellers have accepted your offer, you may be required to obtain an inspection. Hiring an inspector is the responsibility of the buyer, but it’s not a corner we recommend being cut even if it is not a requirement of your loan approval. An inspector will examine your future home for any structural issues and will deliver a full report. The inspector’s report will help you make an educated decision on whether to move forward with purchasing the property. After the inspection, you can decide whether to ask the sellers to make improvements, fixes or adjust their asking price.
The next inspection of the home will be required by your mortgage company and most loan programs – the appraisal. An appraiser will be sent to the home to make sure the price is accurate based on a physical inspection of the home (not to be confused with the home inspector’s review) and comparable properties in the area (“comps”) as well as any upgrades that have been made to the property or will be required as a condition of a renovation loan.
Following inspection, appraisal and final approval of your mortgage, you will be clear to close and your closing date will be confirmed. You will receive additional loan documentation to review and accept prior closing and your Loan Consultant will help you answer any questions you may have concerning those documents.
At closing, you’ll review the legal documentation related to the home sale with a representative from the title company or attorney’s office handling your real estate purchase. Your Loan Consultant and real estate agent may also be present.
Be ready to read and sign many legal documents. Don’t be shy about asking questions of your title officer or closing attorney. They’re present to facilitate the process. Once all documents have been signed and notarized and all closing costs have been paid, the title of the home will officially transfer to you. Congratulations, new homeowner!
It’s time to get on your path to homeownership. Contact a Caliber Home Loans branch near you to start on this exciting journey today. Caliber offers a variety of mortgage solutions, including programs that may appeal to first-time home buyers such as Home Possible® (offered by Freddie Mac) and HomeOne™ (offered by Fannie Mae). At Caliber, we pride ourselves on our hands-on, customer-driven approach to lending. By combining our knowledge of local real estate markets with the strength and reliability of a national lender, we offer stability, security and peace of mind to anyone searching for their starter home.
*A pre-qualification is not an approval of credit and does not signify that underwriting requirements have been met.
The loan process many times boils down to what you can afford. A good way to check your potential finances is to utilize a monthly payment calculator such as the one found here with Caliber.
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