The Brown Ledbetter Team
2017 Home Buyers Guide
- Are you financially ready?
- Buying a home normally requires a down payment to obtain the mortgage. The most popular is 3.5% which is the minimum required for FHA.
- There are programs with zero down or 100% financing which will be explained below.
- Escrow deposits are required when you put an offer in on a home. Normally between $500-$2000 but is used towards your down payment at closing. The escrow deposit is given to the title company within 3 days after everyone signs the contract.
- Out of pocket expenses such as inspections (home, septic, termite, well), and appraisals are all paid for by the buyer prior to closing. Sometimes the lender will require septic and/or well inspections depending on your financing. Inspections average $350, appraisals $500.
- Your financing program has a significant impact on your out of pocket expenses both before and at closing. How much you’re putting down, closing costs, seller concessions (seller pays for a portion of your closing cost).
- The homebuying timeframe
- On average from the time you start the process to the time you close is 4 ½ months.
- Before you start looking at homes, pull your credit. Make sure your credit is squared away and there are no mistakes. If you have some hiccups such as collections, pay them off. If you have high balances on credit cards, pay them down. The higher your credit score the less risk you are to the borrower.
- Most lenders require a minimum “middle” credit score of 620. This goes by your middle score of the 3 major credit bureaus. Out of your 3 credit scores, the middle score needs to be 620 or above. If you are right at 620 or a little above or below, pay something down.
- Find 2 or 3 Realtors and interview them. The right Realtor will guide you through the entire home buying process and help you find a mortgage broker that works best for you. Some examples of things you want to know about your Realtor: Experience, Do they charge any fees for working with them, what is their area of expertise, etc. Go online and find reviews about the Realtor. Zillow.com and Facebook.com are good places to start for reviews.
- As a buyer, you want to find a buyer’s agent. Most of the time when you find homes you want to see, you go out in a day and view 2, 3, 4, or maybe even 5+ homes. Calling every listing agent trying to schedule to view all the homes around their schedules, the homeowners schedule, and your schedule can be very stressful. Let your buyer’s agent do that.
- After you find a Realtor and if you’re not paying cash, you want to find a mortgage broker/bank. As a buyer, you will need a pre-approval letter prior to looking at property. Again, the right Realtor should be able to point you in the right direction of a mortgage broker best for you and your needs. We get asked, “Why do I need a pre-approval letter prior to looking at property?” A pre-approval letter lets your agent know that their buyer’s credit and finances have been reviewed by a bank or lender and meet the minimum qualifications required to obtain a loan. Not many experienced Realtors will drive buyers around without knowing that they can purchase the home. Getting pre-approved will also give you, the buyer, a better understanding of how much home you can comfortably afford based on your debt to income ratio, what programs you qualify for, and a general understanding of what the loan will cost (closing costs).
- Next step is to find homes with your Realtor and set up a date and time to view the homes. The time from you seeing your first home to finding the “right” home can be anywhere from 1 day to 6 months plus. This all depends on what is on the market and what the buyer is looking for. Do not be afraid to be picky and tell your Realtor exactly what you’re looking for. You do not want to purchase a home and not be happy. Also, no question is a dumb question. Ask away!
- Right now, we are in what’s called a “seller’s market”. This means there are more buyers than there are sellers which created homes having multiple offers being put on them and homes going under contract within 1-2 days after being listed. Do not let that discourage you. Research shows that just under 50% of buyers get their first offer accepted. Your Realtor is there to guide and assist you through this process.
- Once an offer is accepted you are looking at 30-45 days until the home can be closed on. During the 30-45 days, a lot goes on. This is when you’ll be delivering your escrow deposit to the title company, scheduling/paying for inspection(s), and paying for appraisal. Again, your Realtor will be helping you through all of this. Generally, the Realtor will assist you in choosing an inspector/scheduling the inspection and the mortgage broker/lender will order the appraisal. Occasionally the buyer will have to pay for a survey out of pocket but generally gets credited back at closing.
- Once at closing, if you financed, there will be a large stack of paperwork to be signed. This is also where you will pay your closing costs and get your keys. The loan is now finalized and closed.
- Closing Costs
- Aside from your escrow deposit and your down payment, you have the rest of your closing costs. This consists of loan origination fees, lender’s title policy, taxes and recording fees on the mortgage, property taxes, property insurance, PMI (if applicable), etc. This gets paid regardless of your financing type. Even if you have 100% financing.
- There are ways to finance some of your closing costs. This is called seller concessions. When putting in an offer on a property you can ask the seller to pay for some of your closing costs. Essentially the seller is not paying your closing costs out of the kindness of his heart, you, the buyer, are financing them. For example, you want to put an offer in on a property for $150,000. You also decide you want to save some out of pocket money at closing and ask the seller to pay $4,000 of your closing costs. You would now offer $154,000 and ask the seller to pay $4,000 towards your closing costs. A lot of folks get confused because of the phrase “the seller is paying my closing costs”.
- Most loans have what is called PMI or Private Mortgage Insurance that is required when taking out a mortgage. This is a monthly expense added onto your mortgage monthly that can range upwards of $150/month. PMI cost is based on the price of the home so it varies. Putting 20% on a conventional mortgage will save you having to pay PMI. Lately, more lenders are starting to roll out lower down payment programs with no PMI but there is not many.
- There are hundreds of different loan programs and thousands of different banks and lenders. Your Realtor should assist you in finding the right program for you.
- This concludes The Brown Ledbetter Team’s 2017 home buyers guide for 2017. If you have any questions, comments, or think we missed something please contact us.