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A Step-By–Step Guide to Buying a House in 2023 | MY-Down Payment
13 Steps to Buy A House
These 13 steps are the basis of most home sales.
Table of Contents
> How to buy a house in 13 steps
> Step 2 - Calculate How Much You Are able to Afford a House
Step 4: Determine the type of mortgage that is right for you
> The Final Thoughts About Buying A Home with MY-Down Payment
Let's look closer at what each step involves and what we'll do.
Step 1: Decide if you are ready to purchase a home
It is a big commitment to buy a house. Before you start looking at houses or comparing mortgage options, make sure you're ready to become a homeowner.
Do you want to know if you should purchase a home? Let's examine some factors that homeowners and lenders need to consider.
Employment and Income Status
Your lender won't only need to see how much you make. To ensure your income source is reliable and stable, lenders will want to see your work history (often for about 2 years).
To prepare your income, you need to gather the correct documentation in order to find steady employment. For those who are currently on payroll, they will likely only need to supply recent pay stubs and W-2s. If you are self-employed, you will need your tax returns and any other documents required by the lender.
Ratio of Debt-to-Income
The debt-to-income (DTI) ratio is another financial tool that mortgage lenders use to look at your loan application. Your DTI allows your lender to see how much income you have each month that goes to debt. This helps them determine the amount of mortgage debt that they are able to accept.
DTI is worked out by dividing your monthly debt by your monthly gross income. Example: If you have $2,000 in monthly debts, such as loan payments or credit card minimum payments, your DTI would be $2,000/$6,000. If your monthly debt payments (credit card minimum payments, loan payments, etc.) amount to $2,000 per month and your gross income is $6,000, then your DTI is $2,000/$6,000. That's 33%. Your lender will use the credit reports you have to calculate your DTI.
Depending on what type of loan your lender is offering, they may calculate your housing cost ratio. This is sometimes called front-end DTI. This ratio is calculated by comparing your monthly income to your total monthly house payment (principal and interest) and your total monthly house payments. Consider this example: If you have a $1200 house payment and $6,000 in monthly income, your housing cost ratio is $1,200/6,000. That's 20%.
It is a smart idea to examine your DTI before applying for a loan. Most mortgage options will only let you get one if your back-end DTI is below 43%. This number may vary depending on your lender, loan type, and other factors.
Liquid Assets
Even if you get a mortgage, it is still necessary to have liquid assets in order to pay for the purchase of a house, and specifically, your:
You can buy a house without putting any money down. However, most homeowners must have enough cash to cover a downpayment. A down payment, or the first major payment on your loan, is the first one you make at closing.
The amount of money required for a downpayment will vary depending on what type of loan you take out and how much money it is. Although you can put down as little as 3% to buy a house, there are advantages to putting down a larger down payment.
Closing costs: Before you move into your new house, you'll need to pay the closing costs. In exchange for your loan, closing costs are fees paid by your lender and third parties.
The amount you will pay in closing expenses depends on your location and the type of loan. It is a good idea that you prepare for between 3 and 6% of the value of your home to estimate your closing costs. Some closing costs can be added to your mortgage or paid by you using seller concessions.
Credit Health
Your credit score has a big effect on how much interest you pay and what kinds of loans you can get. Lenders can assess how likely you are to take on a loan by looking at your credit score.
It is possible to make a big difference in your credit score and your debt management, which can help you get a mortgage. Better credit scores mean more loan options with lower interest rates.
The following information will determine your credit score
Your payment history
The amount of money that you owe
Credit history
Types you've used for credit
The pursuit of credit
What credit score is required to be approved for a home mortgage? Lenders require at least 620 credit scores to be approved for most loans. Higher credit scores than 720 are likely to get you the best loan terms.
My-Down Payment (R) can provide an FHA or VA loan for those with a median FICO (r) score of 580. These loans are only available to those with a median score of less than 620. You will need a minimum 38% housing expense ratio and a minimum 45% overall DTI.
Willingness to live in one place
A mortgage is a long-term commitment that can last up to 30 years. Even though you don’t have to live in your house for the duration of your mortgage term, it’s still a major decision. It is more difficult to sell a home if it is your primary residence. Unless you are buying a second home or a rental property, you might have to sell your current home before you can buy a new one. This can take some time.
Determine whether you are able to continue living in the same area for at least a few more decades. You should also consider your career goals and obligations. Each of these things will have an effect on the type and location of your main home.
Timing
When is the best time to buy a home? It depends on your personal situation, like how ready you are financially and how you want to live, as well as market conditions like mortgage rates and the health of the economy.
The best time to buy a house is dependent on your personal situation. Before you make any major financial decisions, like buying a house, be sure to consult with a financial advisor.
Step 2: Calculate how much you can afford for a house
Once you've decided you want to buy a house, it's time for you to establish a budget. The best place to start is to calculate your DTI. Take a look at your income and debts to determine how much money you can afford to borrow each month.
You don't have to worry as much about renting when you own your home. You will need to pay property taxes as well as have homeowners' insurance. When deciding how much you can spend on a house, you should factor these costs into your household budget.
Having difficulty coming up with a number? You can use the My-Down Payment (R) Mortgage Affordability Calculator to figure out how much mortgage you can afford.
Step 3 - Save for a Down Payment and Closing Costs
There are many ways you can save money for your home purchase. Gift money may be possible if your relatives are willing to make a contribution. If this is the case, please send your lender a gift note.
What amount should you save to buy a house? Let's take a look at some of the most important costs of the purchase and what you can do to cut them.
A down payment
A down payment, which is a large one-time payment towards the purchase price of a home, is required. Lenders want you to make a down payment to make up for any possible loss if you don't pay your mortgage.
Many homebuyers believe that they must pay 20% down to buy a house. This is false. For many first-time buyers, a downpayment of this size is not feasible.
Buyers who are unable to afford 20% down payments have many options. You can obtain a conventional loan with only 3% down, for example. Federal Housing Administration loans require that you pay a minimum 3.5% down payment. Even eligible borrowers are allowed to put down 0% with Department of Veterans Affairs loans and United States Department of Agriculture loans.
A larger down payment has its advantages. A larger down payment usually means you have more mortgage options. This usually means that you will have a lower monthly payment and an interest rate. You won't have to pay PMI if you make a minimum 20% downpayment on a conventional mortgage loan.
Closing Costs
It is also important to save money to pay closing costs, which are the fees you pay in order to obtain a loan. Although there are many variables that affect the cost of closing costs, it is a smart idea to plan for 3–6% of your home's value. For example, if your home is worth $200,000 you could pay closing costs of $6,000 - $12,000
The exact closing costs depend on the type of loan you have, where you live, and what your lender charges. Nearly all homeowners will have to pay for title insurance and appraisal fees. Most of the time, you will have to pay an upfront premium or funding fee for a loan backed by the government.
The Closing Disclosure is a document that your lender will give to you before you close on your loan. This discloses all the closing costs that you have to pay and how much you will need to pay at closure. Before you close, read your closing disclosure carefully to make sure you know what to expect.
Other costs depending on the loan type
You might need a specialized inspection depending on your loan type. You might need a pest inspection to obtain a VA loan. Many lenders will schedule the inspection for you and pay the cost at closing.
These costs may not appear to be significant when compared to the other costs of purchasing a home. But they can add up, so make sure you budget carefully.
Step 4: Choose which type of mortgage is right for you
Before you apply for a mortgage, you need to determine the right type of loan for you.
Conventional Loans
Conventional loans can be mortgages that are backed by the government but made by a private lender. Fannie Mae and Freddie Mac are the most popular types of conventional loans. They are sometimes called conforming loans. Most mortgages in the United States are conventional loans. Conventional loans are popular with home buyers and can be obtained with as little as 3% down.
FHA Loans
FHA loans are insured by the Federal Housing Administration, and lenders have less to worry about because they are guaranteed if you stop making your payments. FHA loans do not have strict credit score requirements. FHA loans are available with as little as 3.5% down payments.
VA Loans
VA loans are mortgage loans that are available for qualifying spouses and eligible reservists and National Guard members as well as veterans. VA loans for homebuyers have the most appealing benefit: there is no downpayment.
Even though lenders may have credit requirements, the VA does not. My-Down Payment offers VA loans with a minimum credit score of 580. VA loans can be insured by the Department of Veterans Affairs.
USDA Loans
A USDA loan, another government-backed loan, is available to rural and suburban homeowners who want to buy homes. USDA loans can be obtained with as little as 0% down. But your home must be in a good rural area, and your income must meet certain requirements.
Step 5: Get Preapproved for a Mortgage
Once you are ready to begin house hunting, it is time to apply for a mortgage preapproval. The lender will send you a preapproval note when you apply. It states how much you can be approved for, based on your credit and assets as well as your income. To help you find homes within your financial budget, your lender will give you a preapproval letter.
To get preapproved, contact your lender. The preapproval process usually requires you to answer questions about your income and assets, as well as the property that you wish to buy. A credit check will be required.
Step 6: Locate the Right Real Estate Agent for You
Multiple parties are involved in the purchase of a house or a mortgage. Your representative in the home-buying process is your real estate agent. Your real estate agent will look out for your best interests by finding homes that meet your needs, helping you write offers, negotiate, and set up showings.
A buyer can often work with a realtor for no charge. In most cases, the seller will pay the commission to the buyer's realtor. The commission for the buyer's real estate agent is usually 3% of your purchase price.
You will work with a real estate agent who will help you buy a home. Your agent will assist you in negotiations, show you properties, and write an offer letter. Agents are experts in the local market and can help you determine how much each property should be valued.
A house can be purchased without the help of a real estate agent or broker. This is not recommended for first-time buyers. The homebuying process is often difficult and emotional. A professional real estate agent can help you understand how the process works, make an offer that is legal, and not pay too much.
How can you choose the right agent to represent your interests? Start by asking your friends and family for recommendations. You can often get impartial information about agents in your local area by asking family and friends for recommendations.
My-Down Payment (r) Certified Partner Agents might be a good choice. My-Down Payment's preferred agents have proven success in their fields and are experts in their field. This means you can trust that you will get expert information.
Step 7: Get started with house hunting
Your agent will assist you in finding houses that fit your budget. It's a good idea for you to make a list. Some of these priorities will depend on whether or not you're looking for a permanent residence.
These are some considerations when you're looking for a home:
Prices
Square footage
The home's condition and the possible need to make repairs
Access to public transportation
Number of bedrooms
Backyard/swimming swimming pool
Local entertainment options
Ranking of local schools districts
Trends in Property Value
Property/real estate taxes
List your priorities in order of most-to-least importance and give this to your agent. Your agent will then present you with homes that match your criteria. Your search for the perfect home may take time. Don't let that discourage you.
Only you can choose which property is best for you. You should see as many houses as possible before making a decision about which one to buy. As with much of the home buying process, you can do most of your house hunting online.
When you've found a property that suits your needs and budget, you can make an offer.
Step 8: Make a deal on a house
An offer letter must be submitted in writing when you make a formal offer on a property. You must include details about yourself, including your current address and the amount you are willing and able to pay for the house. You will also be given a deadline by which the seller must respond to your offer.
A majority of offers include an earnest money deposit. A small amount of money, usually between 1 and 2% of the purchase price, is an earnest money deposit. The average market price in your area will be provided by your real estate agent. Your earnest money deposit is used to pay your down payment and closing expenses if you decide to buy the house. You can lose your deposit if the home is sold and you later cancel.
Although your agent will usually write the offer letter for you, you can also write it yourself. The agent will then contact the seller's or seller's agent to make the offer.
Here, the seller has three options:
Accept the Offer: Once the seller accepts your offer, you can proceed to the next step.
Reject the Offer: If the seller rejects your offer, it is your turn. You have two options: you can either submit another offer or move on to another property.
Offer a counteroffer. Sellers may also offer a counteroffer. They could change the terms and/or purchase price. You have three options: accept the counteroffer, reject it, or make another counteroffer.
After you submit your offer, negotiations can continue for some time. Negotiations can be handled by your agent. Don't be afraid if negotiations don't go according to plan. Once you and your seller have agreed to an offer, it is time to move on with the appraisals and inspections.
My-Down Payment offers verified approvals so that you can confidently make an offer. This will let you know how much you can afford. We will verify your income, credit, and assets using documentation such as W-2s and pay stubs. This can improve your standing in competitive bidding, as you will be able to compete with other buyers who might not have the same approval.
Step 9: Receive a Home Inspection
Even though most lenders won't need a home inspection before giving you a loan, you should still have one done before you buy a house.
A home inspector will inspect the house and look for potential problems. An inspector will look for electrical problems, make sure the roof is safe, check the appliances, and do other things as well. When the inspection is done, the inspector will give you a list of all the problems they found.
After you receive your inspection report, review each item line-by line to identify any major issues. If you find a health hazard in a home, such as lead paint or mold, ask the seller for a solution before you close. If you cannot reach an agreement, it's best to look at other options. Ask your agent about the inspection results and whether there were any "red flags."
After the sale closes, any major repairs will be your responsibility. There are minor problems, like a clogged toilet, or a sink that doesn't drain. You might reconsider purchasing if you find expensive problems such as cracks, poorly-placed windows, or foundation cracks.
A home inspection is a common clause that buyers put in their offers to buy a house. If the home inspection uncovers major problems, buyers can choose to back out or negotiate repairs.
Step 10: Get A Home Appraisal
A home appraisal is a comprehensive review of the property that will give you the current market value. An appraisal is necessary before you purchase a home using a mortgage loan.
Lenders require appraisals to ensure they don't lend more money than a property is worth. Lenders may not approve financing if your offer is lower than the appraised value. If the appraised price is too low, you might want to reconsider your offer. But, you cannot count on a reviewer agreeing to your offer.
A home buyer should also include an appraisal condition in their offer. Offers to buy a home often have appraisal clauses so that the buyer doesn't lose their earnest money deposit and can back out of the deal. You should understand your appraisal contingencies. They may differ from inspection contingencies.
Step 11: Apply for repairs or credits
After reviewing your inspection results, it might be a good idea to ask the seller to fix any problems that you find. This can be done in one of these ways:
Ask for a reduced purchase price when you consider the results.
For some closing costs, ask the seller for credits.
Ask the seller to fix the problems before you close.
Your real estate agent will send your requests to the seller's agent. If the house is for sale by owner, your agent will contact the seller directly. You might be accepted or rejected by the seller. It's up to you to decide what to do if the seller denies your request. An inspection condition in an offer letter can be used to prevent you from being forced to sell and allow you to keep your earnest money deposit.
Step 12: Make a final walkthrough
Before you close on your new property, it is important to do a final walkthrough. This is a time to make sure everything is in order.
Check the property and ensure that no belongings have been left behind. You can also check for pests and repair areas. To ensure everything works properly, you may want to check your home's systems once more. If all is well, you can move confidently towards closing.
Step 13: Move in to your new home
Your lender will need to send you your closing disclosure. This document summarizes your loan details and tells you what to pay at closing. You should carefully read your closing disclosure to make sure that it doesn't differ from the loan estimate you received 3 business days after you submitted your initial application.
After you have read your closing disclosure, it is time for your closing meeting. You will need your ID, a copy of your closing disclosure, and proof that you have sufficient funds to cover your closing costs.
You will sign a settlement agreement, which details all costs associated with the home sale. This is where you pay your down payment and closing costs. Additionally, you will sign the mortgage note. This document states your promise to repay the loan. You will also sign the deed of trust or mortgage to secure your mortgage note.
Once closing is complete, you are officially a home owner.
My-Down Payment FAQs on Buying a Home
How long does it take for a house to be purchased from start to finish?
You can expect to wait between the start of the process and the moment you move in for about 6 months to purchase a house. This can take less or more time, depending on things like whether you get a mortgage or pay cash up front.
How much should you budget before purchasing a home?
Cash reserves are essential for any emergency situation. You need to have at least two months' worth of mortgage payments in these reserves. Depending on the type of loan you want and how well you meet the requirements, your lender may ask you to pay more each month.
My-Down Payment Final Thoughts About Buying A Home
The process of purchasing a house can be long.
First, be prepared to become a homeowner. Second, set a budget. Next, you'll meet with a lender to obtain preapproval for a mortgage. You'll then start looking for properties with an estate agent you trust. After you have found the perfect home, your agent will help you submit an offer and negotiate with the seller.
After you reach an agreement, an appraisal will be done and the property will be inspected. If you find a significant issue during the inspection, you might be able to negotiate repairs or a credit with the seller. Also, before you buy the house, you'll need to do a final walkthrough. You can move forward with the closing if everything looks good.
Do you feel ready to buy a home? Get started on your mortgage approval by contacting My-Down Payment. Call us at (916) 413-3967.
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