The decision to buy your first home is a huge one, and once you have made it you easily become excited and want to start your search right away. However, there are some things you should know before you start house hunting. In fact, there are a few things you must do before you can seriously contemplate buying a house.
Before you start looking for a house, you have to get pre qualified for a home mortgage loan. This is going to take up to a few weeks, as the lender must check your credit, verify accounts and income, and generate a report. This report that you receive is called a loan status report, or LSR. The LSR tells you exactly how much you can borrow and what your payments will be. If you don’t like the payments, then you need to look for a house that will allow you to borrow less money.
Prequalification is a necessary step in buying your first home. In fact, many realtors will not even show you homes until you have prequalified. This is due to the fact that you need to be prepared and ready to obtain the money for the home once you find it. If you go through the prequalification process and you are not approved, it gives you the chance to improve your credit so you can get approved later. It is better to find this out now than after you have made an offer on a house.
The Associated Costs
You may think that because you are getting a mortgage for the house you will buy that you do not need to have any cash on hand. This is completely wrong. Even with first home buyers programs you will have to have some type of down payment. In addition, you will have to have earnest money to put down when you start the application for the actual loan. There may be other costs associated with buying the house, such as inspections or appraisals. Sometimes these costs are reimbursed to you by the sellers when you buy the home, and sometimes they are a loss. At times these costs may need to be paid up front, while other times they are included in the closing costs of the deal.
The closing costs involved in buying a home can be substantial, up to a few thousand dollars. This is in addition to the down payment and the earnest money for the lender. These closing costs include paying off your realtor, paying for titling of the house from the seller to the buyer, and other miscellaneous expenses.
The lesson here is that you want to be absolutely certain you have enough money saved up to cover all of the costs associated with buying a house in addition to a down payment. This means, generally, that you should have around ten thousand dollars saved when you buy your house. This alots for five thousand dollars for a down payment, and five thousand dollars for earnest money, closing costs, and moving expenses.