The purchase of a home is one of the most exciting and important decisions you’ll make in your life. Owning a home provides tax benefits, can improve your credit score, builds wealth, and — most importantly — will be the place you and your family will make memories that will last a lifetime.
Before you begin your search, be sure you’ve reviewed the following information, so you’ll be thoroughly prepared for the home-buying process.
Save time, stress, and money by getting pre-approved for a mortgage before starting to look for homes. Sellers’ realtors are more likely to negotiate and accept offers from a pre-approved buyer. Plus, you won’t waste time looking at homes you can’t afford.
Closing costs are fees assessed at the closing of a real estate transaction, when the title of the property is transferred from the seller to the buyer. Either the buyer or seller can incur closing costs.
Closing costs vary widely based on where you live and the property you buy. They often include such things as a loan origination fee, which lenders charge for processing the loan paperwork for you; attorney’s fees; discount points, which are fees you pay in exchange for a lower interest rate; appraisal fees; and title insurance, which protects the lender in case the title isn’t clean.
Typically, homebuyers will pay between 2 to 5 percent of the purchase price of their home in closing fees. So, if your home costs $150,000, you might pay between $3,000 and $7,500 in closing costs. On average, buyers pay roughly $3,700 in closing fees.
Lenders are required by law to give you a Loan Estimate within three days of receiving your loan application, which will include an estimate of your closing costs.
A home warranty is a service contract that covers the repair or replacement of most major home systems and appliances. Home warranty costs average $350 to $500 for a basic warranty and $100 to $300 more for a warranty with extra protection.
Unexpected repair and/or replacement costs can be a strain on your budget. A home warranty helps eliminate this potential source of financial stress.
Buyers should consider requesting a home warranty from the sellers as part of the negotiation process, especially for older homes with older appliances and systems.
Want to know how much you’ll pay each month for your mortgage? Click the mortage calculator below, so you can determine what payment will fit your budget.
Buying your first home is an exciting life event, but you also need to be prepared. Here are the steps we recommend you take, so you won’t have any surprises:
1. Use our mortgage calculator (above) to determine what your monthly payments will be.
2. Research the additional costs of homeownership, including real estate taxes, homeowner’s insurance, maintenance costs, and homeowner or condo association fees. Keep in mind that the interest portion of your mortgage payments and real estate taxes are usually tax-deductible.
Pro Tip: The federal government recommends that buyers spend no more than 28% of their income on housing costs.
3. Get a credit report and comb through it for errors and unresolved issues. Credit history problems or the inability to make a substantial down payment can stop your plans to buy a home.
Pro Tip: Visit annualcreditreport.com for a FREE credit report. It’s best to obtain a report from all three of the major credit reporting agencies — Experian, TransUnion, and Equifax. By law, you’re allowed one FREE credit report per year. You could either request your report from all three agencies each year, or stagger the requests between the agencies so you get a free one each quarter. We recommend continuing to check your credit report annually even after you purchase a home so you can review it for any mistakes.
4. Collect all the documents your bank will need to approve a mortgage, such as recent pay stubs, bank account and brokerage statements, W-2s, tax returns for the past two years, statements from current loans and credit lines, and names and addresses of your landlords for the past two years.
5. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. Because of this guarantee, lenders will be more likely to give you a loan, and the FHA requires a down payment of just 3.5% from first-time homebuyers. For more information, visit the US Department of Housing and Urban Development’s website.