I am often asked what should be done prior to buying a home. While I am not a financial advisor, I can and do point them to a couple of books I have read in my lifetime. I have gone through and select my favorites from the ones I have read and included them here for anyone who is interested in reading them.
I have to admit, my all time favorite is Dave Ramsey’s Total Money Makeover book. If you are in debt and trying to regain control over your finances, his book is great for giving you step by step instructions to achieve financial freedom. It is plain common sense and it works.
I just got my yearly reminder to go check my credit report and make sure everything is correct. This is a step that needs to be done prior to applying for a mortgage. You always want to make sure the errors are corrected and you know exactly what should and should not be on that credit report. Having your finances in line is a very important first step in the buying process. So go and make sure your credit report is correct, you never know when you might find that next dream home!
Below is a list of events that will occur before you start looking for a home, while you are looking for a home and after you have found a home and have it under contract:
1. You need to find out how much of a home you are pre-approved to purchase.
2. Before you find a home and put it under contract, you need to choose a lender that you will be getting financing through and who is going to give you the best terms and conditions.
3. This is a list of the documents lenders typically ask for, the sooner you get these to them the easier the process goes. I suggest giving a copy of these documents to them right at the start.
a. Last 2 years work history
b. Last 2 years W-2’s
c. Last 2 years verification rental history or mortgage payments
d. Year to date pay stub
e. If on disability, social security or pension and you are claiming that income you have to show proof of that income
f. Bank statements from the last 12 months
g. If you are divorced or separated, you must provide either the divorce decree or separation agreement.
h. If claiming Child support income, you need to show proof of receipt
i. If you have filed bankruptcy, you will need to provide a certified legal copy of discharge
j. Any judgments or tax liens must be paid off
k. If you are paying child support, you must show proof that you have been paying in a satisfactory re-payment plan
l. If you have any 401k, IRA, Stocks & Bonds or savings accounts, you will need to provide statements from those accounts.
4. You need to get a copy of a pre-approval letter without a dollar amount on it to accompany any offers you make on a home so the sellers are aware that you are already pre-approved.
5. Now it’s time to start looking for a home. Your agent will set up an automated search for you and email you all the active listings in the MLS that fit the criteria of the home you are looking for based on the amount you have been pre-approved for. This saves you time from having to drive around looking for homes that are for sale.
6. Once you find the home you are looking for and make an offer on it, and the offer is accepted, you are now under contract to purchase that home.
NOTE: Additional documentation may be requested depending on your situation. Your lender maty also require you to pay any outstanding bills as well before closing on the home. You lender will let you know if this is required. Do not change your job, charge your credit card or affect you credit in any way, this will stop the loan process and no money will be funded. The mortgage company runs a second credit check right before lending the money, for this reason you will need to wait until after the closing for any change or purchase.
7. The Home Inspection and the Termite Inspection will be ordered. You are more than welcome to be there when the inspections are being done.
8. The lender that you chose to do your financing through will order the Appraisal. You are also welcome to be there for that as well. Survey will be ordered by the Title Company.
9. You will need to purchase homeowners insurance for a year, and provide the Declaration page to the Title Company as proof you purchased before they will allow you to close on the home. Your Insurance Company can fax a copy of that page to the Title Company.
10. Once the Home Inspection report comes back, your agent will meet with you to discuss the findings, and evaluate which items need to be repaired depending how the contract was written between the buyer and the seller. The seller will then make the requested repairs if the buyer and seller agreed that the seller would make repairs.
11. One day before closing your agent will do a final walk through of the home with you to make sure the home is in the condition it is suppose to be in and repairs were completed (if required)..
12. Your agent will go over the HUD-1 statement with you to make sure all figures are correct.
13. The Title Company will advise you of the dollar amount you need to bring to the closing in CERTIFIED FUNDS, personal checks will not be taken You will also need to bring your drivers license to closing.
14. Congratulations on the purchase of your home!!
As a reminder….It is imperative that you know what financing company will be doing your financing before you put a home under contract so the lender will have time to get all paperwork completed in a timely manner and it does not hold up the closing. The lender will also be able to provide your agent with the correct amount of closing costs so it can be written into the contract if you are expecting the seller to pay your closing costs. The more you get done ahead of time, the smoother your closing will go.
There are quite a number of expenses that you will incur when purchasing a home that make up your closing costs.
Closing costs typically range anywhere from 3%-6% of the purchase price, depending on the loan you’re getting. The fees vary from one company to the next, so it’s best to actually get a a copy of a Good Faith Estimate from your lender.
Typically, the lender will allow the seller to contribute 3%-6% of the purchase price towards your closing costs. Make sure you’re working with an agent that will negotiate on your behalf to have most of or all of these expenses paid for by the seller, depending on what your lender will allow.
All of the fees may or may not apply to you.
Fees Related To Your Loan/Lender
Loan Origination fee
Loan Discount
Appraisal
Credit Report
Lender’s Inspection Fee
Assumption Fee
Underwriting Fee
Flood Certification
Processing Fee
Application Fee
Points
Tax Service Fee
Mortgage Broker Fee
Interest From The Date You Move In, Until The 1st Day Of The Following Month
Mortgage Insurance Premium
Hazard Insurance Premium
Flood Insurance Premium
Title Fees
Closing Fee
Title Search
Title Exam
Title Insurance
Document Preparation
Notary Fees
Attorney Fees
Title Insurance Binder
Closing Fee
Wire Transfer Fee
Courier Fee
Mortgage Package Handling Fee
Record Fee
Other Endorsements
Administration Fee
Reserves Required By The Lender For Escrow
Hazard Insurance
Mortgage Insurance
City Property Taxes
County Property Taxes
Flood Insurance
HOA Dues
Government Fees
Home Inspection
Termite Inspection
Mold Inspection
Radon Inspection
Septic Inspection
Lead-Based Paint Inspection
Survey
Home Warranty
HOA Transfer Fee
HOA Application/Background Check
Escrow Deposit
Down Payment
Misc Expenses
If you have any bad debts such as a bill in collection, they may require you to pay it off prior to closing. Check with your lender.
One last tip: Whatever dollar amount that you need to bring to closing NEEDS to be in the form of a Certified Check made payable to the Closing Company/Attorney’s office! They will not take cash or a personal check!
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