The First Steps in the Home-Buying Process

starkcitylimits.com Many people dream of owning their own home. However, it can easily turn into a nightmare if a first-time buyer/couple is not prepared. There’s a steep learning curve in terms of everything that needs to be done and what paperwork will be required. Getting the right mortgage will also be one of the most important financial decisions you will ever make in your life.

Start from Where You Are

Unless you have enough cash in hand to pay for the home of your dreams, chances are you are going to have to come up with a down payment for the house you want, and also take out a mortgage for a certain length of time which will be a financial commitment to pay off the house each month. In doing so, you will not be paying rent, but rather, building up equity or a stake in the house, until you’ve finally paid off the mortgage, taxes and so on and the house is completely yours.

Your first step is to determine how much cash you have on hand for a down payment. The more you have for a down payment, the better terms you can get for your mortgage. But let’s not be too hasty. There are a lot of other financial concerns you might not be aware of.

Your Income

Any mortgage lender will want to see 3 to 6 months’ worth of paystubs and bank account statements. This will help show whether or not you will really be able to afford the mortgage payments.

Check Your Credit Score

The higher your credit score, the better the terms will be for your mortgage. Some lenders stipulate a minimum before they will consider approving a mortgage.

Your Budget

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If you are thinking of buying a house, pare down any unnecessary expenses for several months. Don’t start buying a lot of things for your new home and then discover cash is very tight.

Mortgage Pre-Approval

Armed with your personal paperwork, you can shop around for mortgages and get pre-approval. This will be a rough estimate of the top limit you will be allowed to borrow. Then it will be a case of finding the right home within your price range.

The Mortgage Payment Is Often More Than Just the Bank Loan

Be clear about everything you need to pay in total before committing to anything. Many lenders include other items as part of the monthly payment, including:

* Mortgage insurance (in case you can’t make payments)
* Home insurance (fire, damage, and theft insurance policies)
* Taxes on the property

Other Paperwork and Fees

There will be various legal fees involved as well, such as title deed search, surveying the property to ensure it does not need major repairs, legal assistance with the paperwork, and so on. Do your research to find out how much these might add up to. You might also ask someone you know who has purchased a home recently to get an idea of costs involved.

Beware of Predatory Lending Practices

Some people actually sign a loan agreement in order to get the down payment for the house the equivalent of two mortgages on the same property. Others don’t ever see the entire bottom line of what it will cost per month until it is almost too late. They are congratulating themselves on the great bargain until they see the grand total of all taxes, insurance and so on.

A couple might think a $2,000 per month mortgage sounds great when they are already paying $1,800 in rent each month, but if the payment shoots up to $2,600, and they are only taking home $2,500, things are simply never going to work out.

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