Welcome to Fluid Realty! Our job is to take the pressure off you. In this article, we’ll walk you through the step-by-step process to keep you on track. Our goal is to make sure your interests are protected from start to finish and make the home-buying journey as painless as possible. After all, you are searching for a new home, not just a new house.
No matter if you are buying in Ponte Vedra Beach or San Marco, the process will follow the same steps. Here’s what you need to know about the home-buying process:
1. Determine if you are ready to buy a home.
Let’s face it. Buying a home is one of the biggest investments most families will ever make. It’s critical to make sure you can move forward with this purchase.
Here are some factors to consider before taking the plunge into a new home:
Income And Employment Status
Evidence of your work history is critical, as well as your income. Gather together any documentation that shows about 2 years of steady, verifiable income from your work. This can be pay stubs and W-2s or if you are self-employed, tax returns. Lenders will expect to see this, so create a file now to have it ready. This will reduce stress later when there will be questions to determine if your income is adequate to pay the mortgage you seek.
Debt-To-Income Ratio
Lenders want proof that your income is adequate to take on the additional mortgage amount you want. The debt-to-income ratio (DTI) shows how your current monthly debt compares to your gross monthly income.
Calculate this yourself before you apply for a loan. Lenders use the debts that show up on your credit report, so this is also a good time for you to check that report. It gives you time to correct any errors with the credit reporting agencies and then you know lenders will be using the correct information, too.
Generally, you will need a DTI of 50% or less to get approval for a mortgage.
Credit Health
This score gives lenders an idea of your risk as a borrower. It plays a large role in the decisions about what loans and interest rates you qualify for. The time to improve your credit score is before you seek to borrow money. The higher your score, the better your options and interest rate will be. The highest score is 800. A score of 620 is a benchmark to qualify for most loans and any score over 720 means you can get very good loan terms.
Your credit score is determined by the following:
- What kinds of loans you have had in the past
- The payment history on your current and past loans
- The length of your credit history
- How much money you owe now
- Your pursuit of new loans
Liquid Assets
Some home-buying costs are not covered by a mortgage loan. If you don’t have money saved or otherwise available to you to cover these costs, it might be better to wait before moving forward with buying the home as fast as you might want. These additional costs include:
Down payment: This is the first loan payment you will make during the purchase process. The amount depends on the type of loan you are getting and how much you plan on borrowing. The larger the down payment is, the less you have to borrow and the lower your monthly mortgage payment will be.
Closing costs: These are costs your lender (and other third parties) incurs when the loan is created. Factors that go into the amount are where you live and what kind of loan you are getting, generally 3% – 6% of the home’s value. Sometimes, these costs can be rolled into the mortgage amount or negotiated to be paid by the seller.
The Future
Do you want to live in the same place for up to 30 years (the length of many mortgages)? It’s something to think about. If you decide to move before the mortgage is paid, you will need to sell your current home before you have the funds to buy another one. That takes time.
Weigh factors like career goals and requirements to move, job future, and family preferences. Will your financial situation likely be better or worse in the future, perhaps based on your age? They can be major influencers in where you live and for how long.
The Market
It’s important to let hard data guide your decision to buy rather than emotional factors. Look at the current market conditions realistically. Are there plenty of houses for sale or are there plenty of buyers competing for a few homes? Either scenario will affect current prices, so do some research before getting the family excited about a new home.
Consult with any financial expert you have access to. Check with your bank or credit union for this advice, too. Let them guide you in making this important decision.
2. Determine how much home fits into your current budget?
This is another time to set aside emotions and stick with the numbers. If you have decided that you are ready to buy a new home, the next step is to set a budget to get you through the process and into stress-free payments and other related expenses.
Hopefully, you have already determined your debt-to-income ratio so you know you can realistically come up with a monthly payment for your new home. Don’t forget monthly expenses separate from the mortgage payment, like property taxes and homeowner’s insurance.
Take your time to sort through the numbers before you decide how much house you can afford. If you rush it, you may end up falling in love with a home that you can’t get financed. And that’s not pleasant for anyone.
3. Get together a down payment and closing costs.
It’s a responsible strategy to save as much money as possible before buying a new home. As mentioned before, there are some costs separate from a monthly mortgage payment that must be taken into consideration.
Down Payment
Most lenders require a down payment. This lessens the lender’s loss if the mortgage later goes into default. However, it generally is not 20% of the purchase price as many people believe. Most people can’t afford an amount that large, especially if this is their first home purchase. The amount varies from 3% down for a conventional loan, 3.5% for an FHA loan, and 0% for some VA and USDA loans.
However, if a buyer can handle a 20% (or more) down payment, they will have more options in loans available to them. They will also get a better interest rate, have a lower monthly mortgage payment, and will not have to purchase private mortgage insurance.
Saving for the largest down payment that is realistic for you and your family before you begin the new home is a wise investment.
Closing Costs
When you close on the loan, you will need money for the closing costs. The average amount falls between 3% – 6% of the value of the home. The amount is determined by the lender, the type of loan, and your geographic area. Government-backed loans will also require an insurance premium or funding fee.
The closing costs will be outlined for you before the closing date on a document provided by your lender. This is called the Closing Disclosure. This will prepare you for what to expect at closing and is also a good opportunity for you to catch any errors before the closing date.
Other Costs Depending On Loan Type
Some loans require specialized inspections and the payment for such an inspection will be passed along to you at the closing. Each type of inspection may not be much money, but the total of several of them could catch you off guard if you don’t get clarification early.
4. Select your mortgage lender and get pre-approved.
It’s time to apply for the loan. This might be your bank or credit union or a mortgage company. They will require some preliminary income, credit, and asset information, as well as anything you can tell them at this point about the home or area you might focus on. They will check your credit, which is the reason you want your credit files to be accurate.
After the data is gathered and reviewed, the lender will give you a preapproval letter that states how much they will lend you toward your home purchase. This letter is then given to your realtor who can focus on showing you homes in that price range.
Here are some types of loans you can consider or are qualified to get:
Conventional Loans
The majority of home buyers get a conventional loan. These loans require as little as a 3% down payment, which makes them attractive to most buyers. A conventional loan is sometimes referred to as a conforming loan and is backed by entities called Fannie Mae and Freddie Mac, which buy mortgages from lenders and then sell them to investors.
FHA Loans
An FHA loan is less risky for lenders because the government insures them in case you default on the loan. Credit requirements for you are less strict and down payments can be as little as 3.5%.
VA Loans
The Department of Veterans Affairs backs these loans. They are available to veterans, active-duty members of the military, and qualifying surviving spouses. VA loans require no down payment.
USDA Loans
This type of loan might be a good choice if you live in a rural or suburban area. It is backed by the government and there are income eligibility rules.
Now it’s time to find a real estate agent and start looking at homes!
5. Find the right real estate agent.
The right Jacksonville-area real estate agent for you is one who listens, finds homes in the price range you can afford, is accessible to you, and answers your questions thoroughly and accurately. They work for you and your interests. The seller of the home pays the real estate agent’s fee, usually about 3% of the purchase price of the home.
The best place to find the right agent for you is by asking friends and relatives for referrals. You will need a local market expert who can help with negotiations and offer letters. Don’t hesitate to talk to several agents before deciding on the one that you are comfortable with.
6. Start looking!
You have reached the fun part of buying a new home! You get to look at as many homes as it takes to find the right one for you. Your real estate agent will keep you on track with staying in your price range.
Consider these items, too, as you think about the homes you want to see. It helps your agent to also put them in priority order before they start assessing various properties for you:
- Home condition and the possible need for repairs
- Access to public transportation
- Local entertainment options
- Local school district ranking
- Property/real estate taxes
- Backyard/swimming pool
- Number of bedrooms
- Property value trends
- Square footage
- Price
If your agent is missing the mark in some way, speak up. They want to help you, not stand in your way. (After all, it is to their advantage to sell you a house!) Don’t hurry this process. It may take time to find what you want and what fits you and your family.
You can also look online for homes. Send links to your realtor for homes you find on the internet and ask for tours if you want to see them.
When you find THE house, it’s time to make an offer!
7. Make an offer on a house.
So, you’ve found the house of your dreams and you are ready to make an offer. Your real estate agent generally handles this for you, but you can do it or be involved, too. This offer letter provides your name and address, the price you are offering for the home, as well as a deadline for the seller to respond to your offer. It is sent to the seller or the seller’s agent.
Along with the letter, it is customary to send a deposit of 1% – 2% of the purchase price. This is called earnest money and it will go towards your down payment and closing costs later if you end up buying this house. You will lose this deposit if the seller accepts your offer and then you change your mind.
Then you wait for the seller to respond to your offer. They can:
- Accept your offer.
- Reject the offer. To which you can make another offer if you would like.
- Make a counteroffer, with a different purchase price or terms. You then can accept it, reject it, or make another counteroffer.
This process may go on for a while. And don’t be afraid to walk away if things aren’t going as you like. If you and the seller finally agree to an offer, then the appraisal and inspection are ordered.
8. Arrange for a home inspection and a home appraisal.
The home inspection is to protect you from undisclosed or unknown problems with the home you have decided on. Many lenders don’t require it to get the loan, but you are the ones who will be living in the home. So get an inspection before you buy any property.
The inspector will carefully go through the house and note any issues that might cause problems: Electrical systems, the roof, plumbing, appliances, pest damage, foundation issues, etc. You will get a detailed report of anything the inspector finds. Go through this carefully with your real estate agent.
If there are major problems, especially those that could cause health issues, like a leaking roof, lead paint, mold, electrical issues, plumbing problems, etc. it’s time to contact the seller and ask them to fix the problems.
If they refuse, you have a decision to make: to go through with the sale or to pull out. This is the reason for a home inspection contingency in the contract, so if you do decide not to proceed due to a poor inspection, you won’t lose your earnest money deposit.
If you buy the house as-is, you will be responsible for all repairs after the closing.
The appraisal fixes a value to the property you have chosen. Your lender will require this to protect them from financing a property that isn’t worth what they are lending. An appraisal contingency included with the offer allows buyers to back out of the purchase or renegotiate the offer without losing their earnest money if the home appraises for less than the amount offered.
9. Ask for repairs or credits.
There are some other ways to deal with problems uncovered during an inspection or appraisal. If the seller doesn’t want to deal with any repairs, you could ask for a lower purchase price so you will have the money to fix the problems yourself. You might ask for some of the closing costs to be paid by the seller, again giving you money to take care of the problems.
These types of negotiations are handled by your real estate agent. They will deal with the seller’s agent or the seller directly if there is no agent involved. If the seller rejects any requests to deal with the problems from an inspection or appraisal, it’s up to you to decide how to proceed. The inspection or appraisal contingency attached to your offer letter gives you the peace of mind of knowing you can walk away from the sale without losing your earnest money deposit.
10. Do a final walkthrough.
You’re almost there! Don’t neglect the final walkthrough for whatever reason. The seller may believe the final repairs they promised to do were actually done. You need to make sure. You want the property to be free of any of their belongings so you won’t be surprised on move-in day. Make sure nothing has been switched since you put an offer on the property. If all is well, it’s time to close.
11. Closing
Get ready to sign a lot of paperwork! Take your ID, a copy of the Closing Disclosure, and proof of funds for the closing costs.
By this time, you should have compared the Closing Disclosure you were given three days before the closing with the Loan Estimate you received three days after your first loan application. If the figures vary significantly, call your lender before you go to the Closing and get this cleared up.
It is tempting to simply sign a document where the closing agent points, but it’s in your best interests to pay attention. Honest mistakes can happen with such a large stack of papers and this is your money everyone is talking about.
Amid all these papers, you will sign a settlement statement that lists all costs related to the home sale. It is at this meeting that you will pay your down payment and closing costs. You will also sign the mortgage note, promising to repay the mortgage loan. Finally, you will sign the mortgage or deed of trust to secure the mortgage note.
When the closing agent finishes, you will be the owner of your new home!
12. Welcome home!
Hire the movers and get ready to move in! The process may seem long and tedious but it does involve a great deal of money, so don’t skimp on the steps and preparation to homeownership.
By understanding the steps above, you’ll feel much more confident and less stressed throughout the home-buying process.
The realtors here at Fluid Realty consider it a privilege to be part of your team to find your new home. They know the area–most live here, too!–and are committed to protecting your interests and making sure you are happy with the home you chose.
Contact Fluid Realty today!
