17th Mar, 2017

A Financial Guide for First-Time Homebuyers

A Financial Guide for First-Time Homebuyers

When you’re on the homebuying market for the first time, it’s easy to get overwhelmed. Paging through property listings, going on home tours, and driving through neighborhoods, looking for “For Sale” signs can be exciting, but most people are a little less enthusiastic about the nitty-gritty of mortgage financing. But unless you plan on paying for your new home outright it’s something you’ll have to deal with. Getting your financials in order is just as important — even more so — as deciding how many bedrooms you’ll need. Here’s a basic guide to the financial side of becoming a first-time homeowner.

  1. Prequalification and Preapproval
    Prequalification and preapproval might sound the same, but they’re very different parts of the home buying process. Prequalification is a way to establish your price range and involves a lender analyzing your income, assets, and debts to determine the amount they could hypothetically lend you in good faith. It’s not a loan, and it doesn’t guarantee one. But it should help you determine the kind of homes you should be looking at.Preapproval is a very similar process, but it goes a step further to confirm loan eligibility.  If you’re preapproved, a seller knows that you can definitely keep up your end of the transaction. That makes you a more attractive candidate when you put in an offer — and it also makes you more attractive to real estate agents, who will understand that you’re serious about buying.
  2. Home Searchfinancial guide
    This is the fun part: listings, tours, open houses. It’s like speed dating… except tens of thousands of dollars are on the line. Working with a real estate agent who knows your budget, needs, and taste can go a long way to easing your stress levels. Find someone you trust, and let them be your guide.A real estate agent doesn’t just take you on tours, though. When you’ve found the house of your dreams and are ready to make an offer, an agent can help guide you through the process. You’ll probably be putting down “earnest money,” which is basically a miniature down payment, held in escrow, that signifies to the seller that your intentions are serious. Your offer will also probably include a number of contingencies to account for findings of a home inspection or appraisal. When the offer is approved and both parties agree to the terms of a purchase agreement and sign it, it’s off to the mortgage application.
  3. Mortgage Application & Processing
    First, there’s the mortgage application, in which you input information about the house and  the purchase agreement. Then, there’s the loan estimate, which includes the terms of your loan, your payment details, closing costs, fees, and any insurance or tax payments you’ll need to provide at closing. Loan estimates are a great way to compare potential lenders and find the one whose terms are best for you. Appraisal, credit report, title services, and insurance fees are all a typical part of this process.Among other disclosures of credit report and appraisal findings, your lender will also be sending you a commitment letter restating the terms of the loan, and then you’ll have five to 10 days to return a signed copy.
  4. Closing
    Three days before your closing, your lender will send you another disclosure with the finalized loan terms, finance charges, and date of closing. On the big day, you’ll meet with the closing agent, an escrow officer, and any real estate agent involved and sign a stack of papers. But by this point, all of the major decisions have been made and all details have been communicated to you, so there should be no surprises.

Got it? Great. Keep in mind that this is only a basic guide to the process, and as anyone who has ever been on the market can tell you, there are often hiccups and unforeseen delays. For more background information, speak with your real estate agent or financial advisor, or peruse Freddie Mac’s mortgage guide. Happy house-hunting — and good luck!

Sam Radbil is a contributing member of the marketing and communications team at ABODO, an online apartment marketplace. ABODO Denver apartments was founded in 2013 in Madison, Wisconsin. And in just three years, the company has grown to more than 30 employees, raised over $8M in outside funding and helps more than half a million renters find a new home each month.

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