Home Buying 101: Part II
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In part 1 of this series, we talked about the planning stages of buying a home: deciding to buy, saving for a down payment, and how to get your finances in order in preparation. In part 2, weâll dive into the details of closing on a home: the underwriting process, mortgage loans, and everything up to closing the deal.
Making an Offer
At this point, you should know the budget youâre working with, and your real estate agent will help you find homes to suit your needs. When you find one you like, youâll put in an offer. The good part is that your agent will facilitate all of this, but you should still know what goes into the process.
Hereâs a quick breakdown of how it works:
Your agent will run comps on the surrounding area to see the prices that other properties recently sold for. This will help you figure out a reasonable, yet competitive offer.
Youâll want to get the home inspected, either at this time or shortly after your offer is accepted in whatâs known as the due diligence period. This is the set time frame when you can find out if there are any issues with the home that need to be addressed/negotiated before you close the deal.
Youâll put in a written offer on the home. This outlines the price youâre willing to pay based on the comps, the terms and conditions, any contingencies (like if youâre going to get it inspected), and a closing date. You may go through some negotiating with the seller at this time. A good offer is usually a combination of a competitive price, a quick closing date, and meeting the sellerâs needs.
If your offer is accepted, youâll sign a purchase agreement which is a document between you and the seller that outlines all of the details once more and solidifies the deal. Youâre now under contract for the home!
Securing Funding
Now that your offer is accepted, there are a lot of moving parts until closing day. This is where money starts flying, so itâs important to understand all of the parts of the process so you know where your money is going! You can expect the process to take 30-45 days.
Types of Mortgage Loans
Your lender will talk to you about the different types of loans and what will work best for you. Hereâs a breakdown of the most common mortgage loans:
Conventional
Not backed by the government (you borrow the money from a private lender, like a credit union, bank, etc.)
Fixed terms (15- or 30-year terms are most common)
Usually requires a credit score of 620 or higher (higher credit score = better interest rate!)
Can use it for primary residency, investment property, or second home
Typically allow as low as 3-5% down payment (but donât forget about PMI, which we talked about in part 1!)
43% debt-to-income (DTI) maximum (remember from part 1: the lower your DTI, the better)
FHA
Lenient credit and down payment requirements, so itâs easier to secure for lower-income, low-credit, or first-time home buyers
If you have a credit score < 580, youâll need to put down 10%. If your score is > 580, youâll need to put down 3.5%.
50% DTI maximum
USDA
Backed by the U.S. Department of Agriculture
No down payment required
You have to make around $90k or less to qualify
Must live in a USDA-approved area (limited to rural areas)
VA
Backed by the U.S. Department of Veterans Affairs
Offered to active-duty servicemembers, surviving spouses, and veterans - specific criteria must be met to qualify
A minimum credit score of 620
No down payment is required, and usually, these loans get better interest rates
You can only use VA loans for a primary residence (no investment properties)
Step 1: Apply for a mortgage.
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