- Step 1: Deciding What’s Right for You
- Step 2: Getting Started
- Step 3: Loan Pre-qualification
- Step 4: Searching for Your Home
- Step 5: The Closing Process
Step 1: Deciding What’s Right for You
The home buying journey begins by answering some key questions. Understanding if buying is right for you, how much you can comfortably afford, what type of home you want to own, and finding a trusted loan partner will put you ahead of the game when the time comes to start your process. A home is a major personal investment of time and money. By selecting First Choice Loan Services Inc. as your lender, you can rest assured you have the professional knowledge and support you need as you start the adventure of purchasing your home.
Step 2: Getting Started
After taking time to look closely and weigh your options, you’ve decided that buying a home is the right thing for you! You know the type of home that would best fit your lifestyle and a price range that will work well for your budget. Now, you’re ready to start the home loan process, and First Choice Loan Services is here to help!
We can guide you through the details of your budget to select a loan option that is well-suited to fit your day-to-day lifestyle and sets you up for long-term financial success. When designing a budget for purchasing a home, several important factors should be considered such as your credit score, debt-to-income ratio, major one-time expenses like the down payment and closing costs, and repeat expenses such as taxes, insurance, car payments, credit card bills, student loans and more.
Your monthly home loan payment is an investment in your future, and thus it’s important to be sure this amount is comfortable for you and your plans. This payment includes Principal, Interest, Taxes and Insurance, otherwise known as PITI.
- Principal is the amount borrowed to buy the home, not including interest.
- Interest is the expense for money borrowed.
- Taxes are determined by local governments, and are normally paid as part of the monthly mortgage payment to the lender, who collects it into an escrow account. At the time taxes are due, the lender will pay the government this amount on the buyer’s behalf.
- Insurance is also typically paid to the lender who collects it in an escrow account. This includes two standard types of coverage: Mortgage Insurance and Homeowner’s Insurance.
- Mortgage Insurance is often necessary for those contributing a small amount for their down payment. In the event that the home buyer defaults and is unable to pay back the loan amount, Mortgage Insurance protects the lender.
- Homeowner’s Insurance covers damages caused by dangers such as natural disasters (among other incidents).
At this point, it is also critical to understand your mortgage interest rate. This rate directly affects your monthly payments for the life of the loan. There are several questions to consider when seeking the lowest interest rate available, such as:
- What’s your credit score?
- How much do you have available for a down payment?
- Will you buy discount points to lower your rate?
- Would you like a fixed- or adjustable-rate mortgage?
- What would work best for you: a long- or short-term loan?
Step 3: Loan Pre-qualification
Now that you’ve taken the time to understand the details of your budget, it’s time to get pre-qualified for your loan, and First Choice Loan Services can help! Pre-qualification is an estimate of what you might be able to borrow and shines light on the path ahead in your home-buying journey. Based on your income, assets, and sometimes a credit check, First Choice Loan Services will outline a loan amount and loan program with which you could move forward.
Though the pre-qualification process is not guaranteed, it does offer many benefits that come in handy throughout the home-buying process.
- Know your exact price range helps to narrow your options.
- Address any credit problems early in the lending process.
- Demonstrate financial backing and solvency.
- Gain leverage in the negotiating process. In the event your home offer is matched, pre-qualification gives you the advantage of equalizing that offer.
Step 4: Searching for Your Home
After finding the right lender and going through the pre-qualification process, your search for homes can commence, and First Choice Loan Services stands by you every step of the way.
Before looking for homes, making a list of the qualities you need would be very helpful. Typically, working with a licensed Realtor will help with this process. Understanding the features of the neighborhood and the characteristics and type of home you want will go a long way towards helping to narrow down your options. The following questions will help to guide you through this process and provide insight into exactly what you want:
- What type of space requirements do you have?
- Do you want a single-family home, a condo, a town home or something else altogether?
- Should you seek a one-story or two-story home?
- How much home maintenance is acceptable for your lifestyle?
- Do you foresee repairs or improvements?
- Is your home in close proximity to your office or work?
- Are you and your family interested in and comfortable with the area?
- Are the school districts a good fit for your children?
- How many bedrooms and bathrooms do you prefer?
- What type of yard do you desire?
Step 5: The Closing Process
After you’ve found the right home for you, we come to the final step: closing. Closing involves extending an offer, pre-closing, the purchase agreement and the actual closing stage.
Before extending an offer, you’ll want to consider several factors. Providing proof of loan pre-qualification from First Choice Loan Services can greatly influence your offer to the seller by providing proof of financial security. You’ll also want to maintain a record of all the negotiations and decisions made to help clarify any miscommunication. A Realtor can be extremely helpful during negotiations to help settle on a final price. Finally, you want to be sure that you have money ready for the “good faith” deposit. This deposit will be placed in an escrow account until the purchase is complete.
Pre-closing brings us closer to the final stretch, where the seller has agreed to your offer and is ready to move forward. There are many steps and precautions you can take to ensure a smooth pre-closing process, such as:
- Reviewing your loan commitment with First Choice Loan Services to be clear on your rate terms and additional requirements
- Acquiring homeowner’s insurance
- Setting a closing date and time
- Creating a timeline of steps for your move
- Ensuring that the property survey was ordered with your closing agent or attorney
- Arranging a final inspection of your new home
- Preparing for closing costs in the form of a certified or cashier’s check
The Purchase Agreement
The transaction has occurred, and you’re nearing the end of your journey. Completing your purchase agreement creates a legally binding contract between you and the property seller outlining all terms and features of the transaction, including the sales price; the loan, down payment and deposit amounts; names of all parties involved; time limits for the transaction, contingencies that need addressed prior to finalization; and the property address. Every purchasing agreement is a case-by-case document that depends on your location and purchasing circumstances.
Congratulations! Now that you’ve conquered the home-buying journey, it’s time to close on your new home. There are a few key elements that come at this final step.
Your closing costs generally can include discounts points, origination fees, notary fees, appraisal costs, recording fees, title insurance and more. Your First Choice Loan Services Loan Originator will be able to explain any noted costs that might be unclear to you.
In order for you to be able to review it, at least three days before your closing, you should receive a copy of the Closing Disclosure which will outline your final closing cost. Typically, closing costs can range from 2 to 7% of the home’s purchase price. As these funds will be due at the closing appointment, you’ll need to bring a certified or cashier’s check for the amount of the closing costs with you. While these costs may change from lender to lender, there are three basic categories:
Homeowner’s insurance, mortgage insurance and the costs to set up an escrow account are all included in the prepaid expenses. When a lender pays the annual insurance premiums and various taxes on the borrower’s behalf, an escrow account is established to collect the first year’s premiums. To pay for future premiums, an additional amount also is included. Prepaid expenses are challenging to predict fully as they vary based on the type of property and the time of the closing.
Equivalent to 1% of the mortgage loan amount, a discount point aids in reducing the interest rate of the loan. These are entirely voluntary. Say, for example, a home buyer obtains a mortgage amount of $150,000 at 8% interest. If a borrower opts in to pay 2 discount points, the interest rate could move down to 7.5%. Locking the lower interest rate through purchasing discount points would help save money in the mortgage payment every month; however, it would also necessitate $3,000 (or 2 points) at closing.
Out-of-pocket expenses are comprised of fees for appraisals, attorneys, credit reports, deed recordings, home inspections, tax services, and other miscellaneous expenses.
The main focus at closing is to sign the final paperwork, which will include three primary documents:
This is the itemized list of the final credits and charges for both you and the seller based on the terms of the contract. So that you are able to review it, you should receive this at least three days before your closing.
Deed of Trust or Mortgage:
These documents outline your agreement to a lien on your property, and provide security for repayment of your mortgage.
The Promissory Note:
The mortgage promissory note is a document that legally binds you to pay your lender according to the agreed terms, including mortgage payment dates and where the payments should be sent.
The day of closing can be overwhelming. Between the scheduling the appointment, signing all the papers and feeling the overall excitement of ending the home-buying process, it can be a lot to manage. We want you to feel as knowledgeable and prepared as possible so that closing on your home is a joyful experience. First Choice Loan Services will be there with you every step of the way.