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Guide

A Step-By-Step Guide to Buying Your First Home

Think you're ready to buy a home for the first time? Here's what to expect as you begin your journey to homeownership.

Are you ready to make the leap from renting to owning? It depends.
 
Do you have a steady source of income, and have you maintained it for several years? If you answered yes, and you have an established credit history, you could be well on your way to becoming a new homeowner.
 
Buying a home can be thrilling and nerve-wracking. These tips can help you make the best decision for your situation.
 

First Steps to Buying a Home

No matter what size, location or style of home you want, ask yourself “How much home can I afford?” You can use a mortgage payment calculator to check current mortgage rates, getting an idea of the price range you can afford.
 
There isn’t a single formula that lenders use to determine how much they will lend you, but it’s generally based on a combination of your income, debt and credit rating. It’s called a debt-to-income ratio and the general guideline is that no more than 28% of your total monthly income be devoted to housing costs.
 
Another way to figure out how much house you can afford is to multiply your annual household income 3 to 5 times. So, if your household makes $100,000 a year, you can look at houses in the $300,000 range.

 

How Much Home Can You Afford?

Many first-time buyers are surprised to learn that it takes considerable cash-on-hand to buy a house, and not just for new furniture. You’ll need a minimum of 5%-10% for a down payment, to pay closing costs, realtor fees, and to purchase homeowner’s insurance. If you put less than 20% down, you’ll also have to buy mortgage insurance.
 
There are many first-time home buyer programs available that can help save you money for a home. A qualified mortgage lender can help you sort through your options. It's also helpful to use a financial tracker like TotalMoney, available for free from Cadence Bank.

 

Get Pre-Approved for a Mortgage

Before you start looking for a home, it’s time to get pre-approved for a mortgage. Without a mortgage pre-approval, most sellers won’t consider an offer – it’s really the best way to prove that you’re a serious buyer.

You’ll need the same documents to get pre-approved for a mortgage that you’ll need for the actual mortgage loan: pay stubs, W-2s for the last 2 years, your last two federal tax returns, two months’ worth of bank statements for all of your banking accounts, and a credit report.

Once you’ve taken care of this step, you’ll be ready for the best part – searching for your new home.

 

Searching for a House

  • What type of home fits you the best? Is it a house, a condo, or a townhome?
  • A single-family home is great if you want privacy, but not so great if you hate doing yardwork.
  • Another important consideration is the home’s surroundings. Are the nearby homes well maintained?
  • Is it conveniently located to the places that are important to you?
  • How are the nearby schools rated?

These considerations will also factor into how easy – or difficult – it will be when it comes time to sell, giving you a better idea of your overall investment. You probably won’t live in your first home forever, but it’s a good idea to plan on staying in your home for at least five years to recoup closing costs and realtor’s fees.

 

Making the Offer 

 When you’ve found the house you want, it’s time to make an offer. The sellers set their price when they listed their home, but that’s just the starting point. Once you decide to make an offer, it triggers an elaborate dance between you, the seller, and usually, your real estate agent who will advise you on the finer details of making an offer, getting an inspection, and negotiating what’s included in your offer.

 

Your offer should include an expiration date and a detailed list of anything that’s wrong with the house that you expect to be fixed. Your real estate agent can help ensure that they keep to their end of the agreement – all while answering any questions you have during the sales process.

 

Applying for a Loan

 If you’ve been pre-approved for a mortgage, you can approach the lending process from a position of strength. The institution where you bank is a good place to start searching for a lender, and your bank can advise you on the different types of loans available to you.
 
Once you’ve chosen a lender, you’ll need to provide supporting documentation for the information you provided on your application.
 
The loan process happens in three steps: loan processing, underwriting, and closing. The entire process can take several weeks, but if you’ve already been pre-approved, it may be faster.
 
During this time, make sure you don’t make any drastic financial changes. Don’t take out any new debts or make big purchases. Don’t switch jobs. If you need to do any of these things, be sure to wait until after closing or you may jeopardize your ability to get a mortgage.

 

Closing the Deal 

If all goes well, you’ll get the all-clear to close on your home. At closing, you will sign all of the paperwork, including the loan documents. It typically takes a couple of days after the paperwork is returned to the lender before your loan will be funded. Once the check is delivered to the seller, you’re ready to move into your new home!
 
Need help with buying a home? The mortgage experts at Cadence Bank are here to help.  Contact us today to learn about your home buying options.
 

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