Buying a home can be one of the most exciting times in your life, but the home buying process can be confusing and overwhelming, especially if it is your first time. We want to help you better understand the process, who's involved and what you will need to reach your end goal: being a homeowner!
There are many people involved in the process of buying a home. These include yourself, the buyer, as well as the sellers who own the current property you intend to purchase. There may be realtors on both the seller's side as well as on your side acting as an agent/broker on your behalf to help you find a home that meets your needs. There is almost always a financial institution, such as Vermont Federal Credit Union. Once a home is selected and an offer is made, there is an appraiser who evaluates the property to verify the value and sometimes a home inspector who will provide a full report of the home's defects and functionality that might only be visible to someone familiar with construction.
Application & Pre-Qualification
In today's real estate market, it is a huge advantage to be pre-qualified for financing before you start looking. It can also help you to determine how much house you can afford and it assures real estate brokers and sellers that you are a qualified buyer.
Applying for a mortgage loan will require that you have significant financial documentation to prove that you can afford the payments. A loan officer will review a variety of information from you to determine the amount for which you qualify as well as your ability to pay back the loan. This may include:
- Employment History - bring current pay stubs and W-2s (if self-employed, you will need 2 years of tax returns)
Income- Any bonuses, commissions, overtime or other sources of income will require additional documentation as proof
- Capacity - In addition to your ability to make monthly payments, financial resources are necessary for the down payment, closing costs and some reserves when you are buying a home. Costs at the time of closing, vary based on the price of the property, the tax rates in the town the property is in and various other items. View a Sample Good Faith Closing Estimate for a property sold at $220,000 with a 5% down payment and at a 6.500% interest rate to see the types of funds you might need to close.
- Credit - Your credit can make the difference on whether you're qualified for a good interest rate on a mortgage loan, or not. Understanding your credit is critical to good financial health.
- Monthly Obligations/Debt Ratio - Your monthly income must be sufficient to cover expenses related to the mortgage and all other debts. Total mortgage expenses and other loan payments should not exceed 40-45% of your total income. Your credit score can influence the percentage of your monthly income used for debt.
Once all the documentation has been considered, the financing representative will provide you with a pre-qualification letter so that you can begin searching for your dream home.
Now that much of the financial planning part of buying a home is out of the way, it's time to go looking! There are many options to consider when looking for a home, including which communities and neighborhoods you'd like to be in, what style of home you would like, and also what is within the range that you can afford. A real estate agent can help you prioritize your wants/needs to find the prefect home and also help you with writing up an offer to purchase.
When the borrower requests a loan from a lending institution, the lender must contact an appraiser. The appraisal process develops an opinion of value for the lender to determine if the sales price is supported. Appraiser visits the property, researches comparable sales data in the area of the property, and submits a report to the lender with their analysis of the property value.
Many people request that an inspection be done on the property prior to the sales contract being finalized. We recommend this to home buyers, to ensure that they are aware of any defects in the home that might affect the value and therefore the selling/offer price. An inspector works for you (and thus is paid by you) and is usually trained in construction to look specifically for defects and functionality that may not be obvious, except to an expert.
ClosingThe closing is the final step in the home buying process and makes the property officially yours. Your real estate agent, attorney, and/or the lender will help you prepare for this to make sure you have all the necessary documents, and of course, the proper closing payment. You will be required to obtain and pre-pay for one year of home-owner's insurance (also referred to as hazard insurance) and to provide a copy of proof of insurance to the lender. Your attorney will perform a title search to assure that the seller owns the property and has a right to sell it and that there are no liens against the property. Closing cost estimates will be provided to you within one business day prior to closing. All closing costs are due at the time of closing. If all documentation and payments are made- you are the owner of a new home!
Meet Our Mortgage OfficersIf you are interested in learning more or obtaining a pre-qualification from Vermont Federal Credit Union, please contact our mortgage officers. You may also request a FREE copy of our Home Buying Member Workbook, which provides helpful tips and worksheets to guide you through the home buying process.
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