The home buying process can be stressful and confusing. This step-by-step guide will help make the process a little less daunting. Please contact us for additional information. You can also check some “Common Questions from First-time Homebuyers” provided by the US Department of Housing and Urban Development
Step 1 Preparation
Improve your credit – new governmental credit score guidelines continue to make it more and more difficult to obtain a mortgage with below average credit. Good credit however, can lower your mortgage’s interest rate, potentially saving you hundreds of dollars each month. You can get your own credit report (www.annualcreditreport.com) and make sure that there isn’t anything that you are not aware of and work to clear up any problems. You can dispute any mistakes, but the most important thing is to build and maintain an excellent credit portfolio moving forward. Our Personal Bankers can help you make a plan for paying down debt and raising your credit score! Check out Financial Education under the Resource button here on our website for more information.
Grant Funds – There may be grant funds available for you as a first time homebuyer…ask a Personal Banker for current funds availability information.
Calculate how much house you can afford – Housing eats up a good portion of everyone’s paycheck, but as a rule of thumb, buyers spend 25-30% of their pre-tax pay on housing. Consider your entire budget: How much is your credit card bill, student loan or car loan? How much will your new home cost to maintain? Will you get a big break on your taxes from the mortgage interest rate deduction? Click here to see how much you can afford.
Organize your documents – A properly documented loan application makes your loan process go smoothly. Click here to fill out an online application.
Below is a list of other documents we will need to process your loan application. Please bring in copies of the documents, or we can make copies so you can keep your original documents.
Your social security number (card).
Two current pay stubs within the last 30 days and the two most recent years’ W-2s or, if self-employed, your tax returns for the past two years.
Bank statements for the past two months (if you’re already a SSB customer we can get these for you!)
Investment account statements for the past two months.
Retirement account statements for the past two months.
Step 2 Getting Qualified
Work with your Personal Banker to find the loan program that best suits your short and long term needs. See our loan product page for additional information on the variety of loan products we have available.
When buying a home, you may be pre-approved. Pre-approval involves verification of your credit, income, assets, and liabilities. It is highly recommended that you be pre-approved before you start looking for a home. This will put you in a better bargaining position and speed up the loan process. Realtors often require a pre-approval before even showing you a home!
We can calculate your monthly expenses including principal, interest, taxes, and insurance. You are generally required to pay a monthly amount into an escrow account instead of making large lump sum annual payments. This can assure that the mandatory taxes and insurance are paid, and give you peace of mind.
Step 3 The House
Shop for a home – Make a list of the features you want or don’t want. A realtor can be a great help, so much so that some people start planning with a realtor months or even years before they’re ready to buy. The seller pays the sale commission, which typically runs 5-7%, split between the seller’s agent and buyer’s agent. So essentially, first time buyers get the service basically for free, although you may be required to pay administration fees. Some also buy from people who are selling their own homes, because the lack of a commission often means a lower price.
Make an offer – How much did similar homes sell for nearby? How long has this house been on the market? Your realtor can evaluate market conditions and help you make a reasonable offer. Make sure you feel comfortable with your realtor; if you don’t, get a new realtor. This is a big decision and you deserve to feel comfortable with your realtor, trusting that she or he has your best interest in mind.
A common occurrence in negotiating the sale of a home is seller concessions. These are a set dollar amount or percentage of the purchase price that a seller agrees to contribute to you, the buyer, towards your closing costs. For example, the seller might agree to pay 6% in seller concessions. This can help to either lower the amount of money you are required to bring to the closing table (when you sign the documents and close the loan), or help you to bring none at all. These contributions are financed over the life of the loan with the purchase price, so make sure to ask your Personal Banker if concessions would be a good decision for your situation and if they are allowed with the loan program you are using.
Sign a purchase agreement – You sign and pay a deposit that is held by a neutral third party. This is usually done through your realtor, but in some cases you’ll want a real estate lawyer to go over the sales contract. Typically buyers can back out if the home inspector finds big trouble or if they can’t find financing if it is included as a contingency.
Step 4 Finalizing the Sale
Complete Loan Process – Once your purchase agreement has been executed, we will finalize the loan process immediately. This may require gathering additional documents as well as determining the final loan amount and down payment required.
Home Inspection - Have the property inspected by a licensed home inspector, and make sure your contract is contingent on the home inspection for a detailed, objective evaluation of your home’s infrastructure. Afterwards, negotiate with the seller over needed repairs. Be sure the title of the house is free of any liens (the bank will check this as part of the loan process). The bank will hire an independent appraiser to ensure the purchase price is appropriate considering the market value of the home.
Shop for homeowners insurance – Shop around, but your own car or life insurer will probably give you a good package deal. As always, a higher deductible saves you money. Don’t wait until the closing to shop for the best rates. Check with Security Insurance located right here in our bank building – Security State Bank customers may qualify for a discount on their home insurance!
Close the purchase of your new home – You’ll meet with your Personal Banker at the attorney’s office or title company. You will be responsible to bring a cashier’s check for your down payment and closing costs (if required) as personal checks are normally not accepted. Review the final loan documents. Make sure that the interest rate and loan terms are what you were promised on your Good Faith Estimate and early disclosures. Make sure to verify the accuracy of the name and address on the loan documents. Sign the loan documents. The notary will require that you have your picture ID with you.
Step 5 Enjoy your new home!
Now that wasn’t so bad, was it? If you’re ready to start the process, give one of our Personal Bankers a call.