How to Buy a House
I’m writing this guide for the first time home buyer. Specifically, the first timer who wants to understand the process of buying a home.
Let’s start with the basics. Here is a cliff note version of the process:
What is a Mortgage?
Most people do NOT pay cash when purchasing a home. Instead, you make a small down payment (typically 3.5% - 20%) and receive a loan from a bank called a “mortgage”. Mortgage payments are most commonly paid for 10, 15, or 30 years on a monthly basis. Your mortgage payment is similar to paying “rent” every month, but the difference is you’re building equity into the home rather than getting nothing for rent payments.
How much money will a lender let me borrow to purchase a home?
In general, take your combined yearly income (yourself and spouse). Multiply by three. That’s about how much a lender will probably loan you.
For example, you and your spouse make $80,000 per year combined. You’ll be in the $240,000 range.
How much does a Kennesaw home cost?
The median price for a Kennesaw, Georgia home is roughly $215,000.
Acworth - $200,000
Marietta - $250,000
Canton - $235,000
Woodstock - $220,000
Note - These figures change every month. However, this gives you a good idea of home prices in the surrounding area
How much are monthly payments?
Use any mortgage calculator to determine payments. In general expect to pay .7% to 1.15% of the purchase price (depending on interest rates, down payment, length of loan..etc)
The bigger your down payment, the less your payment.
The lower the interest rate, the lower the monthly payments
The longer the loan, the lower the monthly payments
Some people will rent out a room to help lower the monthly payments
How much money (upfront) do I need to purchase a home?
Down payment - 3-20% of the purchase price. For example, when purchasing a home for $250,000, 5% would be $12,500. Your lender may offer a zero down payment program, depending on your credit score, work history...etc. But count on some kind of significant down payment to be safe.
Inspection - $500. Prices for inspections run $400-$700 depending on the size of the house. Estimating $500 is a good number.
Appraisal - $500. You may be able to insert the appraisal costs into closing. Ask your lender.
Closing costs - 3% of the purchase price. You MAY be able to add the closing costs to the loan. If you can pay the closing costs in cash, you should do so. If not, try bundling the costs into the loan (you’ll be paying interest, obviously) Note: Closing costs are negotiable! If I’m your REALTOR, I’m pushing hard to have the seller pay most, if not all your closing costs. Most sellers understand first time home buyers don’t have much cash lying around, thus having the seller pay for closing costs is very possible.
Summary - On a $215,000 home, you will most likely need:
$10,750 (5% down payment)
$6,450 (closing costs)
Total - $18,200
How do I get a mortgage loan?
The short version:
Money for a down payment
Two years of stable employment history (same job or same field)
Monthly income that’s three times higher than the monthly payment
600+ credit score
Lenders want to know you will pay them back. The more “proof” you can show that you’re a worthy borrower, the more likely you’ll be approved for a mortgage loan. Credit score proves responsible borrowing of money and paying back. Down payment proves you’re willing to lower the risk of the lender by putting skin in the game. Stable employment history shows the lender you can stay employed and won’t be a big risk of non-payment. Monthly income three times higher than monthly payment shows the lender you can reasonably pay back your mortgage payment and still live pay other bills.
Read my other articles for more details on steps beyond securing a mortgage loan.
Credit Score - Learn about your credit score, where to get your credit score, who looks at your credit score when purchasing a home, why your credit score is important...etc.
Repairing Credit (if needed) - Learn how to repair your credit quickly to qualify for a mortgage
Establishing Credit (if needed) - Learn how to establish credit the quick and easy way.
Picking a Lender - Choosing the right lender can be the difference between owning your home and heartbreak. This is a MUST read if you haven’t secured a mortgage loan yet.
Hiring a Real Estate Agent - An unbiased opinion on how to hire the right real estate agent.
Shopping for a home - My secrets on how to shop for a home that beats the competition.
Making an offer - Explanation of what goes into the offer, the logic behind the offer and tips/tricks I use to help my home buyers win the negotiation battle.
Understanding the contracts - There are several contracts you’ll sign when purchasing a home. I explain each one in detail.
Inspection - You’ll want to have the home inspected by a professional. Learn what most
Renegotiation (if needed) - After the inspection, you may need to renegotiate the contract.
Appraisal - Your lender will want their own expert to visit the home and establish a value. Learn about the appraisal process and how to avoid any hiccups.
Finalizing the loan - It’s common for your lender to be asking for more documents than you originally provided. The lender is simply gathering all the information necessary for the underwriter to make a final decision on your loan. Learn about the underwriting process and how to make the underwriter happy.
Final Walkthrough - You’re almost to the finish line! The final walkthrough is necessary to ensure the home you’re buying is the way you remember it. Learn more about the final walkthrough and why it’s important you attend.
Closing - The day has finally arrived! You’re going to be signing a WHOLE BUNCH of papers. I explain the closing process and what to expect.
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