Home buying process can be confusing specially for first time home owner. You can come across a lot of new terminologies during home buying experience. This post contains high level checklist of main steps involved in this process and also summarizing some of the terms and meaning of those for the First Time Home Owner.
Home Buying Check List?
High level list of Activities and Stages of Home Buying Process for First Time Home Owner.
- Cleanup Your Credit (Pay Your Bills , Avoid New Accounts and Big Purchase)
- Figure Out Your Budget
- Narrow Down Area where you want to Buy Property
- Save for the Down Payment and Closing Cost
- Select Mortgage Provider
- Get Pre-Qualified with Lender
- Get Pre-Approval with Lender
- Work with Property Agent to Select Property
- Check School District
- Check Property Flood Zone
- Identify Area Property Tax, HOA and Any other possible Fees
- Negotiate Property price with Sales Agent
- Sign Purchase Agreement and Put Down Earnest Money
- Apply for a mortgage
- Get an Appraisal
- Get a Home Inspection (In Case of Pre-Owned Home)
- Complete the Title Review
- Secure homeowner’s insurance
- Complete Paperwork (Mortgage + Title Documents) with Lender
- Final walkthrough of Property
- Closing
What is Mortgage?
A mortgage is an agreement between you and a lender that allows you to borrow money to purchase or refinance a home and gives the lender the right to take your property if you fail to repay the money you’ve borrowed
What is Home Mortgage or Financing?
A home mortgage is a loan given by a bank, mortgage company or other financial institution for the purchase of a residence—either a primary residence, a secondary residence, or an investment residence—in contrast to a piece of commercial or industrial property. In a home mortgage, the owner of the property (the borrower) transfers the title to the lender on the condition that the title will be transferred back to the owner once the final loan payment has been made and other terms of the mortgage have been met.
Top Conventional Mortgage Provider
Islamic Mortgage Provider (Guidance, UIF, Devon Bank)
What is Pre-Qualification?
Prequalification is an early step in your homebuying journey. When you prequalify for a home loan, you’re getting an estimate of what you might be able to borrow, based on information you provide about your finances, as well as a credit check.
What is Pre-Approval?
A mortgage Pre-Approval is a letter from a lender indicating the type and amount of loan you can qualify for. The preapproval letter is issued after the lender has evaluated your financial history, including pulling your credit report and score. Getting preapproved also helps you find a mortgage lender that can work with you to select a home loan with an interest rate and other terms suited to your needs.
Pre Approval Benefits:
- Show real estate agents that you’re serious
- Place strong offers on properties that you’re interested in
- Show potential sellers that you’re serious and financially eligible
Fixed vs adjustable Payment Type?
| Fixed-Rate Mortgage | Adjustable-Rate Mortgage |
|---|---|
| Consistent interest rate for the entire loan term | Lower interest rates at the beginning of the loan |
| Easy to budget for (monthly payments are always the same) | There’s a chance interest rates could decrease later on |
| Good for long-term homeowners | Good for short-term homeowners |
| No prepayment penalties |
What is Earnest Money?
When you find a home and enter into a purchase contract, the seller may withdraw the house from the market. Earnest money or good faith deposit, is a sum of money you put down to demonstrate your seriousness about buying a home.
You deliver the amount when signing the purchase agreement or the sales contract. This Money is going to be counted toward the Down Payment on Closing.
What is Property Appraisal?
Real estate appraisal or property valuation is the process of developing an opinion of value for real property. This is an estimate of price for your property in the current market.
What is Closing?
The final stage in your home buying journey will be to close on your new home and obtain a free and clear title to the property. Obtaining Title Ensures that no other person, organization, or government has any legal or financial claim that would limit ownership rights.
To obtain this title, you pay a title company or title attorney to examine the public record for any outstanding claims against the property and provide title insurance to protect your investor’s interest in the property. The closing itself and signing of paperwork typically takes 1-2 hours.
Other Questions you may be Asked?
You may come across following term during Mortgage stage of home buying process. Mortgage company may ask you following question. Either you falls into these categories or not, it is better to understand what these terms means.
- Do you have any judgements or liens against you?
- Have you had any foreclosures in the last 7 years?
- Have you had any short sales in the last 4 years
- Have you filed for bankruptcy in the last 7 years?
What is Judgement?
A judgment occurs when the creditor wins their case against you in court. It allows the creditor to pursue ways to recoup the debt you owe e.g. by placing a Lien on your real estate. A judgment could be filed against you in several ways.
- You fail to show up in court
- The debt is legally yours
What is Property Lien?
A creditor can place a lien on your real estate holdings. The creditor notifies lenders of the lien. Therefore, if you sell your property or try to transfer the property, you would need to satisfy the debt first. A lien against property can be automatic in New York when a judgment is obtained in the county in which the judgment is recorded.
What is Foreclousure?
Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it.
Creditor or Lender?
A creditor or lender is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service.
What is Short Sales?
A short sale occurs when you sell stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.
With a fixed-rate mortgage, you get a set interest rate and payment for the entire loan term. Adjustable-rate mortgages, on the other hand, have rates that can change over time.
What is Bankruptcy?
Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of the outstanding debt.
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