By Christina Kass
DTI ?… Escrow ?… FHA ? For first-time home buyers, the housing market can be a confusing arena full of unfamiliar jargon — but it doesn’t need to be. With the right amount of preparation, you can make the successful transition from dreaming about owning a home to holding the key to your new residence.
At Vanguard Title, we take pride in helping Michigan buyers close on their first home. Naturally, a common question among new home buyers is, “Where do I start?” Here’s a step-by-step guide to simplify the process:
Consider your financial health
While you may be tempted to dive right into your search for the ideal home, it’s imperative that you pause to get your financial house in order. That begins by determining how much house you can afford. First, set a goal for your down payment and start saving. While there are advantages to putting at least 20 percent down on a conventional loan, there are also more affordable options.
Other factors to consider include your credit score — the higher the score, the lower your mortgage interest rate. Another factor is your debt-to-income ratio (DTI), calculated by dividing your monthly debt by your gross monthly income. In most cases, to qualify for a mortgage, you’ll need a DTI of 50 percent or less.
Get pre-approved for a mortgage
Once you’ve completed an audit of your finances, it’s time to show sellers and real estate agents that you’re a serious buyer by working with a lender to get pre-approved for a mortgage. The pre-approval process typically involves your credit, assets and income, and helps determine the price range of homes that’s right for you. It can also give you an edge over competing home buyers.
The type of mortgage that best suits you should also be examined, with most homeowners opting for conventional loans backed by government-sponsored Fannie Mae or Freddie Mac. Other mortgage types include FHA, backed by the Federal Housing Administration; VA loans, for veterans, active-duty armed forces members and their spouses; and USDA loans, for buyers in rural and suburban areas. A quick Internet search can keep you apprised of current mortgage interest rates, which saw historic lows near the end of 2020.
Search for your home, sweet home
After you receive your pre-approval letter from your lender and examine your mortgage options, the fun part begins — it’s time to start house hunting! Keep in mind that spring and summer buyers generally have more options to choose from, but less negotiating power, while fall and winter buyers can enjoy greater price flexibility with fewer options. To help narrow your search, it’s wise to make a list of your top priorities, including:
- Square footage
- Number of bedrooms
- Condition of home
- Property taxes
- Local school district
- Proximity to freeways
- Nearby places of interest
While it’s possible to purchase a home without the help of a real estate agent, working with a REALTOR® can greatly improve your home-buying experience. Your agent can not only match you with homes that meet your criteria, but he or she can also schedule showings, help you write offers and negotiate on your behalf.
Make an offer on your favorite property
You’ve narrowed down your list of potential homes, and a clear favorite has emerged — now it’s time to make an offer. This entails submitting an offer letter in writing, which includes your name and address, the price you’re offering to pay for the home and a deadline for the seller. If you have an agent, he or she will write and submit the letter for you and manage negotiations with the seller, who will respond by accepting or rejecting the offer, or by making a counteroffer.
When you’ve reached an agreement on the price, the house will go into escrow. This is simply the process in which a neutral third party holds funds associated with your home purchase until the transaction is complete. You’ll be required to pay an earnest money deposit, or a small percentage (typically between 1 and 3 percent) of the sale price of the home, to the escrow provider. This will later be deducted from the total amount you owe.
Schedule and attend a property inspection
Within a few days of your offer being accepted, a home inspection will be scheduled to check for structural damage or anything in need of repair. Your offer is contingent upon this inspection, so you’re protected and can withdraw your offer in the case of significant damage. Before closing the sale, you can ask the seller to make repairs based on the inspector’s findings. You’ll also schedule a walk-through to ensure the repairs are completed.
Close on your new home with Vanguard Title
Of course, this is our favorite part of the home-buying process — the closing! A home closing is a complex process best navigated by a company with proven experience. At Vanguard Title, we’ve successfully closed thousands of real estate transactions throughout Michigan since 1987, and we’re ready to do the same for yours.
Prior to closing, you’ll send us and your mortgage lender your sales contract, review your title commitment and obtain mortgage approval. You’ll then schedule the closing date and time that works with your schedule. With our convenient eSign option, you can Close Anytime Anywhere, so we can (virtually) meet you right where you are, no matter where you are. We’ll send you preliminary closing documents for your review and communicate any changes. After the closing, we’ll issue the final title policy, funds and transactions, and provide copies to all parties.
When you’re ready, we’re ready to congratulate you on one of the most exciting and significant purchases you’ll ever make — your first home. Contact us today to see how our experience can work for you.