How To: Prepare to Buy a HomeOct 5 2011
Owning a home is a part of the American dream, but how do you know when that dream is attainable? Although there are many important steps towards purchasing a house, there are a few necessary ones that should be taken before the house hunting even begins, to help the process go smoothly.
Here are a few tips to preparing yourself for a home purchase.
1. Get Your Finances in Order
Without the proper financial standing, your dream home could remain imaginary. Get to know your credit score and make sure it’s in good shape. If it’s not, repair any damage that you can. The better your credit score, the easier it is to get a loan for a home. Also, make sure you have enough money set aside, for not only a down payment, but for any fees or other unexpected expenses that will come along before closing.
2. Keep Reality in Check
Falling in love with a home that you can’t afford to purchase is a bad way to start a home purchasing process. To prevent it, find out what you can afford before you begin searching. Establishing your purchase power, which includes a down payment and closing costs, will help you narrow your choices to fit your finances.
3. Learn the Lingo
There will be a lot of unfamiliar terms being thrown around as you get your loan, so it helps to understand what’s going on. Here are some basic terms you will be dealing with as you try to close a deal on a house:
• ARM – (Adjustable Rate Mortgage) a loan in which the interest rate varies based on an agreed-upon index.
• Closing Costs – fees that are required to close a loan. A cash obligation is needed from 3% to 5% of your purchase price.
• FHA – (Federal Home Administration) the Federal Government Agency that oversees the U.S. Housing Market.
• FRM – (Fixed Rate Mortgage Loan) a loan in which the interest rate stays the same.
• GFE – (Good Faith Estimate) a document that explains all your costs for the loan.
• TIL – (Federal Truth-In-Lending) a document that spells out all the costs and fees of a loan.
• Per Diem Interest – the interest you pay per day, from the day you close to the last day of the month
• Underwriting/Underwriting Fees – the process a lender performs to qualify you for a loan. The fee is what you pay the lender at closing to cover evaluating the risk involved with loaning you money.
• Warranty Deed – a legal document guaranteeing the seller the rights to sell a property.