Buying a new home can be overwhelming just to think about. If you have never purchased a home before, here are some steps to better understand what’s involved.
- Get preapproved for a mortgage. Preapproval determines the size of the loan a bank will lend you. This will help you figure out the price range of the home you can buy and a down payment amount. It’s also important to have when making an offer on a home. Your bid is stronger by being prequalified. There are a bunch of mortgage calculators you can find online like Bankrate to give you an idea of what your monthly payment would be by inputting an interest rate, down payment and loan amount.
- Know your credit score. Applying for a mortgage is basically like asking the bank to check all your financial records. They will obtain a credit report from each of the three major credit bureaus Equifax, Experian and TransUnion. Even the minor error in a report can change the score. Make sure that all of your credit card balances are low or paid off and be sure to watch your opening and closing of accounts as they will make the lender suspicions. These factors contribute to your credit standing and will influence the bank on the rate they offer you. Banks are trying to determine the amount of financial responsibility you can take on. They will look at your income, down payment and available funds to determine your monthly payments.
- Find a house! The next step is to search for a house you enjoy. Find a real estate agent you can trust to help guide you through this process. They are experienced in finding you the location, price range and style of house you are looking for.
- Make an offer. Once you find a suitable home it’s time to make a bid or offer. Some negotiation back and forth may occur but once a price is agreed on a contract can be drawn up. After the contract is drawn up you are given a time period for attorney review. During this time you should have the house inspected by an engineer form a home inspection company. They will make sure the home is up to code and report on any issues they may find. After the home inspection report is completed a contract date is set. Your attorney will now give a dollar amount that will be held in escrow until closing. At this point a formal mortgage application is taken out and this is when you will be told how much insurance to take out on the house.
- Get homeowners insurance. No bank or lending institution will allow you to take a mortgage without it. Home insurance is a combination of property insurance and liability insurance. It covers private homes form loss or damage to its contents, loss of use (additional living expenses) or loss to personal possessions of the home owner. Liability coverage for accidents that may happen at the home or at the hands of the homeowner within the policy territory is also provided. Homeowners insurance is a term policy set for a fixed period of time, usually 12 months. Only a person with insurance interest can be named on the insurance policy. The policy will be for at least 80% of the value of the house. This is due to the coinsurance clause that all property insurance policies have. Co-insurance is a penalty imposed on the insured by the carrier for under reporting/declaring/insuring the value of the property. Reach out to a NJ insurance agent to get a good understanding of the specific coverages your (almost) new home might need.
Now that you have qualified for a mortgage, searched for a home, placed a bid, drawn up a contract and obtained an insurance quote you are now ready to become a home owner. These are just some helpful insights into the process of buying a home that you can use to prepare yourself when it’s time for you to purchase a home.