What to Know as a First Time Homebuyer
Buying your first home can be one of the happiest moments of your life, however it can also be quite overwhelming as it entails a lot of paperwork, approvals and deadlines. In this post we will explore all of the basics that a first time home buyer should know.
1. Prepare for your Mortgage
Much before you even start house hunting, it is highly recommended that you prepare your credit and finances. A bank will use a debt-to-income ratio to determine your mortgage amount. Consider paying down current debt to improve your ratio. Most lenders want to see this ratio between 40% and 50%, depending on your credit history and the lender’s special requirements. It is also important to secure a mortgage pre-approval letter before looking for your home as this will make the process much easier.
2. Find the Right Realtor
Working with a realtor is important because you need a good negotiator to represent you in this current competitive market. Florida’s homes are selling within days of being listed, therefore you will need someone who can be fast and efficiently present your offer to the seller. In fact if a seller receives an offer directly from you and not a realtor, you will most likely not be taken serious (Unless you are a cash buyer).
3. Make an Offer
Once you find the right home, you’re ready to make an offer. The offer typically includes a deposit, also known as “earnest money” it goes into an escrow account and once an offer is accepted you are ready to go into contract. The earnest money amount is typically 1% to 3% of the purchase price.
Keep in mind that an offer is a legal contract, and if you back out without a reason that is covered by your contract, you could lose your earnest money so it is important to make sure you only place an offer on the right home. In today’s competitive Florida market most sellers are requiring buyers to skip the offer altogether and go straight into sending a purchasing agreement.
4. Bidding War
In 2022 most homes in Florida are selling above asking price, so there is a high chance that you are going to get into what is called a “Bidding war”. If you do is important to have a seasoned professional by your side that can help you through the process. A good real estate agent can provide you with a “CMA”, comparative market analysis which will compare prices of nearby homes that were recently sold. This can help you navigate the bidding war. It is also important to have a maximum price established from the very beginning because you need to make sure you are still within your desired budget of what you can afford.
5. Title Company
As soon as your contract is signed a Title company will be assigned by either buyer or seller. A title company is responsible for making sure that the title to a property can be transferred from the seller to the buyer without any issues. A clean title means the purchaser doesn’t inherit unwanted problems such as liens, claims, or unpaid taxes from the previous owner. The title company offers protection against these issues through a title insurance policy. This policy ensures that the seller or owner has the right to sell the land and that any problems have been cleared up. The title company conducts the title search, orders a survey of the property, puts together a title report, issues title insurance, holds funds from the purchasing agreement in escrow and overall facilitates the closing.
6. Finalizing Your Loan
Once the contract is signed you will finalize the loan process. You will also have to order an inspection and your lender will make additional requirements, such as an appraisal on the home and additional documentation: updated credit report, employer W-2 forms and your two most recent pay stubs. If you’re self-employed, gather at least two years of tax returns and supporting 1099s. At least two months of bank statements might be required by your lender. Other potential documents a lender might request is proof of rent payments over the past 12 months, divorce decrees, and bankruptcy and foreclosure documents if relevant. The closing process can take around 30–45 days from when the lender starts the loan processing. You will receive a closing disclosure that includes the terms of your mortgage loan, such as the interest rate, and it highlights what you can expect to pay at closing (closing costs, down payment, etc.)
7. Closing Costs
Closing costs refer to the charges and fees that are paid when your home purchase is done. Both you the buyer and the seller pay closing costs to the service providers who managed the transaction. Typically, the buyer’s costs include mortgage insurance, homeowner’s insurance, appraisal fees and property taxes, while the seller covers ownership transfer fees and pays a commission to the real estate agent. It is important to always have at least 3% to 5% of the home’s purchase price set aside for closing costs, which can add thousands of dollars to the cost of buying a home. So keep this in mind when establishing your overall budget. Closing on the purchase of your first home will feel like a major success, one that requires much planning. Understanding the steps involved helps you get into your home faster, and with fewer surprises.
Contact us today at Bridge Title to help you with your closing needs: (561) 325 9989 – info@bridgetitlefl.com
