1: Mortgage Loan Pre-Approval
The first step in the home buying process is to acquire the funds to purchase the home. For the majority, that means qualifying for and obtaining a mortgage loan. A mortgage is a loan specifically used to purchase a home.
How do you get pre-approved? You can look online for lenders or give us a call and we’d be happy to give you a few personal recommendations. The key is finding a mortgage lender who is there to help make the process as easy for you as possible. Once you’ve found a lender you are comfortable with, they will assist you in determining how much money you can borrow and will continue to assist you throughout the purchasing process. Once you’ve been approved and before you start searching for properties, your lender will issue a pre-approval letter for you to share with Realtors, sellers, and home builders. This letter lets everyone know you’ve already gone through the mortgage loan approval process and what your loan limitations are.
2: Earnest Money
Now that you are pre-approved for a mortgage loan you will need to acquire the funds for your earnest money. Earnest money is what you provide up front when you buy a home. It is stating “I earnestly want to purchase your home, so I am putting this money down along with my offer.”
Earnest money differs based on the total purchase price. $1,000- $1,500 is suggested for home $500,000 or less. For homes $500,000 and higher, the earnest money amount can range between 1% – 5%. Earnest money differs so it is important to review that amount with your Realtor.
If the sale goes through as planned your earnest money will be credited to you at closing. If you terminate your purchasing contract within your loan objection deadlines and your inspection, you will usually receive your earnest money back. If you are past those deadlines, it is much harder to receive those funds back, if at all. When earnest money is collected, it is typically held by the Title Company or listing agents office.
3: Money for your Down Payment
The third step in the home buying process is collecting funds for your down payment. When you originally get pre-approval from your lender, they will tell you an estimated amount you need as a down payment. Some mortgage loans like VA loans or USDA loans don’t require a down payment, so it is important you review your down payment with your lender.
Common down payments average between 3% and 5% of the total purchase price. However, some lenders require up to approximately a 20% down payment if you already own a home and are looking to purchase a secondary residence (25+% down payment). There are many options available and your lender will assist you in determining which loan is best suited for you.
4: Money for Closing Costs
Now that you’ve been pre-approved, have your earnest money and down payment situation established, you need to set aside additional funds for closing costs. When you take out a mortgage loan, the mortgage company has associated fees they charge to generate your loan. These fees typically average between 1% and 4%+ of the loan depending on the type of loan you have. This is another topic area you will want to review thoroughly with your lender directly.
There are times when you as a Buyer can request the Seller to contribute to your closing costs when you first write the purchasing contract. This option will depend on the local real estate market, competitiveness of other offers, and the Seller.
5: Money for a Home Inspection
Once steps 1 – 4 are complete, you will need to have the funds for a home inspection. Once you’ve found your dream home and have an executed contract between you and the Seller, you will need to hire a home inspector.
The average cost of a home inspection in Brown County is typically $300-400 depending on the size of the home and the scope of work needed in the inspection. Typically we write a 15 day inspection period which allows time for you as the Buyer to hire a home inspector and have enough time to ensure there are no major issues.
Depending on the home, you may also want to hire a separate vendor to inspect the well, septic system, structural aspects, mold and pest inspection. Discuss these additional inspections with your Real Estate Agent and they will help guide you through these options. Please be sure if you do decide to do additional inspections that your Agent writes enough time into your Inspection Deadline to complete all of them.
Buying a home is a huge step and we want to be sure everything is crystal clear in your expectations. This should be an exciting time for all parties involved, not a stressful one. Give us a call to get started on finding your dream home! Through this process, your Realtor and your lender will be your two top people in this process you’ll have on call.
Whether you are feeling overwhelmed, anxious, excited or all of the above about this process, take a deep breath and call us at (920)309-5229. We will help reduce the stress and anxiety you are feeling and do what we can to make this a fun and exciting time for you! Having a Realtor in your corner who advocates for what you want while keeping you informed is truly what you need.