Purchasing Your First Home: A Step-By-Step Guide

Buying a Home: An Introduction
You’re excited, but also scared, right?

It’s natural. Those two emotions go hand-in-hand when you go to purchase your first home. Everyone needs to do it, and few of us know how - at least at the beginning. Even with the incredible number of mortgage-related sites out there, it’s not easy to find a concise, yet comprehensive step-by-step guide to the process. With that in mind, the Florida Home Loan team has developed an easy-to-follow list of guidelines to navigate you through the process. As daunting as the task may seem, have no fear.

If you work hard, and follow our advice, you will find the experience rewarding and close the deal of your dreams. We guarantee it!

Step One: Make Sure Your Finances are in Order
There are many types of loans advertised online, each with a distinct set of pros and cons. We will go over these options in our guide to selecting the proper type of mortgage, but the bottom line is simple. The more money you have on hand and the better credit you have, the better your outlook is going to be. Especially with the rise in mortgage rates nationally, it is crucial to get the best deal. The interest rates you receive from a lender will be determined in large part by these factors, so it is extremely important to check your credit in advance and save money whenever possible.

Step Two: Setting Your Goals… and Knowing Your Limits
Much as many people try, you shouldn’t spend what you don’t have. Taking out a mortgage entails going into debt, but we cannot stress how important it is not to get in over your head. Making monthly payments you can afford means building equity and improving your financial status. Failure to make the payments? Disaster. Do not let it happen. Consult with your mortgage broker and tell them how much you make and what your credit score is (they can probably find the latter out for you if you don’t know).

One thing you can do on your own, or with a broker’s help, is determine your debt-to-income ratio. This basic calculation is a great way to figure out how much you can afford. What you do is tabulate the monthly expenses of your housing, often called PITI (Mortgage Principal + Mortgage Interest + Taxes + Insurance) along with any other debts that involve monthly payments. Divide this amount by your monthly income.

Opinions vary on what the limit on this ratio should be. Ideally, it would be 25-30 percent of your income, but with the surge in real estate prices of late, most first-time buyers have a hard time meeting that goal. You want to avoid spending more than 36 percent of your income on housing. It your total of PITI and other debt eclipses that amount, you are probably over-extending yourself and at risk. Try using this mortgage calculator to experiment on your own. This free tool will let you see how the various factors impact your potential payment, especially the interest rates you qualify for.

Step Three: Choosing the Ideal Mortgage
Now it’s time for the complicated part — choosing the right type of mortgage for your situation. This gets tricky, without question. A lot depends on how long you want to own the home and the amount of financial risk you are willing to take. Fortunately, Florida Home Loan has created an exclusive guide to assist you. Follow the link and get started selecting the right Florida mortgage option for your use.

Step Four: Going Shopping… For Neighborhoods?
Okay, so it’s not shopping in the traditional sense. You don’t get to buy anything. Yet. Before you actually start looking at houses, it’s important to research the areas you are considering and look closely at a number of factors. Even if the factors listed below do not apply to you on a day-to-day basis, they are important in terms of maximizing your home’s value.

1. Average price range. Now that we have been over how much you can spend, you can find something within your means.
2. School systems. Whether or not you personally have kids, or are planning to, better schools make neighborhoods more desirable. And expensive. See below.
3. Taxes. One of few guarantees in life… and not a good one. But, one you can understand and work around. Towns / municipalities that provide a wider breadth of services are liable to have higher property taxes. Make a list of what is important to you, and decide if the higher taxes are worth it… or worth avoiding.
4. Personal preferences. Everyone is different. Your home should reflect your lifestyle. Are you looking for a quiet, family-oriented area with homes on bigger lots? A lively area comprised mainly of condos? Consider the many options before you pound the pavement.
5. Where it’s located. Do you need access to a major road? Do you want to be near the beach? The convenience factor can impact home prices - and resale value - greatly, which is why location is so central to the concept of real estate.

Step Five: Let the House Hunting Begin!
Finally! Now that you’ve established what you can spend and where you want to, it’s time to get it done. Which brings us to another set of questions. To call a real estate agent or not? How much does that cost? Is going it alone a smart move? Complicated questions, but Florida Home Loan recommends that you work both with an agent and browse the For Sale By Owner (FSBO) listings on your own.

Why?

As much as working with an agent might intimidate you, it is effectively FREE for potential buyers in Florida to enlist their services. They get their commissions from the seller, and you get access to their expansive list of homes on the market. When you tell them how much you want to spend and where, they will research the MLS (Multiple Listing Services), a database of properties utilized by many realtors, and begin setting up appointments. Soon you will be on your way! Find an agent that specializes in your desired neighborhood and get started. NOTE: Be certain that you find a buyer’s agent, rather than a seller’s agent.

What about FSBO listings?

To avoid paying huge commissions, and with the convenience of the Internet, many sellers elect to put their properties on the market themselves these days. This opens up an entirely new set of possibilities to you, and therefore should be taken advantage of - there is nothing stopping you from working with agents and looking at FSBO homes simultaneously. It will be on you to make the appointments - and find the properties to begin with - of course, but there are relatively easy ways. You might see signs out front of homes during visits to a particular part of town. If not, try the real estate section of the newspaper, or, failing that, go online. Try sites such as BuyOwner.com, ForSaleByOwner.com, FSBO.com, or any site specific to your area that you come across.

Step Six: Pre-Qualification
When you get to the point where you find something that works, it’s time to think about making an offer. But first, you are going to want to get pre-approved for the exact amount you will offer. See our helpful guide to help determine what your offer will be. Tell your bank or mortgage broker exactly what you want to offer on the house and receive a pre-approval letter for that amount to present to the seller.

Why is this so important? First, no offer is going to be taken seriously by the seller if you can’t prove you can pay for it. Your word is not good enough at this point. Also, if you are eligible to borrow up to $300,000, for example, but only want to offer $250,000 on a house listed at $260,000, you don’t want the seller thinking they can try to bump up the price on you. It is best to be approved for each specific offer you make, and take the negotiations from there.

Step Seven: Making The Offer
Your dream home is in your sights… and the pre-approval letter in your hand. So it’s time to make the offer. Every situation and location will entail different guidelines, but there are basic tips that will help you out regardless. Before you begin, read up and formulate a plan of attack, as well as understand the contingencies that may present themselves.

This complicated step involves negotiations, contingencies, compromise and various other obstacles, so before you proceed, be sure to check out Florida Home Loan’s official guide to the offering stage. It may go off without a hitch, or present a number of challenges. Either way, it pays to be prepared. As soon as your offer is accepted, it’s time to begin the mortgage process.

Step Eight: Securing Your Mortgage
Once your offer has been accepted and you have a contract in your possession, congratulations are most definitely in order. However, there is a lot of work still to be done. During your initial consultation with the bank or mortgage lender, you will have learned what documentation is required in order to secure the loan you need. If you have not provided those to the lender, you will need to do so at this stage. Please see our comprehensive guide to preparing for the mortgage process, which includes advice on how to repair your credit and a full list of the documents you’ll need to get the deal done!

This part of the process — actually getting the seller the $250,000 or whatever amount you owe them — can take up to 30 days, so don’t delay. Also, with interest rates expected to continue rising through 2006, you will want to have your loan application signed, and the rate locked (assuming you opt for the standard fixed-rate mortgage) as soon as you can. Next up will be the acquisition of insurance and having an inspection done on your soon-to-be new home.

Step Nine: Insurance
Unfortunately, the costs of this venture are not limited to the mortgage itself. Any lender willing to give you a large sum of money is going to need assurance that it will get the money back if your home is destroyed. There is no way around it and it is worth it for your purposes as well as the lender’s. All buyers will need basic homeowner’s insurance. This protects you from fire, vandalism, theft, etc.

Depending on where you live, you might need additional policies. If your property lies in a flood zone designated by FEMA, flood insurance will be mandatory. Wind insurance may also apply in storm-heavy areas such as Florida. There is also the matter of purchasing insurance on the mortgage itself. Sure, lenders will allow you to by a home with little or no money down. What they don’t tell you, however, is that if you present less than 20 percent of the home’s value up front, you may be required to pay an additional fee to protect itself from default.

Please see Florida Home Loan’s comprehensive guide to insurance for home buyers for more details and recommendations!

Step Ten: The Inspector
Before you take ownership of the property, you need to hire an inspector to, well, inspect it. In other words, examine the home using professional standards to accurately state its condition to people like yourself who are involved in a real estate transaction. The inspector is not an appraiser. He or she will not be evaluating your home to assess its value, but rather its integrity. They have the knowledge of the building’s exterior, its plumbing / heating / electrical systems, and structural components - things you need to know and probably do not - and will make sure everything is in working order.

Not only will this ensure that you are getting your money’s worth (if your roof needs to be replaced, for example, you might need $10,000 to do it, and will want to re-negotiate with the seller) but a property inspection makes home maintenance easier by drawing your attention to small problems before they unpleasant surprises. Large, unpleasant surprises. Florida Home Loan recommends that you be present for the inspection and go over the inspector’s report with them in detail. Many new buyers have saved thousands by garnering valuable information through an inspector, and current owners have come to rely on their expertise as well.

Step Eleven: The Walk-Through
Just to clarify: A final walk-through is not the same as a home inspection. It is what it suggests: One last look in which you make absolutely sure that the home is in the condition it was when you agreed to buy it. Again, it is imperative that this be done prior to closing. Here are a few points that should be noted:

• Damage often takes place when the sellers move. Make sure you don’t get stuck footing the bill. Be sure to look at door frames and carpets in particular - anywhere that heavy furniture may have been moved from or through.
  

• Even though items such as the heat, appliances, air conditioning, etc., are checked during the inspection, make sure they are still operational. There is always a chance that since then, something has gone wrong - and you don’t want to take that risk.

• Check to see that everything the seller has agreed to leave is still there, and the items they agreed to remove are gone. This is a frequent point of contention.
  

This is your last chance to get problems handled before it’s too late. You still have the opportunity to bring them to the attention of all involved parties and negotiate if necessary. Once the deal changes hands, it’s a done deal and it’s all on you.