Let’s take a look at the process of buying a home.

Buying a house is a major financial decision — one that you can't rush! Here are some factors that should be considered when deciding to take on the added costs and change in lifestyle that homeownership entails.

Income and Employment Status

Most of the time, a lender will need more than just proof that you're currently employed. You'll likely need to produce a work history (usually one that shows at least the one year of employment history). If you're on the company payroll, you'll likely just need two months’ worth of pay stubs. If you're self-employed and or a 1099 contractor, the lender may request a copy of your tax return filings and other related documents.

Debt-to-Income Ratio

Your debt-to-income ratio (often called a DTI) is a financial ratio mortgage-lenders use to evaluate your loan application. Your DTI tells a lender how much mortgage debt you can afford.

To calculate your DTI, you should divide your total monthly debt payments by your gross monthly income. Debt payments include installments on credit cards, loans, and any other form of debt you may be carrying. If these, for example, total $3,000, and your monthly income is $10,000, your DTI comes out to 3000:10000, which comes out to 3:10. That figure means that 30% percent of your income goes towards pre-existing debts. Most lenders will require a DTI of 1:2 or lower, meaning that they'll require that less than half of your monthly income goes towards debt repayment. This number can vary depending on the lender and the type of loan you're applying for, so do check with your intended lender in advance.

Liquid Assets

Liquid assets are basically indicators of how much money you can afford to spend directly. Even with the help of a mortgage, you'll still need assets you can liquidate to fund some of the bigger costs associated with purchasing a home, provided you don't have the cash lying around. These include a down payment and closing costs (fees and administrative costs paid to a lender for arranging the loan).

Credit Health

Your credit score plays a primary role in helping decide which loans and interest rates are available to you. A higher score tells a lender that you're reliable as a prospective debtor. Most lenders need a FICO credit score of at least 550 to qualify for the majority of loans, while a score above 680 will generally qualify you for the best loans with the best terms.

Whether You're Ready to Live in One Place

A mortgage means tying yourself to a single property for the foreseeable future. Mortgages are multi-decade commitments, and most people can't afford to move out without first selling their homes. Make sure you're ready to live in your current area for at least 2-5 years. Ask yourself about your career goals, family obligations, growth potential, and other long-term prospects. All of these factors will play a major role in deciding the type of home you buy and where you buy it.

Whether Now is the Right Time

Just because you can afford to put money down on a home doesn't mean it's a good time to buy. When considering whether or not to take the leap, be sure to consult with one of our experienced agents to determine whether market conditions are currently favorable.

There are many costs associated with homeownership that you don't need to worry about while renting. Insurance, taxes, and maintenance are all manageable costs, but you need to stay proactive with regards to them to ensure you're not in for any unpleasant surprises.

A good place to start would be to assess your excess income and savings, as well as your DTI ratio. We are happy to chat with you about this process!

Once you're done getting your finances in order, it's time to get yourself pre-approved for a mortgage. Once you apply, you'll get a pre-approval letter from your lender stating how much you can afford to pay, and this will set your house-hunting budget. The preapproval process usually involves some questions about your financial status and the home you want to buy, as well as a credit check.

Conventional Loans

Conventional or conforming loans are the most common type of mortgage loan out there; they're the standard option for most homebuyers. Conventional loans are backed by either Freddie Mac or Fannie Mae, and you can get one for as low as 3 percent down.

FHA Loans

The Federal Housing Administration backs FHA loans. Because the government insures them if you stop making payments, FHA loans are less of a risk for lenders. This is why these loans tend to have less stringent credit score requirements. You can get an FHA loan for as little as 3.5 percent down.

VA Loans

VA loans are mortgage loans exclusively for veterans, active-duty members of the Armed Forces, and qualifying surviving spouses. VA loans require no money down, which makes them a popular option among those who qualify. They're also insured by the VA, mitigating the risk of default for a lender.

USDA Loans

USDA loans are meant to encourage people to settle in rural areas, and you can get one for zero percent down. However, there are property price limits that apply, and there are other caveats as well (you'll be required to use the home as your primary residence, for example). If you're buying a property in a designated rural area, you might want to see if you qualify.

Think long and hard about what your priorities are and what you're willing to compromise on. It's also important to ask yourself whether you're looking for a starter home or one that you'd like to live in for the foreseeable future. For most first-timers, it'll be the former.

Here are some factors to consider when looking for a house:

·       Price

·       Square footage

·       Home condition and the possible need for repairs

·       Access to public transportation

·       Number of bedrooms

·       Backyard/swimming pool

·       Local entertainment options

·       Local school district ranking

·       Property value trends

·       Property/real estate taxes

Once you've decided on a home, you have to formally declare your intent to buy it to the seller. This is usually done in the form of an offer letter. An offer letter usually contains details like your current address, as well as the amount you'd be willing to pay for the property. You'll also include a deadline by which the seller should respond.

While making an offer, you'll also put up a deposit, often known as earnest money. The deposit goes towards your down payment, and is a way of showing you're serious about buying that specific property. The earnest money is typically 1% of the offer/purchase amount.

One of our Stellar agents will send the offer letter to the seller's agent. The seller agent can respond in one of three ways:

·       Accept the offer: If the seller accepts the offer, you can move on to the next step.

·       Reject the offer: If the seller rejects your offer, you can handle that in one of two ways. You'll either submit another offer, or you'll move on to a different property.

·       Give you a counter-offer: A counter-offer will likely be sent if your seller accepted most of your terms but had problems with a few specific clauses. You can choose to accept, reject, or respond with a counter-offer of your own.

The offer-counter-offer discourse will continue until both you and the seller can settle on terms. In some cases, you'll have no choice but to walk away and consider another property. In the end, you'll find a home and a seller who is willing to sell on terms acceptable to both you and them.

We highly recommend getting an inspection of the property you intend to buy. An inspector will look for problems that could cost you in the long run — they'll check the structural integrity, utilities, safety precautions, appliances, and more. The average cost of a home inspection by a third-party vendor is $350-700.

If you find any major issues, you can ask the seller to rectify them before you close the deal. You'll be liable for any issues you encounter after you've closed, so you'll want to do your homework before closing. You can also include a home inspection contingency clause in your offer so that your earnest deposit isn't forfeit if you choose to back out of a sale due to the results of an inspection.

An appraisal is a necessary part of the buying process; you'll have to submit the appraisal report to your lender before they can sign off on loan. You might have trouble getting a loan if you're offering an amount higher than the appraised value. You can also contest the appraisal if you feel like it's undervaluing your property.

Stellar agents can help draft an appraisal contingency to help you negotiate in the event that your appraisal value comes back lower than your offer amount.

With your inspection results in hand, you might find issues in the home that you would like fixed before you settle on a deal. Our Stellar agents can ask for concessions in one of three ways:

·       Ask for a discounted price considering the issues

·       Request credits that cover your closing costs

·       Ask the seller to fix the problems before you close

As a final measure, before you close, you should do a final walk-through of the home. You should keep an eye out for the things you requested repairs for and see if any progress has been made. Also, check your utilities and appliances one final time and check if anything's been left behind by the previous owner.

Your lender will give you your Closing Disclosure three days before closing. Read it thoroughly, and make sure the numbers don't stray from your Loan Estimate, which you would have received three days after your initial application. Once you've reviewed your Closing Disclosure, it's time to attend your closing meeting. Bring your ID, a copy of your Closing Disclosure, and proof of funds for your closing costs.

You'll sign a settlement statement, which lists all costs related to the home sale. This is when you pay your down payment and closing costs. You'll also sign the mortgage note, which states that you promise to repay the loan. Finally, you'll sign the mortgage or deed of trust to secure the mortgage note.