The journey to homeownership has its ups and downs. But for most, it’s well worth it. More than 90 percent of current homeowners say owning a home is worth the challenges it took to achieve. Let’s break down how to get there.
Step 1: Prepare your finances
Before you begin your search for a home, figure out what you can realistically afford. Take stock of your income, debt, savings and other financial obligations. Then use a mortgage calculator to get an idea of the home price and monthly mortgage payments that would work for your budget.
Check your credit score and compare your debt to income. A good rule of thumb is for your total monthly debt payments to be less than 36 percent of your gross monthly income. You should be able to comfortably pay your full mortgage payment (including taxes and insurance) each month. But you’ll also likely need money up front for a down payment and closing costs.
Step 2: Prequalify for the right loan
The next move is to meet with a lender to discuss loan options and current interest rates. The lender can provide you with a prequalification letter, which will indicate the maximum amount the lender is willing to lend you via a mortgage. You may also want to consider getting pre-approved for a mortgage, which is an offer to lend you a specific amount that is good for a certain amount of time, usually 90 days. Neither of these are a commitment to lend, but they can help show sellers you’re serious when you’re ready to make an offer.
Talk with a Blok Home Loans lending specialist about getting prequalified.
Step 3: Call a real estate agent
Once you know what you qualify for, save time and energy by narrowing your search to homes that fit your financial criteria. Try to preview properties online, and have your real estate agent show you only listings that are right for your needs and your budget.
When you find a match, your agent can help you make an intelligent, informed offer. If your offer is accepted, a purchase contract is drawn and typically contains a good-faith deposit (“earnest money”) to show your commitment, usually between 1 percent and 3 percent of the sale price.
Look for home listings on Luxury Homes.
Step 4: Lock in your mortgage
After an offer is accepted, it’s time to apply for a mortgage. You typically have 45 to 60 days to fulfill your purchase contract—so you will need to act fast, locking in your interest rate and giving your lender time to order a home appraisal.
Within three days of submitting your application, your lender sends you a loan estimate, including your approximate interest rate, monthly payment and closing costs. Review this document carefully to make sure the details reflect the loan you requested and to check if your interest rate is locked. To move forward, you need to verify your income and assets. This requires extensive documentation, which is necessary to assure the lender you can handle the loan payments.
Step 5: Prepare to close
Once your mortgage is approved and at least three business days before you close, you will receive a closing disclosure. It lists the fees you must pay, which typically total 2 to 5 percent of the home price. Read this closely and tell your lender if anything seems off. Then, bring your ID and any payments that are due to the closing. If you have a cosigner for your home loan, that person needs to be there.
Once the loan closes—which may take a couple days—the funds go to the seller, you get the keys and the home is yours!