The Financial Process Once the home buyer has an initiated deposit contract on a new home or an accepted offer on a used home, then the financial process begins. There are a number of benefits that exist for first time homeowners, but the smart approach is to make sure one has the ability to buy to begin with. If you don’t have the hard cash to outright buy a house up front, which few do, then you will need to finance your purchase through a home loan, otherwise known as a mortgage. There is no perfect way to know your loan will be in place for a home when you are ready to buy since it depends on a number of factors, including location, your credit, your income, and the home itself. However, you can somewhat eliminate yourself from being a question. This can be done through what is called the pre-approval process. Set up to be a dry run for a home loan, the pre-approval process allows a bank to vet you as an applicant before you actually commit to a purchase. If you get denied, then you know you either need to wait before buying a home and improve your financial picture, or you will need to try a different type of home loan. If you get pre-approved, then you know that the loan process will now hinge more on the house and the location rather than you as a prospective debtor. Following a pre-approval and an intent to contract then with new homes usually comes the requirement for an additional deposit. This can be as much as $10,000 and depends mainly on how much demand exists from buyers for the units. Since the homes are not built yet, the builders want to get some financial commitment from buyers since the builder is paying for all the construction up front. Used homes generally will go forward into a contract to buy and then a waiting period will be established for the buyer to secure the financing involved. The home loan itself starts with the application. A pre-approval for the home buyer does not take the place of an application, but much of the information provided can be used. This usually includes the home and owner or builder information, your personal identification, your income and sources, your assets and account information, and any liabilities or debt in your name. The process will include a credit report check on you and any prospective owners listed on the purchase. It will also include an appraisal on the property which will include a valuation of the surrounding area as well. The loan approval process can take a few weeks to go through review and underwriting, so don’t expect an answer in 24 hours. To make sure you have financial commitment to the loan or “skin in the game” as the saying goes, you will likely need to pay a down payment into the home purchase deal. This down payment usually represents at least 5 percent of the total home price. It represents that you as the buyer have something to lose as well if you go bad on the home loan. Some loans don’t require a down payment, but then they charge a higher amount of interest over the life of the loan to protect against risk of loss. Once approved, the first-time homebuyer will need to wait for the new home to be built before going further with the process. Depending on the stage of construction when initially committed, the build stage can take up to 6 months usually. A used home can close the process right away and go into escrow. The closing process, or escrow, is the phase where parties make sure that the buyer and seller follow through with commitments. The escrow period is the time in which this transaction occurs, usually 30 days at most. An escrow agent is used as a third party to make sure the buyer and seller follow through. They seller contacts the escrow agent and sets up the deal details and hands over title control to the escrow agent for the home or property. The buyer meets and hands over the down payment check to the escrow agent, payable to the seller. The mortgage provider also works with the escrow agent to complete the funding of the purchase with the home loan. When all is complete, the escrow agent has the first time homebuyer sign all the final contract paperwork. This then seals the deal and the escrow agent processes the transfer of title (ownership on record) of the home to the buyer. The buyer then receives the keys to the house and access. The seller receives the funding of the purchase deposited into his or her account.
Mortgage application
A layman’s guide for the first time home buyer.
First Time Homeowners .org
The Financial Process
Choosing the home Finding your home Introduction Financial Process Buying your home Your privacy Financial Process