First-Time-Home-buyer

First Time Homebuyer Guide

For most people, buying a house can appear very intimidating; this is especially true for first-time homebuyers. However, if you know what to expect when you are ready to purchase your first home, the process will be less stressful and more exciting.

From this guide, you will be better prepared. You will know how much house you can afford, how you will finance this house, and the steps that you will take to buy your first property in Georgia. 

Are you ready to get started on your home buying journey? 

Please keep these tips in mind when you decide to finance your home purchase

Shop Around for Mortgage Quotes

Do not just go with the first lender that you meet and they make you an offer that you can work with.

Do not make the common first-time homebuyer mistake of going with the first lender that gives you an offer. Contact at least three lenders or financial institutions and receive a quote from them. This could potentially save you thousands of dollars over the life of your mortgage. Generally, you should always know what your credit score is throughout the year. 

Different Types of Home Loans.

There are different mortgage loans to choose from when it comes to buying a home. However, by speaking to your trusted real estate agent, or mortgage broker, you will discover the best path for you to take. In the United States, the vast majority of buyers finance their home purchase with either conventional loans, FHA loans, VA loans, or USDA home loans. A loan type out there will fit your lifestyle.

Price Range for Buying Your Home

Calculate your mortgage payment, including principal, interest, taxes, and insurance. Understand your mortgage rate as well as your budget. This will allow you to shop for a home and a mortgage with confidence. 

Get Preapproved Before you Begin Your Home Buying Journey

Pre-approval is a guarantee from a lender to finance your home purchase after they have verified your income and expenses. You will need this preapproval when you start to make offers on your next home. Most sellers will ignore offers from potential buyers who fail to include an approval letter from a lender. 

What is a Mortgage?

There are two main ways to purchase real estate: either you pay cash for the property or you borrow from a bank. This loan from the bank can be a portion of the asking price or the full amount of the asking price of the property. When you borrow money from a bank to buy real estate, the bank needs collateral as a guarantee for the loan. 

The property that you buy will stand as a guarantee for the loan. So in essence, when you take out a mortgage on a property, you are telling the bank to buy the house on your behalf and then you will pay back that bank (the amount you borrow plus interest). The money that you borrow and have to pay back is called the principal. The interest is the fee that you pay to the bank for securing the loan on behalf of the borrower. 

If you stop making your payments, typically the bank will ask that you vacate the premises as you have broken your promise to make timely payments. When a bank asks a borrower to vacate a property (due to a borrower no longer making payments) is known as foreclosure. When the bank regains ownership, it is now called a foreclosed property.

How Does a Mortgage Loan Work?

When you purchase a home with the help of a lender, the lender will give you a definite amount of money. You do not fully own the home until the mortgage is paid in full. At closing, the closing attorney will provide a schedule of payments over the life of the loan. This is called an amortization schedule. This document is given to the closing attorney to be presented to you.

When the seller accepts your offer, the bank will start working on securing the property for you. One of the first things that they will do is order an appraisal on the property. You will pay this money to the bank, but the bank will be in communication with the appraiser. The appraiser is there to find out exactly what the property is worth (fair market value) on the day that the property was appraised. The appraised value is very important to lenders, they will not lend more than what a property is appraised for. 

The interest rate that the bank quotes you for your mortgage is directly correlated to your perceived risk. That is because the mortgage interest rate is equal to the market rate plus your perceived risk percentage. That means that if you are seen as a risky borrower, your interest rate will be higher than someone who is viewed by the bank’s underwriting terms as less risky. 

What Parties are involved in a mortgage?

When it comes to securing a mortgage, only two parties are involved: the lender and the borrower. The lender is the institution or individual who will be securing the property and you make a promise to repay, with interest for securing the property on behalf of the lender.

The borrower is the person that is seeking the loan. A borrower can join with other qualifying buyers to buy a more expensive home. 

What would my mortgage payment be each month?

Your monthly mortgage payment is the amount that you pay every month toward your mortgage. Your monthly payment constitutes your principal, interest, taxes, and insurance payments. These payments are typically combined.

Principal Payments

A loan principal is the amount of the loan that is outstanding or the balance. 

Interest Payment

The interest payment on a loan is effectively a fee that is paid each month to the lender for securing the loan. This payment is in addition to the money that is paid back towards the principal payment. As the loan matures, more of the monthly payments will go directly towards the principal. 

Taxes and Insurance Payment

Most loan servicers will create an escrow account on your behalf. In this account, they will keep money that goes towards your loan. In addition, they will keep the money for your property taxes and property hazard insurance. It is pretty much always required for homes financed by banks to carry property insurance. Failure to do so is typically a violation of the loan terms. That means that if the property is burned to the ground or severely damaged, you will be on the hook for the balance of the loan.

The Mortgage Process

Buying a house, even if you cannot buy it cash outright, is easier than it appears. However, there are several steps that you will go through as a part of that process. 

Step 1: Get Approved

It is an excellent idea to be approved for a mortgage before you go shopping for a house. There is nothing worse than actually looking for a house, only to find out that it is out of your price range. This will save you and your agent plenty of time and emotional drain. 

Once the bank verifies your financial and income information, they will issue you a preapproval letter. This letter will be used by your agent to submit offers on your behalf. Typically, sellers will ignore offers that fail to show how the property will be purchased. 

Step 2: Shop For Your Home and Make an Offer

Now that you have your pre-approval letter in your hand, you will forward this letter to your agent. You can now go out and look at homes that fall within your price range. 

Your agent will open doors for you and submit offers on your behalf. Once the offer is submitted, the agent will take care of all the paperwork for you and make sure that everything is done and scheduled promptly. 

Step 3: Get Final Approval

Once the seller has accepted your offer, your agent will submit a copy of the completed paperwork to your bank. Your bank will then bring your mortgage through the necessary underwriting rules that they have established. 

As a part of the approval process, the bank will arrange for an appraisal, title search, and so forth. Once they have completed what needs to get done through their underwriting department, and they are willing to stand behind your loan, they will notify you and your agent about their approval and set a date to close escrow, and give you your keys. 

Step 4: Close On Your Loan

In Georgia, it is required that an attorney handles all closings. Closing on your loan is also known as closing escrow. On this day, you will go to the lawyer’s office with your agent. You will sign a lot of paperwork before you are given your keys. In addition, the lawyer will take your down payment or acknowledge receipt if it was sent electronically.