Even If You Don't Know Where to Start!
Don't be daunted by the leap into unknown waters! Buying a home for the first time may seem like an overwhelming process, especially when you have no idea where to start, but that's why we're here for you. Learn more about the process of obtaining a mortgage, see how much you can afford with our mortgage calculator, finding the perfect home, and making an offer, and you'll be on your way to owning your very own home in Raleigh!
Understanding Your Mortgage
First and foremost, let's talk about mortgages. Most buyers need one, and there are a lot of options that vary greatly from lender to lender and from buyer to buyer. This means it's important to understand what you're looking for and talk to a lot of different lenders to ensure you're getting the best deal possible.
Types of Mortgages
There are four basic types of mortgages used by the majority of home buyers.
This is the standard loan used by buyers with good to excellent credit who make down payments of at least 10%. However, there are programs that offer options for lower down payments based on buyer credit and location.
These loans often apply to buyers with lower credit scores, as they offer a down payment as low as 3.5% and lower interest rates. However, FHA mortgages do also require mortgage insurance premiums, which can result in higher overall costs.
All veterans and active military members qualify for VA loans. These offer up to 100% financing, simplified loan approvals, and lower interest rates. They can be much lower than conventional loans.
What Do Mortgages Include?
There are four main components to a mortgage payment, often abbreviated as "PITI."
This is the repayment of the initial amount you borrowed from your lender (in other words, the price of your home).
This is a payment to the lender for the money borrowed (and is then added on to the initial price of your home).
Your annual city and county taxes assessed on your property are divided by the number of mortgage payments you make in a year and added into your mortgage.
Your monthly homeowner's insurance payment covers you against various hazards and is added to your mortgage payment.
PMI:
Private Mortgage Insurance is an additional fee that mortgage lenders will sometimes charge the borrower for an additional amount of risk with the loan. Typically, loans with at least 20% down don't have PMI. There are some lenders that will offer 10% or 5% down payment loans without PMI. But, the interest rate may be slightly higher to buffer their risk.
Going Loan Shopping and Understanding Your Options
Before you decide on any particular loan or lender, it's important to do your research. That means meeting with AT LEAST two different lenders to ensure that you're getting the best rate possible. It's also important to understand two different types of interest rates offered by mortgage lenders.
Fixed-Rate Mortgage:
The interest on an FRM will not change, so your monthly payments won't change, making them very predictable.
Adjustable-Rate Mortgage:
The interest rate on an ARM will often be lower initially, but as interest rates do fluctuate with the market, they can be somewhat unpredictable or even result in higher payments.
Calculating Your Monthly Budget
Now that you know what loan options are available to you, what you can expect to pay as a down payment, and what your likely interest rates will be, it's time to determine how much you can afford to pay every month, which will then be used to calculate the price range of your home.
Keep in mind that your mortgage costs will be based both on the price of the home and the CURRENT interest rates. A home's affordability can vary from one day to the next based on the current rates.
Finding a Real Estate Agent in Raleigh
Your agent should be someone you know you can trust, an expert in real estate in your area and neighborhood, and very proficient in working with buyers of your experience. Ask the agent to share some of their experience with you prior to viewing homes. They should be able to establish a relationship with you that will protect you as much as possible in your purchase.
Shopping Homes for Sale in Raleigh
Now it's time for the fun part! You get to start shopping! This is where you get to decide exactly what you want and need in a home, from the type of house or townhouse to the location of the neighborhood to all the exciting interior and exterior amenities you just have to have! Make sure you keep detailed records of the homes you visit, noting things you liked, didn't like, pros and cons, etc. Taking pictures can also help keep your memory fresh.
Tip: Before you start touring homes, determine the actual selling price of homes in your preferred neighborhoods - not just their listing price - to get a better idea of the actual affordability of the location. Your agent can help you with this task as information is available to them in the MLS.
Making an Offer
You found the perfect house, and now it's time for your and your agent to sit down and discuss your offer. It's important to work together to determine a price you can comfortably afford but will also be a realistic offer for the seller to accept and will not be dismissed against any competing offers the seller might receive. Competing offers can change the whole process. Once again, your agent will have valuable insight to this and can help guide you in the best methodology.
What Will I Pay Upfront?
Earnest money and Due Diligence:
Think of this as your security deposit. We also refer to this as your "sincerity deposit" It's paid when you submit your offer to show the seller that you are serious. The Due Diligence money goes straight to the seller and is non refundable (once your offer is accepted). The Earnest Money is refundable through the Due Diligence period. Both of these deposits are credited to you as part of your down payment money at closing time.
Down Payment:
This is determined by your loan, or possibly any government programs or assistance you have requested.
Closing Costs:
These costs vary somewhat. Overall, they represent the fees associated with paperwork, attorney work, title insurance and lender charges. Speak to your agent and lender about what is "typical" and how you may be able to get seller assistance for some of these costs.
Requesting a Home Inspection
If the seller accepts your offer, it's time for a home inspection. Before you close, you'll want to have an experienced professional walk the house to ensure that there aren't any lingering problems or maintenance issues that might not be visible at first glance. You don't want to be hit with a serious maintenance or structural issue right after you move in. If necessary, you can request that the seller repair any issues you find.
Requesting an Appraisal
Once you're under contract, your lender must be in the know. Go ahead and send the contract to them if you haven't already done so. They will schedule an appraiser to come out and look at the home. Their purpose is to find the "value" of the property. By doing so, it ensures the safety of the banks investment while you pay off your loan.
Closing
If everything looks good, it's time to sign the paperwork, make final negotiations and payments, and get your keys!
Review Your Contract
Before you sign any paperwork, it's important that you carefully read over the contract with your agent or lawyer to ensure there are contingencies - that is, if something falls through with your mortgage, you aren't still obligated to buy the home.
Finalize Your Mortgage
Still Have Questions About Buying Your First Home in the Raleigh Area?
We bet you do! Buying your first home is no simple process, and though we have tried to provide as many important details as possible, there's still much to ask and learn. So don't wait - contact us today and ask away! We have a step by step program to comfort your along the way. Want to do some more reading? We have plenty of resources to help you out. Learn more about buying a home today!