Looking to purchase a home but don’t know where to start? This article will outline 5 essential steps you'll need in advance to complete your home purchase!
1: Mortgage Loan Pre-Approval
The initial step in the home-buying process is securing the necessary funds to purchase your dream home. For most, this entails qualifying for and obtaining a mortgage loan, specifically designed for home purchases.
How do you get pre-approved? You can research lenders online or reach out to us, and we'll gladly offer personalized recommendations. The key is finding a mortgage lender dedicated to making the process as seamless as possible for you. Once you've identified a suitable lender, they'll assist you in determining the loan amount you qualify for and guide you through the purchasing process. Upon approval, and before you commence your property search, your lender will issue a pre-approval letter for you to share with Realtors, sellers, and home builders. This letter confirms that you've completed the mortgage loan approval process and outlines your loan limitations.
2: Earnest Money
Now that you've obtained pre-approval for a mortgage loan, you'll need to provide earnest money. Earnest money demonstrates your serious intent to purchase the home and accompanies your offer.
The amount of earnest money varies based on the total purchase price. For homes under $500,000, it's typically recommended to offer $1,000 - $1,500. For higher-priced homes, earnest money can range between 1% - 5%. It's crucial to discuss this amount with your Realtor to ensure accuracy.
If the sale proceeds as planned, your earnest money will be credited to you at closing. However, if you terminate the purchasing contract within specific deadlines, typically related to loan objections and inspections, you can usually recover your earnest money. Otherwise, it becomes challenging to retrieve these funds. Earnest money is typically held by the Title Company or listing agent's office.
3: Money for Your Down Payment
The third step involves gathering funds for your down payment. When you receive pre-approval from your lender, they'll estimate the required down payment amount. Some mortgage loans, like VA or USDA loans, don't necessitate a down payment, so it's essential to discuss your options with your lender. Additionally, if you're purchasing outside Bozeman City Limits, you might qualify for a USDA Rural Development mortgage loan with a 0% down payment.
Common down payments range from 3% to 5% of the total purchase price. However, some lenders may require up to approximately a 20% down payment, especially if you're purchasing a secondary residence. Your lender will assist you in selecting the most suitable loan option for your circumstances.
4: Money for Closing Costs
Once pre-approved and with your earnest money and down payment secured, you must allocate additional funds for closing costs. When you secure a mortgage loan, the mortgage company charges associated fees, typically averaging between 1% and 4%+ of the loan amount. This is another aspect to discuss thoroughly with your lender.
In certain situations, buyers can request the seller to contribute to their closing costs when initially writing the purchasing contract. However, this option's feasibility depends on the local real estate market and the competitiveness of other offers.
5: Money for a Home Inspection
After completing steps 1-4, you'll need funds for a home inspection. Once you've identified your dream home and have a signed contract with the seller, you'll need to hire a home inspector.
The average cost of a home inspection in Bozeman ranges from $500 - $700+, depending on the home's size and the inspection's scope. Typically, a 10 to 15-day inspection period is established, allowing you sufficient time to hire an inspector and ensure there are no significant issues.
Depending on the property, you may want to engage separate vendors for inspections such as well, septic systems, structural aspects, mold, and pest inspections. Discuss these additional inspections with your real estate agent, ensuring adequate time is allotted to complete them within the Inspection Deadline.
Buying a home is a significant milestone, and it's essential to ensure clarity in your expectations. This should be an exciting time for all parties involved, not a stressful one. Reach out to us to begin the journey of finding your dream home! Throughout this process, your Realtor and lender will be your primary support, guiding you every step of the way.
If you're feeling overwhelmed, don't hesitate to reach out to Tamara Williams at (406) 223-6823. We're here to alleviate any stress or anxiety you may be experiencing. Buying a home should be an enjoyable and exciting experience, and having a Realtor who advocates for your needs while keeping you informed is invaluable.
Posted by Tamara Williams on
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