November 12, 2020
The previous two articles covered:
- How much home can I afford?
- What do I need to save for down payment and closing costs?
- How do I get prequalified and preapproved?
- How do I find the best real estate agent?
- What are my housing priorities?
- How do I make a smart offer on a home?
What Is a Home Inspection and Do I Need One?
After you've chosen a home to buy and placed an offer, it's a good idea to get a home inspection. The buyer hires (and pays the fee for) an independent inspector to go into the home and review its condition, inclusive of the following:
- Heating and air conditioning
- Insects/Rodents (Often a termite inspection is needed or required.)
- Trees impeding on the property or structures
Don't be surprised if an inspection turns up pages and pages of suggested fixes. In such a case, you can potentially renegotiate with the seller to have some or all of the problems fixed, or the price reduced. This also provides you an opportunity to back out of the deal if the inspection and subsequent negotiations fail to meet your requests. If the issues are minor, you might choose to hold off on resolving the issues and then take care of them one at a time after you move into the home.
What Is the Best Mortgage Loan for Me?
Working closely with your bank, you can choose the right loan for your financial needs. Today there many options, from VA loans that require no down payment and attractive interest rates, to loans for various terms, such as 15-, and 30-year mortgages. There are conventional mortgages, Federal Housing Authority (FHA) loans, and Jumbo loans for more expensive properties. There are also first-time homebuyer loans that often offer attractive rates that help those who have never owned a home before getting into their first home.
What Is a Home Appraisal, and Do I Need One?
A home appraisal is used by lenders to ensure the proper value of the home when they make a loan. For example, a lender would not likely provide a $500,000 loan on a home appraised for only $150,000. It's important to have an appraisal to understand the value of the home you wish to buy and whether you can get a mortgage for that specific home value.
When obtaining an appraisal, the fee is usually paid for by the buyer (unless otherwise negotiated). Appraisers have many tools in their arsenal to determine the value of the home for sale but typically use similar recently sold homes within that area to determine value.
The appraisal step can also be an opportunity to renegotiate the price of the home should the appraisal come in significantly lower than the agreed upon selling price. The reason for this is that it may be difficult for the seller to sell the home if no one can obtain a loan for a home that is priced above the appraised value.
How Much Paperwork Is Involved in the Homebuying Process?
Preparing to purchase a home can require a lot of paperwork. In addition to reports relevant to your credit, there are title searches, insurance paperwork, and bank documents. During the mortgage application and underwriting phase (mortgage approval process), you may be asked for supporting documents such as additional tax returns, additional bank statements, gift letters if using gift money, or divorce decrees.
During closing, expect to spend about 30-45 minutes reviewing and signing documents.
What Do I Need to Know About Insurance, Utilities, and More?
As a buyer, you must obtain insurance before signing your mortgage. Homeowners insurance generally covers a broad number of areas and issues, but protections like flood and earthquake insurance may be separate. Be sure to understand the needs of your area; is your new home in an earthquake or flood zone, or a region that is prone to hurricane damage?
Insurance may be rolled into your mortgage payment, or it may be a separate bill you pay each month. In either case, it will be included in your loan estimate so that you can easily understand your total monthly costs.
Utilities such as garbage, water, and electric should be ready to be turned on the day of your closing to make sure there is no lapse in coverage and that you are ready to move in once you obtain your keys.
What's Involved in Closing on a Home?
Typically, a day or two before closing you'll have an opportunity to do a final walkthrough of the home to ensure any required upgrades or changes have been made and that there is no damage since you agreed to purchase the home.
At closing, you'll usually need identification to submit proof of your identity. You will need to bring any outstanding paperwork, and if a down payment is required, you may need a cashier's check made out to the agreed-upon amount.
Most of the time, buyers and sellers attend closing at different times. Sellers typically are first so that once that step has been completed, the buyer can gain access to the home and move right in. As a buyer, you’ll have many papers to sign, including mortgage papers, settlement documents that list all of the financial transactions, and deeds. If everything goes smoothly, you'll walk out of the closing with the keys to your new home.
To learn more about PenFed loans or what loan is right for you:
- Call 866-386-7254
- Visit the Mortgage Center