What First Time Home Buyers Need To Know About The Mortgage Process

Buying a home for the first time can be confusing. There are so many things to consider and so many things that must be done the right way before you sign your name on the dotted line. Understanding the steps of the mortgage and home buying process can make it much easier to navigate. Here's a brief guide to what first time home buyers need to know about the mortgage process.

Before you look for a home:

* Decide if you're financially ready to buy a home. When you compare rents side by side with mortgage payments, buying a home may seem like a great bargain, but it's important to consider all the costs that come along with owning a home.

* Learn about the different mortgages available and figure out which is best for you. T

* Get your financial information together. In order to be approved for a mortgage, you'll need to document your income, your assets, your employment, your residence and your existing debt.

* Get pre-approved. A pre-approval letter will give you a firm idea of your prospective price range for a new home, and it will tell your real estate agent and home sellers that you are serious about buying a home and financially capable of managing it. Pre-approval is a more formal and in-depth process than pre-qualification. A pre-approval letter is a formal certificate from a lender saying that you are qualified for a mortgage up to a certain amount. While it is not an agreement to give you a mortgage, it is one step closer to having the cash in hand to buy a house.

* Find a real estate agent. Your real estate agent will work in your best interest and help guide you through the rest of the process.

Once you find your house:

* Work with your agent to determine a fair offer price. A written offer will include the price you'll pay, any conditions that must be met, amount of earnest money, complete legal description of the house, down payment and financing details.

Earnest money is included with your offer to show the seller that you are serious. If your offer is accepted, the earnest money becomes part of the down payment. If your offer is rejected, the earnest money is returned to you. If you pull out of the agreement for reasons other than those stated in the offer, you'll forfeit the earnest money.

* Once your offer is accepted, make a formal application for a mortgage. At this point, you will usually have to pay a mortgage application fee. If your mortgage is approved, it generally locks in the mortgage rate you are offered for 30 to 90 days.

* Your lender will arrange for a home appraisal to determine that the house is worth the amount you are asking to borrow in order to purchase it.

* You or the lender will order a home inspection, which is not the same as a home appraisal. A home inspection will point up any problems with the home that may have been missed by a casual inspection.

Insurance Policies that You Will Need

* Get home owners insurance and provide proof of coverage to your lender.

* Private mortgage insurance is a policy that will pay off your mortgage if you should default on the loan under specific circumstances. Most lenders require that you carry PMI if you make a down payment of less than 20%. Generally, the cost of PMI is added to the amount financed.

* Title insurance is a policy that guarantees a clear title to the house. When you purchase title insurance, the insurance company will do their own title search. If any issues of ownership related to title arise after you have taken over the house, the insurance company will pay all legal and other costs related to the title issue.

Closing on Your New Home

* Your lender will let you know in advance how much the closing cost will be. This is generally a "good faith estimate", and may vary slightly from the actual amount when all costs are totaled.

* You will be expected to bring valid identification and certified funds or a cashier's check for the amount of the closing costs.

* The closing costs will include any loan fees, prepayment of interest (points), copying fees and administrative fees charged by the lender.

* You will have a chance to read over all the documents concerning your mortgage and your home. The closing attorney will give you concise explanations of each document that you are asked to sign, but you have the right to read each one over yourself as well.

* Once all the papers are signed, you will endorse the check to the closing attorney, and receive the documents that make the home yours. The closing attorney will see to the disbursement of funds - paying off any remaining mortgage, payment to the current owners, and any other associated costs.

by Shawn Thomas