Purchasing a House in the US

Once you have considered your income, expenses, budget, debts, financial commitments, and everything else we mentioned above, you should contact a real estate agent or broker. They are the link between you and the seller, and they can help you find a place that suits your needs. Some state agents may offer you help to obtain a mortgage loan or may recommend a particular lender, attorney, or settlement/closing agent. Know that you are not forced to follow their recommendations. In fact, we strongly advise you to do your own research and compare costs and services before purchasing.

Depending on the type of loan and mortgage lender you choose, you may have to pay more or less money for your monthly mortgage payment. We suggest you check your local mortgage lenders and compare services and costs. You can find them in your local newspaper, online, or by asking family and friends for recommendations.

Once you have chosen a company, you will need to apply to get pre-approved for a mortgage. The pre-approval process usually involves attending a meeting and answering a few questions about your income, assets, work history, credit history, and the home you want to buy.

Your lender will be interested to know your Debt-to-Income ratio (DTI), which is the percentage of the money you spend compared to the money you earn. To calculate it, simply add up all your monthly debts (such as car loans, student loan payments, etc.) and divide them by your monthly income before taxes. The lower your DTI is, the more chances you have to get credit.

Know you’ll be asked to provide evidence for your answers, so make sure you have the supporting documentation ready before you attend the meeting. Some of them may be bank statements, payslips, wage and tax statements (Form W-2), your social security number, a valid identification document, or your driver’s license, among others.

For more information on shopping for a home loan click here.

Types of mortgages

Broadly speaking, mortgages can be fixed-rate or adjustable-rate. The interest rate on a fixed-rate mortgage will remain the same until you finish paying for it; while the interest rate on an adjustable-rate mortgage (ARM) may vary as time goes by.

The majority of mortgages in the United States are conventional loans. They are the ones offered by banks, credit unions, and mortgage companies. To qualify, the ideal candidate should have:

• • A high credit score
• • An acceptable Debt-to-Income ratio (below 43%)
• • The ability to make a down-payment of 20%

If you don’t qualify, you should consider applying for a loan offered and secured by a government entity, such as The Federal Housing Administration (FHA) loan, guaranteed by the Department of Veterans Affairs (VA), or offered by the Rural Housing Service (RHS). They‘re part of a government-led program and they are a good option for first-time buyers, as requirements are not as strict, and costs are lower (they usually require lower down payments). You can follow this link to find an FHA government-approved lender.

When you decide to make an offer on a property, you must submit a written offer letter. This letter contains information about you (such as your name and current address), the price you are willing to pay for the residence, and so on. It also includes a deadline for the seller to respond to your offer.

Most offers also include a deposit. A deposit is a small amount of money, usually 1-2% of the purchase price, adn is used towards your down payment and closing costs if you buy the property. If you withdraw after accepting the sale of the property, you will lose your deposit.

Once your offer is received, the seller can respond in one of the following three ways:

• • Accept the offer: if the seller accepts the offer, you can move on to the next step.
• • Reject the offer: if the seller rejects your offer, the ball is back in your court. You can choose to submit another offer or move on to another property.
• • Make a counteroffer: the seller may also come back with a counteroffer of their own. They may change the purchase price or the terms of the sale. You can accept the counteroffer, reject it, or make another counteroffer yourself.

Once the offer has been accepted, a document is drafted to state the terms and conditions of the sale, including when the sale will be finalized. Make sure you read it in detail to learn what the sale price includes to avoid unpleasant surprises. You might want to consider asking an attorney to review it and tell you if it protects your interests before you agree to it.

You can negotiate most terms in the agreement, such as the down payment, the sharing of expenses, costs, and inspections. But check that changes are incorporated into the document before you sign it.

Here is a brief explanation of some of the terms that may appear in your sales agreement.

The down payment

When you decide to buy a property, you need to have saved for your down payment, which is a percentage of the price of your future property. It can range from 3% to 20% depending on the type of mortgage you choose and your financial situation. Note that a high down payment will make you a safe option.

The home inspection

It is common for buyers to include an inspection condition in their sales agreement. This condition gives buyers the opportunity to back out of the purchase (or negotiate repairs) without losing their deposit if the inspection reveals major problems with the home.

During a home inspection, the inspector goes through the property and looks specifically for potential problems. They test the electrical system, check the roof is secure, and make sure that the appliances are in good working condition, among other things. Once the inspection is complete, the inspector will give you a report with a list of the problems they’ve found in the property.

The home appraisal

A home appraisal is a review that gives an estimated current value of the property you want to buy. You must get an appraisal before you buy a property with a mortgage. Lenders require appraisals because they cannot lend more money than a property is worth. If the appraised value is less than your offer, you could have trouble getting financing.

Buyers usually include an appraisal condition as part of their offer. Appraisal conditions are often established to allow buyers to withdraw from a purchase (or negotiate a lower price) without losing their deposit if the home appraisal is lower than the amount offered. As with inspection terms, appraisal terms can vary, so make sure you understand the nature of your agreement.

The settlement costs

These are processing fees, such as title searches, or appraisal of your property. They depend on the type of property and the location of your future residence, but they can range from 3% to 6% of the price of your property. You can ask the seller to pay for some of them, but this needs to be agreed in advance and included on the sales agreement.

Your lender is expected to give you a closing statement three days before closing. This is a document that states what you will have to pay at closing and summarizes the details of the transaction. The home seller will receive one from the real estate agent who handled the sale.

Once you have reviewed your closing statement, it is time to attend your closing meeting. Bring your ID, a copy of your closing statement, and proof of funds for your closing costs. As part of the meeting, you will:

• • sign a settlement statement, which lists all costs associated with the sale of the home.
• • pay your down payment and closing costs.
• • sign the mortgage note, which indicates that you promise to pay off the loan.

Once the closing is complete, you will officially become the property’s new owner! You can read more about the process on the official website of the United States Government.