Step 3 Get Pre-approved
When buying a home, this step is a must. How can we look at homes if we do not have a budget or know how much money it will cost to get into the home? Plus, in Arizona, per the contract, we will submit an AAR Prequalification form with our offer. A seller will not take an offer seriously if there is not a prequalification form filled out for the buyer. Why would they?
During this step, you will meet with a lender, discuss your financial situation, determine the best loan program for you, and ultimately receive a prequalification letter to go home shopping.
One of the first questions I get asked by my clients is – how much do I need to buy a home? While this answer is different for every buyer, there are 5 key areas to what money is needed. Contrary to what many people believe, there are monies needed beyond the down payment. So let’s get down to the nitty-gritty and see where your money is directed throughout the purchasing process.
- Down Payment. Depending on your loan program, your down payment can range from o% to 20% of your purchase price, and beyond. Your mortgage lender will be able to help you establish which program is best for your financial situation.
- Closing Costs. In addition to your down payment, there are monies needed to obtain a loan and transfer title for your home purchase. These closing costs are typically between 1% and 4% of the loan amount. If you have an amazing Realtor® working for you, ahem, these costs can sometimes be negotiated into the sales contract and paid by the seller.
- Earnest Money. What is that? Earnest money is a good-faith measure that is deposited with the title company that was hired once you are under contract. It proves to the seller(s) that you ‘earnestly’ want to buy their home. The average amount of earnest money is about 1% of the purchase price. This amount will be needed at the beginning of the transaction, yes your check will be cashed and will go towards the balance of your closing costs, which are due at closing (not in addition to).
- Once we are under contract, we will hire a home inspector to help determine if there are any serious problems with the home. Home inspections can range from $300 to $1000, which will include a termite inspection. If further inspections are required ie, well inspection, sewer scope, mold, radon, or an engineering cert, those will be an additional cost. Always remember, you want to know everything that is going on with your home, so inspections, while they may be a hefty upfront cost– are well worth it in the long run.
- When purchasing a home with a loan, the bank will require an appraisal to be ordered to verify the value of the home. It is paid for by the buyer at the time it is requested, with costs ranging from $400 to $700.
Join me next week as I share step 4 where we get to start the fun part, shopping for your new home! Did you miss step 2? Catch it here!