If you are a first-time home buyer in Lewiston, NY, it is easy to get overwhelmed by the process. However, if you have an idea of what to expect it can make the process much more enjoyable. Let’s face it, this is one of the most exciting things a person will do in his or her life. So, don’t be overwhelmed by the number of items listed or their complexity. Your REALTOR®, attorney and loan officer will guide you through this process. Many of the tasks are handled directly by these these professionals.
1) PRE-QUALIFYING Figure out how much you can afford to spend on a house in Lewiston or Youngstown. Refer to our article ”pre-qualifying for a mortgage” for more information on how to figure what you can afford monthly for a mortgage. It is also a good idea to get “pre-approved” for a loan. Pre-approval is a similar process but goes much more in-depth with regards to your credit and income verification, but once approved, you are a guaranteed buyer which can be an asset when making an offer on a house. Once you have determined how much you can afford to spend, the next step is to actually start shopping for your dream home in Lewiston. You can start your search right here on the internet where up to almost 90% of current home buyers are starting their search!
2) CHOOSE A LOCATION Next, you should have an idea of where you would like to live. Lewiston is a wonderful place to buy a home. There are several resources on the internet to research communities for information on crime, school systems, cost of living information and more. For the most part, you should count on spending 2 to 4 weeks looking at homes. This will give you enough time to look at plenty of homes and make your decision. Be careful not to get bogged down in the process of trying to find that “perfect” home. If you take longer than a month, you risk the chance of loosing a home that you would have liked.
3) MAKE AN OFFER When you find a home in Lewiston or Youngstown that you want to purchase, the next thing to do is make an offer to purchase. Your agent will prepare a standard residential sales contract approved by the Bar Association for your area. An attorney may or may not be necessary at this point, (most sales contracts are fairly standard) but will be required later in the process. However, you may decide that you want an attorney to review the contract. It is now common for contracts to include an “Attorney Approval Period” clause in the contract that allows your attorney 72 hours to review a contract that you have signed and either approve or disapprove without any consequence to you. The sales contract will most likely contain some contingencies or riders attached to the contract. Examples of some contingencies are: your obtaining financing for a specified rate and term, selling your current home, or obtaining a satisfactory home inspection just to name a few. You will certainly want to view the seller’s property condition disclosure form and their lead based paint disclosure form before you sign the contract.
When you make an offer to purchase a home you should include an earnest money deposit. The deposit can be as little as $100.00 but should customarily be at least $1,000.00 or more depending on the price of the home. This indicates to the seller that you are making a serious offer. The earnest money deposit is not an extra fee. It is considered part of your down payment required by the bank. The earnest money can be in the form of a check and is fully refundable if your offer is not accepted! It should be deposited in a real estate broker’s escrow account or an attorney escrow account and will be applied to your down payment. If the sale is not finalized for a reason beyond your control , the earnest money will be returned to you.
Remember, your initial offer may not be accepted. So, subsequent offers and counter offers may take place until all terms are agreed upon by both parties. OK, they have accepted your offer! Now what?
4) HOME INSPECTION After agreeing to purchase, it is a good idea to have the home inspected by a professional home inspector. The buyer normally pays for the home inspection and generally cost between $200 and $500. The home inspection should be listed in the contract as a sale contingency. This way you have an “out” should the inspector find serious problems. The home inspection usually takes place within 5 days after signing the contract. If there are any major flaws in the home, they can be dealt with before you apply for the mortgage should you choose to go ahead with the purchase.
5) FORMAL LOAN APPLICATION You will probably have to pay a loan application fee of $100 to $300. Some lenders also charge you prepaid points. One point refers to 1% of the loan amount. Points are paid to the lender as a way of “buying down” the interest rate. You may decide to “lock in” the rate at this time, or the lender may allow you to do it at a later point in time. If you have been pre-approved for a loan, some of the steps in this process will have already been completed.
Items needed to make formal application: (Items vary depending on the lender)
- Social Security cards & driver’s licenses
- Residence addresses for the past 2– 5 years
- Your landlord’s name and address
- Names and addresses of each employer (past 2 – 5 years)
- Your most recent pay stubs
- Two years signed tax returns & W2′s
- Names, addresses, account numbers, and balances of all checking, savings, credit cards, and installment loans
- Two most recent bank statements on all accounts
- Information on any assets
- Information on all real estate owned
- Copy of fully executed sales contract, riders
- Divorce decree & child support agreements
- Application fee
You will receive a “good faith” estimate of the closing costs from the lender called a “RESPA” Statement. It includes the costs for: points, appraisal, title search, title insurance, survey, recording of deeds and the bank’s attorney fees.
Other items you should be familiar with:
Title Search – This is usually required by the lender. Most contracts require the seller to provide you with an “abstract of title” showing clean title (one without any liens against it). An abstract of title is a booklet that outlays every previous owner and all mortgages that were liens against the property at any given time. They can be quite interesting to review. (Provided by the seller at the sellers expense.)
Title Insurance – The lender will require a title insurance policy for THEIR own protection. Also known as a mortgagee policy,this is the lender’s way of protecting their interest should a title issue arise. The insurance policy covers any problems with title.(Paid for by the purchaser)
Buyer’s Title Insurance – Also know as a Fee policy, this type of title insurance policy covers you, the buyer, in the event that the title is not clear. This type of policy is optional and is paid for by you the buyer if you desire a policy.
Private Mortgage Insurance (PMI) – Again, this is something that most lenders require if your down payment is less than 20% of the purchase price. It is a protection for the lender in case you default on the loan. (Much has been written about PMI. Once you own 20% equity in your new home you can apply to have the PMI portion of your payment eliminated.) This feature is being phased out in 2013. PMI will be required for the length of the loan.
Homeowner’s Insurance – This is an insurance policy that covers the cost of repairing or rebuilding your home in the event of a fire or other catastrophe. It also covers liability should someone get injured on your property. Obviously, this is beneficial to both you and the lender. IT is wise to shop around for hazard insurance. Like auto insurance premiums can be all over the place. Once again, you can search our associate database for an insurance company near you.
With the exception of the homeowner’s insurance, all of the above costs plus any additional ones such as the appraisal, survey, recording of deeds and the bank’s attorney fees will be included in the RESPA provided by the lender. The entire cost to you, the buyer, will usually be in the range of $1,000 to $1,500 excluding points. (The actual amount may be higher or lower than these limits.) The amount of points that you will have to pay depends on the lender’s policies, the amount of your down payment, the term and the amount of the mortgage.
This means that you should count on having this much cash available besides the amount of your down payment and the amount of points paid to the lender.The down payment is usually a minimum of 5% of the selling price but can be as low as 3% or even 0%.
So, how much will this cost? Let’s take an example of a $100,000 home. Suppose your lender allows you to put a 5% down payment on the house, and your closing costs will be between $1,000 and $1,500.
Down payment $5,000
Closing costs $1,000 to $ 1,500
Total $6,000 to $6,500
6) MORTGAGE COMMITMENT If your mortgage is approved, the lender will send you a letter of commitment. The commitment letter demonstrates the banks commitment to providing the mortgage money. Once your loan is committed the attorneys can agree on a closing date. The closing is the day that the actual transaction takes place, where you hand over the money and the seller hands over the deed. A few days prior to closing you should do a final walk-through. This is your opportunity to inspect the home one last time before closing to ensure that none of the permanently attached fixtures have been removed and that the home is in the same condition as when you first decided to purchase.
That’s it! After signing a boatload of documents and recording your deed at the Niagara County courthouse you will officially join the many proud owners of a home in Lewiston, New York. You have achieved the “American Dream”.