Peter Benjamin, CMB®
Senior Vice President, Mortgage Lending
Office: 240-292-5361 | email@example.com
But deciding when you’re ready to purchase a home is a big decision, and saving the amounts needed for a down payment, closing costs, and other expenses often takes years to accomplish.
Even after you’ve determined you’re ready, many first-time buyers find themselves overwhelmed by the homebuying process. There’s a lot to learn, and with so much hard-earned money on the line, you want to be sure you’re making the right decisions.
That’s why Lafayette Federal Credit Union has developed a 9-step Guide to Homebuying to help first-time buyers learn what to expect and tackle the homebuying process headfirst with confidence, clarity, and of course, excitement.
The first step to becoming a homeowner is to make sure you’re truly financially prepared. Buying a home is one of the greatest investments you can make, but it’s also important to be sure you know what you’re getting into so you can fully enjoy the home you’ve worked so hard for.
In addition to saving your down payment and the necessary amount for closing costs (which typically run between 2% and 5% of the home priceOpens in New Window), it’s also a good idea to have a cash reserve for emergencies, repairs, or upgrades to the home.
As good as it might feel to put as much money down on your home as possible, we would never want you to put your whole life’s savings into the down payment. It’s perfectly acceptable to keep some cash on hand for home improvements prior to moving in – like repainting the walls or replacing the flooring.
In fact, average homebuyers spend just under $10,000 per yearOpens in New Window on maintenance, repairs, and home improvements. This amount may be even higher your first year of homeownership as you update and improve the space to make the house your home. Your reserves will give you the flexibility to enjoy this process rather than stress about it.
Your reserves might also include a few months of mortgage payments just in case you lose your job or experience a medical emergency. In addition to the principal and interest payments on your loan, your monthly payments will include homeowner’s insurance, property taxes – and in some cases, private mortgage insurance (PMI).
Once you’ve saved the cash you need for the down payment, closing costs, and reserves for emergencies or upgrades, you’re ready to start the homebuying process in earnest.
You can complete this step during the savings period, as this step helps you determine the price range of homes you can shop for before you start looking. A pre-approval, also known as a Loan Approval Commitment, is a loan commitment based on the maximum loan amount a mortgage lender will approve you for.
The lender calculates this amount by reviewing and verifying the basic information you give them, often including your credit score, your annual income, and the amount of money you’re prepared to put into the transaction.
You’ll still have to go through the full loan application and approval process when you make an offer (see step 8 below), but a Loan Approval Commitment communicates to the sellers that you’re a serious buyer.
If you’re not sure how much you qualify for, our team at Lafayette Federal Credit Union can assist you with getting pre-approved. Armed with a team of mortgage loan officers with over 100 years of combined experience, we can work with you each step of the way. You can learn more about our mortgage process and how we help prospective homebuyers.
Once your savings are ready to go and you have your Loan Approval Commitment, it’s time to find a realtor. Your realtor will curate a list of available homes for you based on your price range, desired location, and home criteria. They will accompany you on home tours and draw up all the documentation needed when you’re ready to make an offer on a home.
It’s important to find a realtor who you trust and enjoy spending time with. Especially in today’s market, you may have to look at dozens of homes and make multiple offers before your offer gets accepted. It’s okay to shop for realtors, get to know a few of them, and make sure you trust them before choosing the one you want to work with.
At Lafayette Federal Credit Union we work with the HomeAdvantage® program, which assists its members with searching, buying, selling, and saving on their next real estate transaction. Partner with one of the agents in the program and you can save an average of $3,000.***
Now you’re ready to start shopping! Make a list of everything you know you need in a home, such as 3 or more bedrooms, a 2-car garage, or a certain number of bathrooms. Don’t forget to consider smaller needs, like the need for storage space and linen closets.
Then make a list of things you want in a home – features that would be ideal but not necessary for you to make an offer. Nice-to-have features might include a jacuzzi tub in the master bath, walk-in closets, or a game room for the kiddos. This list helps your realtor get to know your style.
Everyone’s needs and wants are different, so make sure you spend some time thinking hard about what items go on each list. You might also ask your realtor for their recommendations on the most important things to look for in a first home purchase.
It can be tough to compromise on such a large purchase, but keep in mind that today’s housing market might make it tough to find exactly what you need and want in your first home. It’s okay to take your time through this process, but understand that you may have to be flexible as well.
When you find the perfect home (or the "close-to-perfect” home), it’s time to make an offer. Armed with your Loan Approval Commitment from LFCU, your offer provides the sellers more confidence that you’ll be approved for the mortgage loan you need to complete the purchase of the home.
And if there are already offers on the home you want – a common occurrence in today’s market – your realtor can provide you with strategies to make your offer more attractive that are still within your budget. Because so many people are looking for homes right now, you may need to prepare yourself for the possibility of a bidding war.
When you’re ready, your realtor will write up the offer with your terms and submit the offer with your loan approval commitment to the sellers’ real estate agent. That agent will let you know when you can expect to hear back about whether or not your offer has been accepted.
If your offer is accepted, the next step may involve inspecting the property to discover if there are major defects or problems. An inspection allows you to make a more informed decision about whether you can afford any future repairs or if the asking price is truly worth the home you’re purchasing.
However, many buyers are waiving their right to a home inspection due to the current market. Although waiving an inspection is not ideal for new homebuyers, it is a reality many buyers are facing. Still, it may be worth asking the sellers if you’ll be allowed to do an inspection before closing.
If you are allowed to complete the inspection, you’ll want to hire a professional home inspector. Home inspectors don’t need any special licenses or certifications to do business, so you should ask your realtor or friends and family to provide recommendations for home inspectors they know to be trustworthy.
If the inspection comes back with concerning items, it doesn’t automatically mean you should back out of the offer. In a normal market, you can often negotiate with the sellers to have items repaired prior to closing or to reduce the asking price.
Of course, you’re not guaranteed to win negotiations, and winning may be particularly unlikely in today’s hot market. Because buyers are in abundance, a seller can simply move on to the next offer if they do not accept or agree to your negotiations. If you do decide to negotiate, your real estate agent will communicate with the sellers’ agent to discuss possibilities.
After you’ve agreed to the final terms or negotiations have been settled, you’ll finish your mortgage loan application and wait to get final approval. There’s not a whole lot for you to do during this step, but you may need to communicate with your LFCU Loan Officer and provide more documentation of your financial situation to the underwriting team if they need it.
At LFCU, we make the mortgage process simple and streamlined. We will walk you through each part of the process, including how to complete the application, what happens during processing and underwriting, and how to close on the home once your mortgage loan has been approved.
Once your loan has been final approved, you’re clear to close, which is the last step before you’re handed the keys and can move into your new home. Closing can be one of the most nerve-wracking parts of the homebuying process for new buyers.
You’ll need to bring a cashier’s check for the amount of your down payment and closing costs, and you can expect to sign a whole lot of documents. Because there is so much paperwork involved, closing can take between 1.5 to 2 hours to complete. (Keep in mind that in today’s post-pandemic world, virtual closings are becoming more common.)
In the past, you could expect your attorney, real estate agent, LFCU Loan Officer, and the closing agent (typically a title company representative) to attend the closing with you. They are the guides you need to calm your nerves and help you ask the right questions. Of course, not everyone may attend in person these days, but they’re only a phone call away.
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