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Buying your first home involves planning and saving. It has serious financial and emotional implications. You may decide to attend a homebuyer training program. In preparation for shopping for a home and mortgage obtain a copy of your credit report to see if any problems exist.
A major obstacle for many families is saving enough money for a down payment. A down payment is a percentage of the home's purchase price. The percentage depends on the type of loan you get. Lenders usually require a 20 percent down payment for a conventional mortgage. Some lenders will finance a home loan with a 10 percent down payment, but require the buyer to purchase mortgage insurance. There are ways to reduce down payments through the use of government-insured mortgages. The Colorado Housing and Finance Authority has attractive programs. Many local housing agencies and lenders have low down payment programs for first-time homebuyers.
Lending institutions can prequalify you for a mortgage so you have a better idea of what you can afford. Compare mortgage loans based on the annual percentage rate (APR), the term or number of years of the mortgage, and whether the loan is a fixed rate mortgage or adjustable rate mortgage. Don't forget that fees are charged to cover processing, credit check, appraisal and other overhead costs that are due at closing.
It is crucial to purchase a home that you can comfortably afford in the long run. Monthly payments include principal, interest, taxes and insurance (PITI). Lenders typically require that no more than 28 percent of your gross monthly income go to PITI, and that your monthly PITI payments plus any other long-term debt payments not exceed 36 percent of your gross monthly income. Make sure your budget also allows for funds to cover maintenance and repairs.
Be realistic in deciding whether the house meets your needs and wants. You may consider working with a real estate agent to become familiar with properties in the neighborhoods that are of interest to you. When hunting for your first home, here are a few questions you might consider. Is the location of the house and neighborhood convenient? Is the neighborhood safe? Are the homes in the neighborhood well maintained? Does the house have enough bedrooms and bathrooms? Does it have adequate storage space? Are there high quality schools in the area? What community services are available? How high are local property taxes?
Once you have found a home, make a purchase offer. Negotiate until you get a price you can afford and think is reasonable. This negotiation process is frequently determined by the housing market at the time. When everything meets your approval and the seller accepts your offer you enter into a purchase contract. Have your lawyer review it with you.
You must have a contract, or offer, before the official mortgage application process can begin. Again, this process is simplified if you have already been prequalified. The lender asks about your income, expenses, credit history, employment and the terms of the purchase offer. After the interview and application are completed, loan processing begins. Loan approval may take up to six weeks or longer depending on the market. Once it is approved, the lender will provide you with a commitment letter. After carefully reading the commitment letter (preferably with your lawyer), you can sign it and agree to the loan.
The final step is the closing, which is a meeting between interested parties. This process involves a review and signing of loan documents; an exchange of documents between buyer, seller and lender; and disbursement of funds.
For more information contact the Colorado State University Extension office in your county to obtain a copy of "Buying Your First Home" Fact Sheet 9.937. Other useful home buying resources can be accessed by contacting: www.hud.gov, www.pueblo.gsa.gov, www.homepath.com, www.hsh.com and www.mbaa.org. No endorsement of products mentioned is intended nor is criticism implied of products not mentioned.
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