Buying a house is an important milestone, but for first-time home buyers who don’t know what to expect, the process is often as intimidating as it is exciting. In these uncertain times of high list prices and limited home financing options, the decision to buy a house may feel even more overwhelming than ever, but we’re here to help. Being a first-time home buyer can be intimidating, but by arming yourself with the necessary knowledge and resources, it doesn’t have to be.
By following the steps outlined below, you can focus on what really matters: enjoying your new home.
What Do You Need To Buy A House?
Before you start looking for the perfect home, you should ensure you have what you need. In order to buy a house, you should have:
• A strong credit report (Creditworthiness)
• Money saved for a down payment and closing costs
• Preapproval for a mortgage loan
• A qualified real estate agent (optional)
Once you’ve begun the home buying process and find a property you love, you’re also going to want to make sure you have:
• All the necessary documentation
• A clear, comprehensive understanding of what goes into purchasing a house
HOW TO BUY A HOUSE: THE HOME BUYING PROCESS IN 10 STEPS
There’s a lot of crucial transferring of information that takes place during a real estate transaction, and you will want to be certain you’re knowledgeable enough to be able to advocate for your needs each step of the way. The best way to prepare is to know exactly what to expect.
Buying a home is an exciting yet stressful time, especially if you're a first time homeowner. Many buyers don't realize that there's a lot of prep work to do before you even start looking at homes. Here are the steps you will need to accomplish before you can receive the keys for your new home:
• Step 1: Check Your Credit Report (Creditworthiness)
• Step 2: Determine How Much You Can Afford
• Step 3: Choose A Lender and Get Preapproved For A Mortgage
• Step 4: Find A Real Estate Agent (Optional)
• Step 5: Start The Home Search Process
• Step 6: Make An Offer
• Step 7: Get A Home Inspection and Home Appraisal
• Step 8: Purchase Homeowners Insurance
• Step 9: Do A Final Walkthrough
• Step 10: Close On Your New Home
Step 1: Check Your Credit Report
Before you begin the home buying process, you want to make sure you’re actually in a position to take on all that buying a house entails. That’s why the first step is to do your research, check your credit report, and review your finances.
Research Different Areas
Before you can buy a house, you need to know where you want to buy a house. Make a list of the areas you’re considering moving to and research them. It’s important to look into crime rates and public school ratings in the area, but don’t forget about the simpler things. Where is the closest grocery store? How long would your commute to work be? Keep all these factors in mind as you’re considering different cities or towns.
Credit Profile To Buy A House
Securing financing isn’t always an easy feat. Mortgage lenders use your credit report and financial history to qualify you for a loan, so it’s important to be one step ahead of them and know where you stand. Your credit and financial history will dictate whether you’re able to obtain a mortgage and at what interest rate. Buyers with higher credit scores tend to secure better interest rates and loan terms, so make sure you understand your credit before you get deeper into the process.
Step 2: Determine How Much You Can Afford
Once you've decided that you want to buy a home, you should determine what home loan payments you can comfortably afford. There are many tools available such as an mortgage calculator that give you a general idea of what your payments would be. Quickly see how much interest you could pay and your estimated principal balances. You can even determine the impact of any mortgage principal prepayments for a full yearly or monthly amortization schedule.
Before you speak with a mortgage lender, it’s useful to calculate how much house you can afford on your own. A lender will tell you how much money you qualify for, but you want to make sure you won’t be overextending yourself. Typically, experts recommend spending no more than 30% of your gross monthly income on housing costs (but DCANS Mortgage can allow up to 50% for single applicants and up to 70% for joint applicants). These costs include:
• Principal: This is the money you borrowed to purchase your home.
• Interest: This is the fee the lender charges you to borrow the funds.
• Taxes: You are required to pay property taxes to the government based on the value and location of your home.
• Insurance: Homeowner’s insurance protects your home against any damages.
• Association dues: These are fees you must pay if your home belongs to a homeowners association. If your home is not a part of a homeowners association, you won’t have to pay this fee.
To calculate how much home you can afford, consider using the DCANS Mortgage Home Affordability Calculator. Once you’ve determined how much you can afford, be sure to consider the lifestyle you want to maintain and leave yourself a cushion in case of emergencies. Don’t forget about things like retirement, college funds and family vacations in your budget planning.
Down Payment And Closing Costs
Now it’s time to start saving! Understanding what you’re responsible to pay and when is crucial to a smooth home buying process, so we recommend speaking with your real estate agent or lender to determine which costs you’ll have to pay up front. First and foremost, you’ll need to save for your down payment. Once upon a time, it was recommended to save 20% of a home’s purchase price for the down payment, but this hefty number is no longer the standard. You can buy a home via DCANS Mortgage with no money down, so long as you can meet the monthly repayments (Note: the higher the LTV, the higher the monthly repayments).
Keep in mind that the larger the down payment, the more equity you’ll have, and the lower your monthly mortgage payments will be. By paying more upfront, you can save on interest. Be sure to weigh your options to choose the right down payment for you. A larger down payment may be great, but not if it means emptying your savings.
The other large expense you need to plan for is closing costs. These are the fees associated with processing and securing your loan. Although the exact amount you need will vary depending on the loan amount and tax requirements in your area, you can generally expect closing costs to be about 3% – 6% of the purchase price.
Step 3: Choose A Lender and Get Preapproved For A Mortgage
The next step is finding a mortgage lender and getting preapproved for a mortgage loan. Determine which home loan best suits your needs. Many first-time home buyers don’t realize they can – and should – shop around for lenders before choosing one. Doing your research can make a big difference. There are only six(6) of the 23 banks in Ghana that offer home mortgages. See the comparison table here.
Get Different Loan Estimates
There are often variations in interest rates and closing costs between lenders, which is why it’s essential to do your homework. When comparing lenders, ask each one to provide you with a Loan Estimate, which will spell out the loan terms, project payments and closing costs for your potential mortgage. This form is provided in a universal format, making it simple for you to compare lenders.
But be sure to consider factors beyond the bottom line. A lender might be offering a great deal, but if it comes with lower quality customer service, it may or may not be worth it. Buying a house is a long and often complicated journey, so it’s important to find a lender you can trust to make the process as simple and convenient as possible.
Contrary to popular belief, getting prequalified for a loan is not a guarantee that you’ll actually be able to obtain a loan. When you get prequalified, lenders only estimate your finances based on the information you provide.
However, getting preapproved for a loan requires a thorough investigation of your finances that includes the verification of your income, assets and credit rating. When you get preapproved for a loan, you are guaranteed that you’ll be able to obtain the loan, assuming your finances don’t change between preapproval and closing on the home.
A preapproval is helpful because it tells you exactly how much the lender is willing to let you borrow and it specifies the costs of obtaining the loan. Being preapproved also tells the seller you’re serious about buying, which can make a difference if and when you find yourself in a bidding war.
Step 4: Find A Real Estate Agent / Home Provider
As you may have noticed, there are many steps to buying a house, and it's obvious your sort out your financials and eligibility before looking at houses. Only naive and/or inexperienced or inefficient home providers or agents will show you homes without first ascertaining the financial capacity of the prospective homebuyers. None of our in-house home providers will show you a property or put you on a waiting list without a valid Proof of Funds (eg: Mortgage Pre-Approval).
Although there are some home buyers who decide they want to do it on their own, having a trusty and reliable real estate agent can make things a lot simpler - Alternatively prospective homebuyers can use our integrated Property Finder Service.
Your real estate agent will represent you throughout the home buying process to ensure you find the right home, ask the important questions, make an appropriate offer, have the power to negotiate and receive the necessary disclosures. But perhaps even more important, having a real estate expert in your corner can provide some invaluable peace of mind.
The way to find the right external real estate agent is by asking the right questions. Some questions to ask include:
• How long have you been working as a real estate agent?
• What makes you different from other agents?
• How many clients are you currently working with?
• What experience do you have finding homes in my price range?
• How knowledgeable are you about my desired area?
• Are you willing to provide me with references?
Once you select the best agent for you, they will look over your approval letter, discuss your budget and help you set your priorities.
Step 5: Start The Home Search Process
Once you’ve identified your real estate agent to discuss what you’re looking for after you've been pre-approved for a mortgage and have an idea of what price range you qualify for, you can work with a real estate agent to view homes for sale in the areas you'd like to live - it’s time to begin house hunting. As you browse, keep your priorities in mind. Remember it’s highly unlikely any listing will perfectly match your dream home, so try not to be too picky until you see the houses in person.
Tour Different Areas And Houses
You’ll find that the more houses you see, the more they all start to blend together, so be organized and make sure you walk through the various things you like and dislike about each property with your real estate agent. When visiting a listing, take notes and reflect on the house itself as well as the surrounding area. Some things to consider are:
• The size, style and physical condition of the home
• The neighborhood the home is in
• What your commute would be like
• The schools in the area
Although a house in poorer condition may seem like a steal, remember that you’re the one who will be left to make repairs. Even homes with outdated appliances can be a nuisance because you’re the one who will ultimately have to pay to replace them – so be realistic as you view each house and thoughtfully consider what you’re willing to live with and what your budget can cover.
Step 6: Make An Offer
When you find a house you want to buy, it’s time to begin the process of making an offer and complete a purchase agreement. The seller has the option to submit a counter-offer and you may go through several rounds of counters. Once you and the seller agree to the price and terms, escrow will be opened. Ask your real estate agent to run a comparative market analysis to determine a fair price based on recent sales of similar homes in the area. The less interest there is – and the longer the house has been on the market – the more power you’ll have to negotiate.
Beyond the price you plan to offer, you should speak to your real estate agent about whether it makes sense to include any contingencies in your offer. A contingency is a stipulation included in an offer that states that if a particular condition is not met, the buyer is free to break the contract without any repercussions.
Although sellers sometimes balk at offers made with contingencies, there are some contingencies worth making regardless of the seller’s feelings about them.
If your ability to afford the home is dependent on your ability to obtain a loan, you must include a mortgage contingency in your offer. This contingency will make it possible for you to back out of your offer if, for any reason, you’re unable to receive financing. Even if you’ve been preapproved for a loan, you should still write this contingency into your offer. If you don’t, you’ll find that you’re still on the hook for the purchasing price regardless of whether you’ve actually obtained a mortgage.
Home Sale Contingency
If you’re planning to sell your home and require the funds from the sale to purchase this new one, you’ll also want to ask for a home sale contingency. This contingency will provide you with a certain period of time to secure a buyer for your own home. If you’re unable to find a buyer during that time, the home sale contingency will enable you to rescind your offer and reclaim your earnest money deposit without any recourse. Many sellers will refuse this contingency, but it’s still worth a try in most cases.
An inspection contingency is also a worthwhile addition. After you make an offer, you’ll want to get the home inspected to ensure you have a full understanding of the home’s condition. With an inspection contingency, you’ll be able to not only negotiate the offer based on any needed repairs, but you will also can break the agreement if the home needs more work than you can handle.
Earnest Money Deposit
Along with your offer, you will be required to provide an earnest money deposit, also known as an escrow deposit. This deposit is money that you provide upfront to show the seller you’re serious about the offer, making the seller feel more comfortable taking their home off the market.
The amount of money included in this deposit can be negotiable. However, an earnest money deposit is typically 1% – 3% of the purchase price. The money is held in an escrow account and applied to your down payment and closing costs at closing.
If you decide you won’t buy the home for any reason that is not specified in a contingency, the seller gets to keep your earnest money deposit. This is why it’s vital that you consider the conditions in which you may need to pull out of the contract before submitting an offer.
At the end of the day, including a contingency can be the difference between keeping and losing your earnest money.
Step 7: Get A Home Inspection And Home Appraisal
You may think you’ve reached the finish line when your offer is accepted, but a few critical steps remain. From here, you’ll need to arrange for a home inspection and appraisal. Review your home loan application and update your file. Depending on how much time has passed since we issued your mortgage pre-approval, we may need to collect some updated information and updated documents from you.
We probably have everything we need, but it is a good idea to go over the home purchase document checklist to ensure we have everything we need. Once we have updated your file, your home buying specialist will go over the details of your loan programme, confirm the rate that you want, and go over your closing fees. We'll make sure that you understand every detail of your home loan programme and answer any questions you have before moving forward.
It is advisable to schedule a home inspection with a professional who will walk you through the property to look for any red flags such as structural damages or appliances that may not be working properly and other items that may need to be fixed. It is a small investment for some peace of mind. Any major issues would need to be addressed before the close of escrow date. While your loan is being reviewed and processed, we will schedule an appraisal appointment with the seller's agent to confirm the value of the home. Unlike a home inspection (which is optional), the appraisal is a mandatory requirement to determine that the home is worth what you are paying for it.
The home inspection is important, as it will identify areas where major repairs or renovations require immediate attention as well as any work that needs to be completed in the future. Be sure to hire a professional, third-party home inspector to examine the home you’re preparing to buy.
If significant repairs are needed, you can request that the seller complete them before closing. If the seller declines to handle the repairs and an agreement can’t be reached, you may be able to withdraw your offer.
If you’ve included an inspection contingency in your contract, you’ll be able to guarantee that either repairs are made, the cost is deducted from the purchase price, or the contract is broken and your earnest money is returned.
At this point in the process, your lender will require the home to be appraised before they agree to release any funds. A home appraisal provides an estimate of how much a home is actually worth based on comparable sales in the area, market trends, public records and a comprehensive inspection of the property.
Keep in mind the lender will only provide funds to cover the appraised value of the house, so if the appraisal comes in below the purchasing price, you’ll have to either negotiate the price or come up with the difference, which is one of the many reasons having a mortgage contingency is in your best interest.
Step 8: Purchase Homeowners Insurance
Also in your best interest is homeowners insurance, which works as a safety net to protect your home and finances. Although homeowners insurance isn’t legally mandated, most lenders will require you to have an insurance policy on the home before giving you a loan.
Homeowners insurance covers damage to your home and its surrounding structures as well as stolen or damaged personal property. There are varying levels of coverage, ranging from basic to comprehensive, so be sure to do some research into all available options before deciding which home insurance product is right for you.
Step 9: Do A Final Walkthrough
At this point in the home buying process, you’re probably eager to be done – but don’t neglect the final walkthrough. One last walkthrough of the property can help the buyer if something needs to be fixed by the seller before purchasing the home. Final walkthroughs typically take place a day or two before closing after the seller has moved out, allowing you to ensure all agreed upon repairs have been completed.
Step 10: Close On Your New Home
Congratulations! You’ve made it to the final step of the process. Once we have everything we need, your account manager will submit your complete file to the underwriting department for approval. Once approved, we will prepare home loan documents for you to sign. Generally, you will sign your loan documents at any of our office premises or that of our lawyer's and it will generally take between an hour and an hour and a half. After we receive the signed loan documents back, we will review your loan file one more time to make sure we have everything we need. If everything looks good, your loan will fund 7 to 14 days (or earlier) after your signing, and you will get the keys to your new home!
When the time comes, make sure you review your Closing Disclosure, which will outline the terms, final closing costs and any outstanding charges or fees included in your loan. Your lender will send the disclosure to you at least 3 days before closing. During closing, the property title will pass from the seller to you.
A closing agent will oversee this process, which typically takes place at a title company, management firm, escrow office or your home. The closing agent will ensure that all necessary parties are present at closing. The agent acts as a mediator between you and the seller and confirms that all required documents are signed. Once documents have been signed, the agent will ensure that all funds – including closing fees and escrow payments – are paid and properly disbursed.
During closing, you have two major responsibilities:
• Signing legal documents: This includes the Closing Disclosure, promissory note, deed of trust and certificate of occupancy.
• Paying closing costs: This may include fees for your mortgage application, appraisal, survey and title search as well as paying your down payment.
COMMON HOUSE BUYING QUESTIONS
Listed below are some of the most frequently asked home purchase mortgage loan home purchase questions. If your question isn’t addressed here, please contact us and one of our experienced lending officers will be happy to answer any questions you have.
How do I know how much I can afford?
There are several factors that determine the home loan amount and purchase price that you can afford. For qualification purposes, we look at income, debt, assets (how much money you have for the down payment, closing fees, and other funds necessary to close your home loan), as well as credit. There are many different loan programmes that offer different terms and rates, and some require lower down payments than others and offer more flexibility in credit and income.
The best thing to do is use an mortgage calculator to find out what your payments would be and determine what purchase price and loan amount is comfortable for you.
How much money do I need to buy a home?
Traditional conventional financing requires a down payment of 10 to 20% of the purchase price of the home; however, DCANS Mortgage offers low to no down-payment mortgages that allows you to buy a home with as little as 5% down or 0%. In addition to the down payment, you should be aware that there are other fees associated with purchasing a home. For example, there are closing fees, pre-paid interest, and prorated items such as property taxes and homeowner's insurance.
Do I need a home inspection?
Although a home inspection is not required, it is a good idea to obtain the services of a professional qualified inspector to help you determine the condition of the home you are looking to purchase. A professional inspector will look for any structural issues as well as mechanical problems that may exist in the home that could cause problems in the future. In addition to a structural review, an inspector will also check faucets, toilets, appliances, and other items in the home to make sure everything is in working order. If something needs to be addressed, you can address them with the seller prior to closing.
What type of documentation do I need for a purchase home loan?
Standard documentation collected for a purchase transaction includes information regarding your income such as payslips covering the most recent 3 months and SSNIT Statement for the last two years, asset information such as bank or mutual fund stock statements covering the last 60 days showing source of funds for your down payment, closing fees, points, pre-paid items, and other funds needed to close your home loan.
How long is the home purchase process?
A typical escrow period is 30, 45, or 60 or 90 days. The escrow period, defined on the purchase contract and agreed upon by both buyer and seller, is usually what dictates when your loan closes.
What happens at the loan closing?
Typically, you will sign your loan documents at a designated settlement office. In the presence of the signing authority, you will review and sign all your loan documents and then present a certified or cashier's cheque to pay the remaining down payment, closing fees and other applicable closing funds. You may also wire your funds directly into escrow. Your loan processor will guide you through the process and will advise you on what needs to be done when. Once the loan documents are signed and delivered back to us, your home loan will close in 7 to 14 days and you will get the keys to your brand new home.