First-Time Homebuying: Secondary Procedures

March 20, 2023

by Christian Phillips

The beginning stages of Frandsen’s first-time homebuying series asked whether renting or owning was the best option for you based on multiple factors. Now that you have decided to buy your first home, you are ready for prequalification, searching for a home, negotiating an offer, and exploring ways to increase affordability. Your dream is one step closer.

Prequalification:
Prequalification is an informal process where the prospective buyer(s) can meet with a lender to estimate their financial status. This process is meant to generate an idea of how much you can afford to borrow based on the information you disclose. The pre-qualification is not binding on the bank because your information is not being verified; thus, prospective buyers will not benefit from inaccurately disclosing personal information.

Search for a Home:
Are you ready to start searching for your dream home? It is recommended to involve real estate agents to help search for homes within the confines of your predefined budget. Real estate agents will provide much-needed expertise in the areas you want to live in. To help illustrate your dream home, list the required features, locations, and styles of homes you might be considering. This enables the real estate agent’s ability to narrow down the search.
  • Features: Garage, lawn, laundry room, walk-in pantry, interior lighting, dishwasher ceiling height, central heating and air, finished basement, covered patio, and more.
  • Locations: Suburban, inner-city, or rural.
  • Style of home: Single-family, duplex, condo, townhouse, and manufactured homes.
If you need help finding a real estate agent, ask your mortgage lender for a recommended or preferred real estate agent.

Make an Offer:
Once you have found the right home, you will work with your real estate agent to make an offer. This includes negotiating terms with the seller or agent involved in the transaction. First-time homebuyers will be advised to make an offer contingent on the appraised value or below the market demands.
[Definition]
  • What is appraised value? An appraisal is a written estimate recorded by a licensed appraiser, explaining the “true market value” of the home you plan on purchasing. In addition to examining the interior and exterior of the house, the appraiser will evaluate recent sale prices of properties in the general area. The buyer(s) will be charged for this process, and funds may be allocated to closing costs. Once this is all complete, the buyer(s) will receive a copy of the appraisal for personal records.
Ways to Increase Affordability:
While you attempt to secure financing, here are a few things to consider to help increase affordability.
  • Discount Points: Purchasing discount points will help reduce your interest rate. This is also referred to as “buying down the interest rate.” Points are not always required to be paid upfront; depending on the situation, the cost can be charged to the loan balance or paid by the seller.
  • Pay of Debt: The borrower's debt-to-income ratio is a primary factor when calculating creditworthiness. Prospective buyers with high debt levels on accounts such as auto loans and credit cards will be considered a “higher risk.” Lenders will be less inclined to approve buyers for financing, and when they do, it results in higher interest rates.
  • Credit Score: Prospective homebuyers should routinely review their credit report to identify irregularities or other issues that may impact their credit score.
  • Down Payment: Increasing your down payment can be one of the most influential factors in reducing a mortgage rate. Although it may take time and discipline, a higher down payment can produce lower interest rates if additional factors remain favorable. The more equity you have invested in the property, the better.
[Final Thoughts]
The secondary stage of the Frandsen homebuying series is here to make the home-buying process easier for all prospective buyers. Frandsen Bank & Trust mortgage lenders want to help finance your dream home while considering your financial well-being. Contact your local Frandsen banker or check out our First-time homebuyer guide to learn more.

 

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