Terms to Know
Realtors and lenders have their own lingo when talking about home purchases. Here are some terms you should know as you navigate the home-buying process:
- Annual Percentage Rate (APR): The interest you pay the lender for the privilege of borrowing the lender’s money.
- Principal: The amount of money you borrowed from a lender for your house purchase.
- Fixed-rate mortgage: A mortgage option where the interest rate on your loan remains the same for the life of the loan, which means your payments always remain the same.
- Adjustable-rate mortgage (ARM): A mortgage option where the interest rate on your loan changes or is variable based on market rates.
- Private Mortgage Insurance (PMI): Protects the lender should you default on a loan.
- Rate lock: A guarantee from a lender that you’ll get a certain interest rate on a loan even if rates rise before you close on a house.
A Look at What is Ahead
The home-buying process can vary from state to state. However, the following phases are about the same regardless of where you call home.
Phase 1: Prep Work
- Identify your needs and wants for a new home.
- Determine how much you can afford overall and how much of that you can put toward a down payment.
- Research your lender options and choose a lender.
- Submit a loan application for pre-approval.
- Choose a realtor.
- Find your home.
Phase 2: Purchase
- Apply for a loan (you still have to do this even if you’ve been pre-approved).
- Once the lender receives a loan application from you, the lender is required to provide you with a loan estimate (formerly a “good faith estimate”) within three days.
- Pay any discount points to the lender if you opt to reduce the loan interest rate. One point equals 1 percent of the loan.
- Consider locking in an interest rate; ask your lender about float/lock options.
- Have the new home inspected and appraised.
- Secure homeowners insurance.
Phase 3: Closing
- Closing costs are provided to a Settlement Agent who ensures all parties receive the funds required on the loan, including closing costs, prepaid interest, taxes and insurance.
- Sign the required documents, including the Closing Disclosure (formerly HUD-1 Settlement Statement) and the Loan Estimate, which replaces the Good Faith Estimate.
Pre-approval to Closing
Planning Your Move
While the bulk of the process is done once the paperwork is signed, there are still some logistics left to sort out surrounding the actual move. Things to consider:
Timing: Time your move to help minimize your stress. Aim to close on the house you’re selling the day after you’ve moved out and close on the new home at least one day prior to your desired move-in date. Account for any time it may take to make any improvements or upgrades to the new home, and ensure that all utilities are in working order before you move in.
Responsibility: Will you be handling your move yourself or sourcing help from professional movers? Both options come with their own advantages and disadvantages ranging from cost-saving to sanity-saving. If you opt to hire movers, do your due diligence and verify their insurance coverage and licenses in addition to asking for rates and references.
Budget: Paying for movers isn’t the only cost you may face. Be prepared to cover costs for packing materials, fuel, shipping, insurance and other incidentals.
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