The Basics

• In general you can afford a home worth about 3x your annual household income. If your combined income is $50,000, you can afford a $150,000 house.
• Your monthly payments will probably be 0.75% to 1.15% of the purchase price. On a $150,000 home that’s $1125 to $1725/mo. This includes taxes and insurance.
• Money you’ll need up front:
• 3 to 20% of the purchase price for a down payment. The higher the down payment you can make, the easier it is to get a loan, the lower the interest rate is, and the lower the monthly payment is.
• 1 to 8% of the purchase price for closing costs. You might have to pay this up front, or the bank may be willing to add it to your mortgage.
• $250 to $800 in miscellaneous costs. This includes such things as the application fee for the loan, the fee for the bank to run your credit report, a home inspection, appraisal, etc.

The Process

1. Get a copy of your credit report – clean up your credit record as much as possible
2. Go to your bank and talk to a loan officer – tell them you want to buy a home, fill out an application, and get a Pre-Qualification Letter, this tells you how much the bank is willing to lend you for a new home. Four things you will need to qualify for a mortgage: 1) money to make a down payment; 2) income that’s 2 to 3x higher than your mortgage payment; 3) two years solid employment history in the same job or field; and 4) good credit.
3. Find a Realtor (get referrals from friends). The seller pays the commission to your Realtor, so it costs you nothing to have a Realtor who will work on your behalf, answer your questions, and walk you through the home buying process.
4. Tell the Realtor what part(s) of town you want to live in, what kind of house you want, and how much the bank said they’d loan you.
5. Your Realtor will give you a list of houses that match your criteria. Go look at them.
6. When you find a house you want, discuss with your Realtor how much to offer for the home. Your Realtor will do a Competitive Market Analysis (CMA) of other homes in the area to determine a reasonable and fair contract price.
7. You’ll make the offer by signing a contract. At this time you will write a check for a deposit. The deposit will be credited towards your down payment and/or closing costs at settlement. If the seller accepts your offer then they’ll sign too. Or the seller may make a counter-offer on your contract with some changes to the original offer, at which time you must decide to accept or counter back to them. Once everyone agrees on the final contract, it is signed by both the seller and the buyer.
8. Have the house professionally inspected. You generally have to pay for this yourself up-front, and it will cost around $300-$400.
9. The bank will have the house appraised to make sure it is worth what you’re paying for it. You might have to pay for this up-front, otherwise it will be added to your closing costs. You are not involved in this step of the process.
10. Find an insurance agent (ask friends and family for referrals) and get a quote for homeowner’s insurance. Price shop 2-3 different companies if you like. Pick one and tell them you want the insurance. Pass this information on to your lender. The cost will be added to your closing costs.
11. Closing. You go to the office that is handling the closing (a title company or an attorney, usually selected by the lender or the seller), and bring with you a bank check to cover the closing costs. The company/person conducting the closing does not “represent” the buyer or the seller, they are a neutral third party.