Whether you just started to consider home buying or are already well into house hunting, you’ve come to the right place to equip yourself with information to make the process easier.
Examine your finances
- Consider your income and the total of your other debt payments (like credit card debt or car payments) when deciding if you can afford to purchase your own home.
- Think about how much money you can use for a down payment.
- Many experts recommend spending no more than 28 percent of your gross monthly income on your mortgage, property insurance and taxes, but each person’s situation is unique.
- Use an affordability calculator to get an idea of what you may be able afford.
- Check your credit report and fix any errors before beginning the loan approval process. Lenders use credit scores as one factor in determining whether or not to approve a loan and your score may affect the interest rate you can get.
- Consult with a mortgage lender about how much you can realistically afford. Take into consideration other expenses you have to ensure you’re comfortable with the monthly payment.
- When looking at your finances, consider how you’ll pay the mortgage if you (or your co-borrower) becomes unemployed.
Find a Realtor®
- Use our Find a Realtor® search to locate a professional in your area.
- Look for a Realtor® who is well-versed on the neighborhood you’re looking in to, the property type you’re interested in, speaks a specific language, or meets other necessary criteria.
- Ask family, friends, and co-workers for a referral to a Realtor® who recently helped them buy or sell a home.
- Interview several Realtors® to ensure the professional you decide to work with is knowledgable about the area in which you’d like to purchase and has experience working with prospective buyers.
- Learn the difference between a Realtor® and a real estate agent.
- View Realtor® profiles for reviews from past clients, areas of expertise, etc.
Shop for a mortgage
After determining a ballpark figure of how much you can afford, start talking to different lenders to get their insight and to start requesting quotes. Ask your Realtor® for referrals for several lenders in your area. Talking to multiple lenders will allow you to compare costs and interest rates for your loan so you can negotiate a better deal.
- Get pre-approved for a loan. This will likely require providing proof of income, a review of outstanding debts, and running a credit check. A pre-approval shows sellers that you’re in a strong financial position when making an offer.
- Ask lenders these questions:
- What is the interest rate? How long is that rate available?
- Are the rates fixed or adjustable? If adjustable, how will the rate and loan payment vary?
- What is the length of the loan?
- Can you quote points in a dollar amount? (Points are fees paid to the lender that are linked to your interest rate, and can usually lower the rate if you pay more points. Learning this information will help you make an informed decision).
- What fees are there and what does each of these fees include?
- What are your requirements for down payments? Are any special programs available?
- Is private mortgage insurance required? What would the PMI cost be?
- When you’ve decided on a home, you’ll file a loan application. Within three business days, your mortgage lender or broker will provide you with a Good Faith Estimate, a document required by law that itemizes the fees and costs associated with the loan. Here’s what it’ll contain:
- Basic information about the loan product, applicable deadlines, and escrow requirements.
- Important dates, including the deadline after which the loan terms contained in the GFE are no longer available.
- Loan summary, detailing the specific terms of your mortgage.
- Settlement service charges, such as loan origination charges, title services, transfer taxes, etc.
- A breakdown of tolerance categories and a summary of what the lender may offer that will lower either the closing costs or the interest rate:
- Zero tolerance: the actual charges at settlement may not exceed the amounts on the GFE.
- 10 percent tolerance: the sum of the actual charges at the time of settlement may not be greater than 10 percent of the cost on the GFE.
- No tolerance: the amounts charged for all other settlement services on the GFE may change at settlement because these items are usually obtained by the borrower, separate from the lender.
*Real Story Tip- Homes sold for more than $1 million in New Jersey are subject to a transfer fee that must be paid by the buyer. All other transfer taxes are usually paid by the seller. Calculate the New Jersey Realty Transfer Fee here.*
Finding your home and making the offer
Your Realtor® will provide expertise on market trends, property conditions, and many other aspects of a real estate transactions. Your Realtor® will show you comparable homes for sale, track sales prices in your desired neighborhood, and will offer insight into the home buying process.
- Remember, keep an open mind when visiting properties your Realtor® shows you.
- Be upfront an honest with your Realtor® about your essential and optional home features, such as a backyard, basement, and the number of bedrooms and bathrooms.
- When you’ve found a home you love, work with your Realtor® to make an appropriate offer.
- Be mindful of your financial circumstances, down payment amount, closing costs, and cost of any repairs when negotiating the sale price.
If you are considering purchasing a distressed home, such as a short sale, a bank-owned property, or a foreclosure, be advised that these transactions can often be lengthy, as a third party must approve the sale. Additionally, these homes are frequently sold “as is” and may need repairs. Learn more about buying a distressed property.
Once the buyer and seller come to agreement, a contract of sale will be drawn up. The buyer or seller may choose to have an attorney study the sale contract before it is finalized – in New Jersey this is known as attorney review. If an attorney is consulted, the attorney must complete his or her review within a three-day period. The contract will then be legally binding at the end of the three-day period unless the attorney disapproves of it. In some cases, the buyer and seller may choose to extend the three-day period.
Shopping for homeowner’s insurance
Just as you shopped around for a loan, it is important to do the same for homeowner’s insurance, and your mortgage lender will require that such insurance be in place at the time of closing. As soon as you have a signed contract for your home purchase, begin shopping for your homeowner’s insurance. Things to consider:
- You must obtain appropriate casualty and liability insurance for the property. Your insurance agent will guide you on what to obtain in your situation.
- Note that most homeowner’s insurance policies do not cover floods. You must obtain a flood insurance policy to cover flood damage. your insurance agent can inform you of the benefits of this insurance, and in many cases, you can purchase it through the agent who sells your homeowner’s policy. To learn more about floods, flood insurance, your risk, and how to protect yourself and your property, visit the National Flood Insurance Program‘s website. Keep in mind that FEMA is still in the process of updating and digitizing its floodplain maps and some property information may not be available.
- A “binder” is a temporary commitment to provide insurance coverage and is not an insurance policy.
- Learn more about insuring your home with information from the New Jersey Department of Banking and Insurance.
Getting a home inspection
After signing a contract of sale, you may want to consider paying for a home inspection, which will identify any physical defects or environmental conditions. The contract of sale typically gives buyers a certain number of days to have an inspection. Keep in mind that in some cases (like a short sale or foreclosure to be sold “as is”) you may be unable to perform a home inspection or have any problems repaired.
Here are some questions you may ask the home inspector:
- What does the inspection cover?
- A good inspection should cover structure, exterior, roofing, plumbing, electrical, heating, air conditioning, interiors, and ventilation.
- How long have you been inspecting residential buildings?
- Make sure the inspector has experience working with homes, and not just commercial properties.
- Can I attend the inspection?
- An inspector should allow you to be present for the inspection. If they don’t, consider it a red flag.
- How long does the inspection take? How long will it take to produce the report?
Closing the transaction
After you’ve found your home, made the offer, secured your mortgage, and have taken care of your insurance and inspection, you’ll be ready to sit at the closing table. At this point, you will sign all mortgage documents and any other paperwork needed to complete the transaction. The title of the home, in the form of a deed, will be transferred to you.
As the buyer, you have the right to select a settlement provider who will aid in the closing of the transaction. In some cases, you may save money by shopping for a settlement agent, which can be your lender, a title insurance company, your real estate broker or attorney or an escrow company. You may have to clear the firm or company that you choose to conduct the settlement with your lender.
Understanding the settlement statement
At the closing, your mortgage lender will provide you with a settlement statement known as the HUD-1 Form, which gives you a complete list of the funds that will change hands during the closing. This includes fees that are associated with the transaction but that are paid prior to the closing (denoted at “POC,” Paid Outside of Closing). It is itemized using the same numbers as the GFE so you can easily compare the charges on the two documents.
The form itself might look confusing, but it is important to go through it with your Realtor® and closing agent to make sure everything is accurate. Here’s a quick breakdown of what to look for:
Section J – Summary of a Borrower’s Transaction
• This is where you’ll see the contract sales prices, listing your earnest money deposit and all of your real estate taxes. In the area titled, “Amounts paid by or on behalf of the borrower,” you’ll see the list of items that total the amount of money you’ll need to close.
Section L – Settlement Charges
• Here, you’ll see the details of the closing costs for both you and the seller. This will include your home inspection or appraisal fees (if they are to be paid at the closing) all of your loan charges, transfer taxes, recording fees, title company charges and escrow agent closing fees. Check and double-check these fees, and be sure to consult with your REALTOR® or lender if you see anything that is questionable.
• The final page of the HUD-1 shows a comparison between the Good Faith Estimate and the HUD-1 broken down into the tolerance categories. A summary of the loan terms and provisions completes the third page.