Hey I am Jeremy and I’m excited to share with you our first time home buyers step-by-step guide. Whether you’re a first-time homebuyer, you haven’t purchased a house in awhile, or the last time you bought a house it just wasn’t a very smooth process, you are in the right place. I’m gonna break down from beginning to end exactly how the home buying process works. So let’s dig right in. What we’ll learn here is the inside scoop on new home buying. we’ll break it down into these five parts. We’ll talk about 1. Applying For A Mortgage – You’ve gotta have a partner in the process if you’re going to buy a house. 2. Making An 0ffer – Engaging with the seller
The Escrow Period – a whole bunch of things happen in the escrow period.
The Closing – the period of time where you actually purchase the house. Finally, we’re going to break the mortgage payment down into it’s parts. Your mortgage payments obviously is going to be with you for a while and I’m gonna show you the three different parts of that payment.
SO LET”S GET INTO IT!! Fun Fact – When I bought my first house I had absolutely no clue about the stuff. I look back at that time and I bought a really cool house, it all worked out fine, but I really did not have any idea about anything I’m gonna talk about in this video. I knew it was a good idea to purchase a house. I went in and did everything and i really didn’t understand things like I should have. This video whould have helped me a ton and I know you’re going to be much better at this process then I was. Let’s start from the very beginning. You might think the very beginning is going out and looking for houses. Maybe you’re driving around town looking for houses now.
You know that’s fine but the real beginning of the process is knowing whether you can buy a house at all! I mean maybe you’ve got the money to purchase the house and if you do this part isn’t as important for you but for the majority of folks, you don’t have the finances right there to pay for the house. So you’re gonna need a financial partner, someone to invest in this house with you and banks that provide home loans are the folks that are generally going to do that for you. So step one in the process of buying a new home is applying for a mortgage. You’re going to apply for a mortgage so that you know what you have available and what kind of house you can purchase. Generally you’ll get pre-approved to borrow a certain amount of money. So you’ll call the bank, either a local bank or the folks online the 800 number and they’re going to ask you a bunch of information and then they’re going to tell you what they feel you can borrow. The point I want to make here is that Preapproval is not a for sure, “Yes you can borrow this amount of money from us”. This is a pre-approval so they’re saying it looks to us at this point like you could borrow this amount of money. Later on in the process they’re going to solidify that agreement and if there are things that have changed in your job scenario or something like that it is possible for this pre-approval not to go through. I don’t say that to make you worry about it, I say that so you understand the process and how it works. Pre-approval is, “we think we can loan you this amount of money if all the things that seem to be here right now lineup.”
So this is a good step in the process but not the final step in knowing exactly how much you can borrow. If you go to a local bank, generally you’re going to get a better sense of exactly what you can borrow because they can ask you a few more details up front and spend a little bit more time with you. So I always advise folks to go to a local bank a place that is closer to you where you can sit down face-to-face with someone. But either way works just know that it’s not a hundred percent sure that you can absolutely borrow that.
I also want to point out the interest rate has a ton to do with your credit score.
If you want more info on that you can go out there online. We’ve got some great blog posts that tell you all about credit score and how it affects things. It affects your mortgage for sure.
It affects your insurance as well. You want to have the best possible credit score you can when you go to buy a house because your interest rate is going to reflect your credit score.
Ok, once you’re pre-approved it is time to truly go house shopping!! Now you have a sense of how much money you can borrow, how much money banks are willing to invest in your new home. So you have a real sense of what you can purchase and you can go house shopping. So you’ve gone house shopping your realtor help you find the home of your dreams and you made an offer.
Well what does that mean? It means simply that you put in writing the amount of money you want to buy the house for is step one and most of us know that that’s part of it. AND included any contingencies or additional expectations connected with your offer. So contingencies could be things you want the seller to do, “the roof is in bad shape, we’re offering you X amount of money to buy the house. But in order for this to go through you’l have to have fix the roof before the closing.” OR it can be things you want like, ” I’m making this offer for X amount of money but I want all the furniture, I want to hot tub, etc.” You know whatever things don’t generally come with a house. But you’ve made it a contingency in your offer that for this deal to go through it will come with the house. So sometimes contingencies are what you want the seller to do before you purchase the house (like fixing things).
Sometimes contingencies are things you want from the seller that maybe they wouldn’t generally include in the sale. So those two things, the price you’re gonna pay and the contingencies are part of making an offer.
So the offer is made and the seller decides if they want to do one of two things in response.
Do they want to counter or Do they want to accept? We’ll start with the thing that happens most often in the first step which is a counter.
The seller will reply to your offer with a different set of price and contingencies. They may say they want to sell it for a lower price, they may say they want to sell it for the same price but they don’t want to do whatever contingency you ask. All sorts of things can change in the counter, but basically, they’re taking those two things, the price and the contingencies and coming back to you with a different version of what they’re willing to do in the sale.
So that’s a counter. If they counter you, you then have the choice to counter or accept as well. So let’s talk about accepting which is the next step. So at some point one side or the other accepts and that means they agree to sell or buy the house based on the last offer presented. At this point one side says to the other, “I accept your offer or I accept your counter and we have a deal.” At that point we’re done with the make an offer part. We’ve figured out exactly what the sale will look like, what the price will be and what the contingencies will be. We’re ready to move on to the escrow period.
The escrow period is a period of time between an accepted offer and the closing. As we’ll get to, the closing is the actual moment when you purchase the home from from seller. We’ll get to that but we have the escrow period to walk through and tons of things happen in the escrow period. So let’s talk about what happens during the escrow period. You’ve got a secure that mortgage that you got preapproved for. Most the time there’s a home inspection which means someone will come in and really like dig into the house, take a deep look at the structure of the home. During that time we’re going to address the contingencies which means if you ask the seller to do something we need to make sure that’s actually done before closing. And we need to get insurance. So those are the things that need to happen before the closing. Then obviously the closing happens at the end when all those things have happened during the escrow period. So let’s break into each of those quickly.
SECURING A MORTGAGE – You’re gonna go back to the mortgage company now that there’s an accepted offer and say look you pre-approved us for X amount of money, let’s finalize these details and they’ll want your finances, your w-2, your work information, all the financial pieces of your world.
The mortgage company’s going to wanna see them because they want to make sure that you’re going to be able to pay your mortgage payment. That’s what they’re trying to figure out. And so all that stuff gets figured out back and forth between you and the mortgage company until the mortgage is secured. This means it’s really set and ready for closing. So that financial side has to happen, securing the mortgage. HOMEINSPECTION is when a certified inspectors examined your home and describes all the structural concerns that he or she notices. Now, you made the offer on the house assuming you had a solid house in place. Maybe the seller said there was a problem with the roof or there was something like that. A lot of times times when you’re going through with your Realtor your
Realtor will know that there are some issues and they’ll tell you about that from the beginning.
But often times in this inspection you’ll find other kinds of issues. Maybe there’s termites in the house or all kinds of different things can come up during the home inspection.
Most importantly, this is a point where often times even though you’ve made an offer, it’s been accepted, and you’re in escrow a home inspection can change the agreement between the seller and the buyer. Usually in the offer it says, “contingent on home inspection.” So once the home inspection goes through, if there’s major problems, you can say, “look you need to fix this or we’re backing out of the deal.” Oftentimes, deals fall through at the home inspection point. This is a good time to address the contingencies in general. So the purchase offer is contingent on the inspection. So there may be additional negotiation if the inspection finds issues. I just talked to you about that.
But we also, if there’s any other contingencies that were part of the offer (“Hey we need to fix the roof”), that’s going to be a part of the escrow process as well. It has to get done before the closing so you know that the seller absolutely has taken care of it before ownership changes hands.
GETTING INSURANCE – insurance protects the home and it protects not only your financial interest in the home but it protects the mortgage companies financial interest in the home. The most basic part of insurance is this. if it were to burn down or get taken out by a tornado or whatever, the investment that you’ve made and your mortgage company has made is no longer there. Insurance protects from that situation.
So insurance is going to pay to rebuild that house and bring the investment that you have and the mortgage company has back into the picture. So the mortgage company will insist on you having insurance before the closing. So you need to go out to your local independent insurance agent and engage with them. Say, “Hey I’m buying this house. Here’s the address, here’s the closing date, please let me know what information you need.” They will get a quote to you which you can then hand over to the lender and say, “hey here’s the amount of money that I’m going to be paying or really is going to be paid out of my escrow account (we’ll get to that later) and they will figure it into the process. And then, before closing, you have to actually secure that insurance policy and get a certificate of insurance to your lender so that the closing can happen. So that’s all a part of the process and getting insurance is an incredibly important part of the escrow period. Like I said insurance is an important part of your escrow account which I will address later but that’s why they need the numbers specifically.
The mortgage company needs two insurance things to close. One is that you have insurance to know that their financial interest is protected. Two is that they need to know how much that insurance is gonna cost so they can figure what your monthly mortgage payment will be. I know I’m using a bunch of big words there but
I’ll get to it in just a second.
Ok, we talked about you getting the policy into place & get your mortgage company proof of insurance prior to closing, we got all that taken care of. So we’ve secured the mortgage, we’ve gone to our inspection, we’ve taken care of all those things. We’ve got our insurance in place and we are ready to close on the house. General this happens on a given day. Often times the buyer and the seller will come to the same place, a title company which is in charge of making sure all this stuff happens, and sit down at the table and one party will buy the house the other party will sell the house. There’s lots of signing of papers, putting things in place, and that is the closing. The date that you actually purchased the house and the seller no longer has any interest in it. So all documents will be signed ownership of the house will officially change hands to you and congratulations you purchased a new house!! But there is a lot of cost. involved. Specifically, there’s a group of people that get paid at closing. So at closing you’re gonna see a lot of course connected there. These costs vary widely with a lot of different expenses but here’s some of the main ones. At closing you’re gonna pay the realtors and the title company. So you’re going to pay everybody that helped you with the buying process. You’re gonna pay one year of your homeowners insurance so that will be a part of your closing costs (unless you paid that ahead of time), and a lot of other fees that come with it. So there’s a lot of different closing costs and understanding those closing costs really has to do with you talking to your mortgage broker about how this is gonna work. Asking questions like, “What are the closing costs? What are they gonna look like? Why do I have them?” Ask those questions make sure that you understand because when you’re at closing there’s so many things going on. Your signing papers everywhere and all this stuff is going on that everybody else knows how to do. They do this all the time.
So they’re kind of zooming through it and if this is the first time that you’re trying to understand everything you can end up leaving that room a little frustrated and feeling like you don’t understand. So take a little bit of your mortgage brokers time ahead of time.
Sit down with them and see exactly what closing costs are going to be in there. Have them break it down for you and they should gladly do that for you.
So that’s the closing costs part of your closing. So you purchased your house, CONGRATULATIONS!
You get to move in, you get to be happy, you’re a new homeowner! You’ve invested in something that will provide you tons of joy, maybe grow your family, whatever your future interests are in life that house you just purchased has a lot to do with those. That will be the foundation of where those things happen so buying a new house being a new homeowner is super exciting and a smart investment for the most part and so enjoy it!
You’ve done everything you had to do. It was nearly three months of paperwork and all this kind of stuff and now you’re actually moving into your house. So be happy. But I wanted to break down, at some point, your mortgage payment is going to need to be made. A lot of times you get a grace period. So the first maybe month you’re living in your house you don’t have to pay anything. But in that second month or maybe the third month you’re gonna start having to pay your mortgage payment. That payment is generally the same amount of money that your mortgage broker told you from the beginning.
But what I didn’t know when I purchase a new house and what I want to share with you right now is that there are absolutely parts of that mortgage payment that are important to understand. There’s three parts actually and they are
PRINCIPLE, INTEREST, and ESCROW ACCOUNT CONTRIBUTION. So you’ve got these three different parts of your mortgage payment and let’s break those down and look at what each one is. The first one is Principal. This is what you think of in your payment. It’s the part of your monthly payment that goes toward paying down your debt.
You borrowed $200,000 and every month you’re paying a little bit to pay that down.
In 30 years or fifteen years or whatever you agreed to, you’ll have paid down all the money you borrowed. That portion is Principle, However, especially the beginning,
Principle is not the main part of your payment. It depends on how your loan is set up but often times at the beginning of the loan the main part is actually Interest.
Interest is the part of your monthly payment that goes toward paying the mortgage company for the privilege of borrowing their money. As you know, banks don’t do this for free. They make money every month and oftentimes they front-load mortgage payments so that there’s more interest being paid at the beginning than at the end. That’s obviously set to their advantage so that they make more money whether you sell your house later or not. So you’ve got the principal (what you’re paying down on the money you actually borrowed), interest (what you’re paying the mortgage company for the privilege of borrowing their money), and then the third piece which is Escrow Account Contribution. So there’s a little tiny bank account that is a part of your mortgage.
It’s called the escrow account. Every month you pay a small bit into this bank account that your mortgage company keeps track of. It usually covers two things. It will cover your property taxes and it will cover your homeowners insurance. Your mortgage company likes it to be set up this way because they want to know that you’re paying your taxes and that your homeowners insurance is protected in case something bad happens. They wanna know that’s happening and they want to have a little bit of control over that. The way they’ve set it up is having an escrow account contribution as a part of the mortgage payment. So you’re paying to the mortgage company a little bit of money each month. When the property taxes need to be paid the bill goes to your mortgage company and your mortgage company pays those property taxes or pays that homeowners insurance out of the escrow account. So they are responsible for paying the property taxes and homeowner’s insurance.
It’s not like they’re paying out of their pocket of course, they’re paying out of your pocket. You’re just paying it as a part of your monthly mortgage payment each month. So you’re paying into the escrow account, the mortgage company is paying property taxes and homeowner’s insurance, and that way they have some control over knowing those things are actually being paid and actually being taken care of.
It’s important to know that even if you set up a mortgage that cannot change.
The price cannot change. Oftentimes a fixed rate mortgage means nothing is going to change about the principal (amount of money you borrowed). Nothing is going to change about the interest (or the amount of money you’re gonna pay the mortgage company for the right to borrow that money). Something can change though about the escrow account contribution. Sometimes the mortgage company will send people something like, “hey your mortgage payment is going up from $1,000 a month to $1,200 a month” and they get all up in arms. Again this was one of the places I didn’t understand when I bought my first home. I had that happen about a year in. My mortgage payment changed and it went up by a couple hundred dollars. I was thinkin, “well wait a minute. I don’t understand this. Why am I paying more money when I made this agreement?” I got really frustrated with my mortgage company and the person who sold me the mortgage in the first place. I was like, “What? you set me up for something that now suddenly is going up.” What I didn’t realize was simply that my homeowner’s insurance and my property taxes had gone up. That made the escrow account contribution change and therefore, my monthly mortgage payment goes up. So, if your monthly mortgage payment changes it’s almost 90% sure it is your escrow account that is causing the problem. If you know that and understand that then you can dig into what’s actually going on and see if you can do something to fix it. Escrow account contribution for the most part, 90% of the time, is the only thing that can change in your mortgage payments. so know that. If your mortgage payment changes on you. I got ahead myself there. Again, if you have a fixed rate mortgage then insurance and taxes are the only real reasons that your monthly mortgage payment amount should ever change. I think I jumped on that one already. I guess I’ll say it here again. Now you know and if your mortgage payment does change, don’t freak out. You gotta know that it has something to do, most likely, with your taxes or insurance.
OK, here’s a rookie mistake, something that I think people do sometimes. Hopefully your mortgage broker will be telling you not to do this but I’m gonna tell you not to do this right here as well.
Applying for any other loan during the escrow period. Your your mortgage is still changeable if something happens to your credit.
Something can happen to your ability to borrow money from the bank that you’ve made the agreement with all the way up to the closing date. A lot of times mortgage companies don’t actually totally solidify your loan till two days before closing or even the day of closing. So you do not want to apply for any other loan during the escrow period without speaking with your mortgage broker. If your mortgage broker tells you, “Hey, here’s the situation. It’s fine. You can go ahead and buy that new car.”
Well that’s different but do not go and apply for any other loan unless you spoke with your mortgage broker and they’ve specifically said that it’s not going to have a negative effect because oftentimes it will.
So Rookie Mistake>> applying for any other loan during the escrow period.
Alright, what we learned: Well, we applied for a mortgage, we navigated all the different parts of the escrow period, and once we had closed and bought the house, we broke down your monthly payment. Now you’re there. You understand exactly how these things work, exactly how buying a house works from beginning to end.
I hope that you’re like, “ok I get it! There’s a lot of pieces but I understand it now. I can navigate them no problem. I feel like a boss. I feel like someone who’s going to nail this thing!” And I know you are you going to be able to go right through it smoothly, take care of any bumps that do happen, and purchase that home of your dreams. The last step in this video is pretty simple. Three-parts. I would like you to go and subscribe to our YouTube channel. We share a whole bunch of great information just like this video you just watched. So please subscribe to our channel so we can get it out to you and go from there. Step 2, please share this video with someone who needs it. So I’d like you think about if you know someone else who is purchasing a new home or who’s purchasing a home at all.
Do you know a mortgage broker that might be able to share this video with the folks that work with them. Please share this video with one person who needs it. Then finally, I hope your post on your favorite social site about this video so that other people can experience it as well. Good information is only great if people share it. And it’s really not even good if people don’t care because you can’t enjoy something if you don’t know it’s there. So please post this video on your favorite social sites. So we will see you next time. Feel free to head over to our YouTube channel if you wanna see some more videos. I really appreciate the time you spent watching this video and I hope you got a ton out of it. If you did please let me know.