Buying a home can seem overwhelming, especially if it’s your first time. It’s sometimes difficult to keep track of the process, who’s involved, and what you will need to reach your end goal of being a home owner. It’s best to have knowledge about the process before jumping in with both feet.
There are many people involved in the process of buying a home. These include you, the buyer, and the seller who own the current property you want to purchase. There may be realtors on both the seller’s side and on your side, acting as an agent/broker on your behalf. Additionally, financial institutions are usually involved. Once a home is selected and an offer has been made, there will be an appraiser who evaluates the property to verify the value. Oftentimes, a home inspector will be necessary in order to provide a full report of the property’s defects and functionality issues that might only be visible to a professional.
Look at popular real estate websites, scan newspapers, and read up on the housing market. Make sure to save houses that peak your interest, even if they are sold during your research. It’s helpful to gauge how long houses are on the market in your town of interest, so you know how fast you might have to act to get your dream home. An initial look at some house photos and surrounding areas will also help you start you “must-haves” versus “would-like” lists.
Now this is the big question. Dollars and cents. You might know exactly what you want, but is it affordable? Before getting your hopes up on a house, make sure you have the necessary funds to purchase it. Can you put 20% down on the house? What’s an affordable payment for your budget? Try out our Affordability Calculator to get started.
If you’re feeling discouraged, you can take actionable steps now. Start saving up for your down payment by putting away money each paycheck, any extra change you gather, and any monetary gifts you receive. While you don’t necessarily need to put 20% down on your house, you can avoid private mortgage insurance (PMI) if you do, which means you’ll save more money over the long run. But if you can’t reach 20%, that’s okay. You’ll have a more affordable payment, and you’ll have reached your dream of owning a home. There are also many different mortgage assistance programs to help you, such as our own Seed Money program.
Your credit score is another important stepping stone to acquiring a mortgage. This three-digit number communicates to lenders your credit trustworthiness. If you have any credit card debt, now is the time to start paying that down because it negatively affects your score. Also, make sure to get your credit report and check for any mistakes and get those remedied as soon as possible. You are entitled to a free credit report annually, according to federal law.
Your lender uses your credit score to determine whether or not to loan you money, and how much they will loan you and at what interest rate. Derogatory marks can increase your interest rate, lower the amount your eligible for, or reduce your chances of securing the loan altogether.
If you feel like your credit score is sub-par and in need of improvement, there are many ways to get it back on track.
This is where the rubber meets the road. While they sound similar, there’s a difference between a pre-qualification and pre-approval.
Getting pre-qualified gives you an actual number you can refer to, based off of your general financial information, such as your income, savings, and investments. You’ll need to bring this information into a financial institution so that they can review it and let you know how much you can be lent. Now you can start looking at houses within your price range.
Then, you can get pre-approved, which will require you giving your financial documents, such as W-2 statements, paycheck stubs, bank account statements, to your lender so that they can verify your credit and financial standing. A pre-approval letter also gives you more credibility when you’re looking to buy, so that the seller knows that you’ll actually be able to attain a loan to afford their house.
Finding a great real estate agent is an important aspect of the home buying process. They will be able to bring you to houses you’re interested in, are knowledgeable about the housing market, pricing, and skilled negotiators. They have access to information that usually isn’t available to the public, and they are well versed in the entire home buying process. They will be your partner and advocate, which is extremely valuable if you’re unfamiliar with the process.
Ask your real estate agent to start touring houses that fit your price range. It really changes your perspective to see houses in-person, and to envision what it would be like to live there. Treat each house like a test (don’t get sold before you buy). Make sure to review important aspects of the house: water pressure, lighting, windows, etc. What is the neighborhood like? Would you be annoyed if there was a lot of traffic? Is it important to have conveniences, like a grocery store, nearby? Take pictures so you can compare all of the houses you tour. And be prepared to miss out on a few houses, especially if it’s a seller’s market.
After you’ve found the right home, work with your real estate agent to make an appropriate offer. There may be a little back-and-forth during negotiations. Once you come to an agreement, the house will go into escrow and then you can begin the next steps. Don’t worry if another offer is accepted over yours. Your new home is still out there, it just might take a little more time to find it.
It’s okay if you feel your feet getting a little cold after after your offer has been accepted, because there is another important step. Most of the time, an offer is contingent on a home inspection. This ensures against damage or other issues that may be a deal breaker. Or, it can increase your negotiating power if the house needs some updates. Both you and the seller will receive the findings of the home inspection, and you will be able to walk through the house again to make sure that the repairs you requested were finished.
There are often a variety of mortgage loan options to choose from, depending on the mortgage lender. But, the financial institution should be able to work with you on your specific situation to find the right loan. Things to consider are: do you want a predictable monthly payment? Or, do you want the lowest possible payment right now, that has the ability to fluctuate over time? Will this be a house you are in for a while, or just a stepping stone to your next place? These questions will factor into your loan options.
Appraisers will tour the home by request of your lender. This will provide an independent estimate of the value of the house. This appraisal will allow all involved to know if you are paying a fair price.
Your lender will have a title company handle the paperwork and make sure that the seller in the rightful owner of the house you are purchasing. Don’t worry, we’re getting close to the end.
Drum roll, please. During this time, you will sign all of the paperwork in order to buy your home. It usually takes a few days before your loan is funded after the paperwork is brought back to the lender. Once the seller is paid, you become the owner of a new home!
Now you have the keys to your new home! But, it’ll be up to you to move the boxes.