The 4 Basic Steps of Buying a Home

Owning a home is a dream for many people, but it’s an intensive process full of life-changing decisions. That can make many prospective home buyers nervous. With so much to learn and steps to manage, where can first-time buyers start? Luckily, home-buying can be broken down into a few easy steps to make approaching a real estate transaction more manageable. Here is how home buyers can start their journey to purchasing their first home.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Set a Budget and Save

First-time homebuyers need to set parameters before beginning to look for homes. This means determining a budget for the home purchase. The buyer needs to understand what they can afford so they don’t try to apply for a mortgage they won’t be able to pay back. Budgeting is one part of taking a hard look at current income, debts, and savings. Another part is meeting with a financial professional or loan officer to discuss your home-buying goal.

Once the buyer decides on an appropriate budget for their new home, they must determine their down payment. Traditionally, a down payment is 20% of the home’s total cost, so if the buyer wants to buy a $100,000 home, then they’ll want to have $20,000 available in cash for the down payment. However, depending on the mortgage the buyer applies for, they could swing a down payment as low as 3%. This has its own pros and cons, but these first-time home buyer and low-income loan programs could be a way towards homeownership and building financial equity.

Choose a Mortgage and Get Preapproved

Once the buyer sets a budget, step two is researching different mortgage types. All mortgages provide different terms and have qualifying criteria. That makes some better for certain situations. For example, here are some commonly used mortgages:

• FHA loans: Popular among first-time home buyers because of their low 3% down payment
• USDA loans: Specifically for people who want to move to a rural or suburban area
• Jumbo loans: Loans that are for more than $453,100
• Conventional loans: Loans that are backed by a private lender as opposed to the government

Once the buyer has chosen the loan they want, they need to get pre-approved. This is not a pre-qualification, which some lenders give during conversations that help buyers set budgets and learn about loan products. When they are successfully pre-approved, the lender provides a pre-approval letter that they can show sellers when making home offers. Sellers like to see pre-approved buyers because it means they can close on the home faster.

Hire an Agent and Search for a Home

The first thing a buyer should do before looking for homes is hire a real estate agent. Agents are extremely helpful when purchasing a home because they do everything from setting up showing appointments to negotiating the price. Usually, hiring a real estate agent when purchasing a home doesn’t cost the buyer anything. In the current structure, their commission comes from the seller’s profit. A ruling in 2023 may change this process in the future, so ask your local real estate agent about their compensation structure.

Real estate agents have many resources for locating homes. The buyer only needs to describe what they want, and the agent will show them homes that meet those criteria. Sometimes, they can get a prospective buyer into a home that may be coming to the market soon, letting them see it first. Either way, all the buyer has to do is attend home showings until they find the home they want to buy.

Submit an Offer

Once the homebuyer has found the home they want, it’s time to submit an offer. The buyer will tell their agent what they want to offer, including the purchase price, earnest money, and extras like contingencies. Their agent will submit it for them. If the buyer is unsure about what to offer, they can consult their agent for help. The buyer will typically hear back within a few days if their offer has been accepted, rejected, or sent back with changes. Once the offer has been accepted, it’s time to work through any contingencies and prepare for closing.

Buying a home is an exciting time, but it can be confusing for those who have never done it before. Breaking it down into these basic steps can be a good way to stay on track during the real estate process. If you have any questions, ask your real estate professional for advice.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Updated January 2024