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Buying a Home
Tuesday, June 09, 2020

How to Buy a Home in 10 Easy Steps

How to Buy a Home: A Beginner’s GuideThe home-buying process is a complex journey that demands your time, effort, and attention. It’s a significant investment, possibly the largest one you’ll make. So, where do you begin? Learn the steps to purchasing a home. Buying a house isn’t easy, and there’s a lot that must happen from start to finish to become a first-time homebuyer. But you can join the thousands each year that step into the shoes of homeowners and fulfill the American dream.

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

Determine Your Budget & Save

Buying a home is one of the biggest purchases you are likely to make. Before you start the homebuying process, it’s imperative to determine how much you can afford before you buy a home. If you’re not being gifted funds or lack the funds to pay in cash, you’ll need to apply for a mortgage. The general recommended rule is to look for homes no more than three to five times your annual household income. That includes the recommended 20 percent down payment.

Once your budget is set, it’s time to start saving for that down payment in cash. While 20 percent is recommended, you don’t need that much. Depending on the mortgage program, your down payment could be as low as 3 percent of the home’s price. This flexibility in down payment options should alleviate some of the financial pressure. However, the higher your down payment, the more competitive mortgage rates you’ll qualify for.

However, not only do you need down payment funds, but you’ll also need to save money for closing costs. Aim for 3-5% of the purchase price for closing costs. On top of that, save for moving costs. Even if you do-it-yourself moving, it still takes money to buy boxes, rent a truck and dolly, and haul your goods.

Now is also a good time to examine your monthly debts. You may not get loan approval if your debt payments are too high. Set a budget to strengthen your financial readiness. If you’re not sure, try an affordability calculator to help determine what you can buy.

While doing your budget, take a look at your credit score. Many mortgage lenders factor use your score and credit history to decide what interest rate to offer you. Even a 0.5% difference in rate makes a significant impact on monthly mortgage payments.

Research Listings

Now, it’s time to learn about the housing market. Search online and in-print real estate literature for home listings that match your criteria. Note location details, like traffic, school district, and proximity to restaurants, parks, shopping, and more. Pay attention to any changes in the asking price to give you a heads-up on housing trends.

Preliminary research of current listings can help you identify specific neighborhoods to narrow your home search. It will also help you understand the style of homes on the market at your price point so you can set realistic expectations.

home buying process

Get Prequalified & Mortgage Preapproval

The mortgage process has multiple steps all by itself. Start by researching the different types of mortgage loans available and find the one that will be best for you. The most common mortgage options:

However, there are many other loan types for residential home purchases to research. That’s why working with a loan officer and a real estate agent can be helpful–they may be aware of home loan programs you could qualify for.

Once you’ve decided on the loan type, get prequalified for a mortgage to close on the home faster. The mortgage lender will request financial information, such as your income and the amount of investments you have. They use this data to check your income ratio, debt load, and overall creditworthiness. A loan officer can also give you a range that narrows down your purchase price. Later, to get preapproved for credit, you’ll have to provide more specific financial documents, like all sources of income, paycheck stubs, bank statements, and more.

Speak to several mortgage lenders about their loan offerings. Even fixed-rate mortgages can have different mortgage terms among lenders. Some loan terms include private mortgage insurance (PMI), depending on your down payment. Other mortgage options have a minimum credit score to qualify. All the different levers impact your monthly payment and what you’ll pay over the life of the loan. That’s why you should shop around for the best loan terms.

Put yourself in the best position by learning about the mortgage process and how to secure the best mortgage interest rates. Knowledge is how you make informed decisions when shopping for mortgage products.

Hire an Agent

Hire a real estate agent before you begin your search for a home. These professionals are tracking what’s happening in the current market. Choose an agent you trust to guide you in the best direction of the best neighborhoods for you and your budget. Real estate agents watch the market trends and have hyper-local knowledge. As a first-time buyer, your agent is your partner in writing purchase offers and negotiating the sale price further toward the end of the home-buying process.

Get Serious About the Home Hunt

Now, with loan prequalification, a real estate agent, and some background market knowledge, start house hunting. Search for homes in your price range in the communities you want to live. Set realistic expectations as a first-time buyer. Market conditions vary widely. Sometimes, in a competitive market, homes may be under contract in very short time frames, so you must move fast. Other markets may require patience in waiting for the right home to be listed.

Additionally, the homes on the real estate market may check off many things on your wish list but miss the mark in other ways. Not all homes for sale will have the things you want. You’ll have to decide your priorities–more square footage, a great location, a single-story or two-story home, etc.

Use your real estate agent as a resource for home listings that may not be accessible to the public. Or, bring a list of homes you’ve already researched in step 2 that still meet your criteria and preapproved budget.

Here is a checklist of details to note when you look at homes in person.

  • Turn light switches on and off
  • Test the water pressure and how long it takes to get hot water by running the shower
  • See if windows and doors open and close
  • Make note of next-door neighbors if they’re out and about
  • How well-kept the neighborhood is

With that in mind, happy house hunting! Remember to be patient. The right combination of location, price, and features is out there. Just be patient and trust you’ve hired a great real estate agent.

Make an Offer

Do you feel like you’ve found your dream home? Now, get serious and submit an offer. Work with your agent to develop a fair purchase price offer based on neighborhood comps. Ask for a comparative market analysis to ensure it’s based on local real estate sales. Discuss what extras and contingencies to include. Work with your loan officer to get a preapproval letter to include in the proposal.

After the offer is proposed to the seller, you’ll normally hear back within a few days to see if it has been accepted, rejected, or received a counteroffer with changes. If it’s accepted, you’re one step closer to closing! Write the earnest money deposit and start working through the contract contingencies.

Get a Home Inspection

Among the steps of buying a house is your due diligence period. There’s a reason it takes time between an accepted offer and closing, and it’s not just mortgage underwriting. If you asked for an inspection contingency, your agent will help you arrange a home inspection from their recommended vendors within a few days of the accepted offer. Home inspections are to check for structural issues or safety concerns about the home. The inspection is conducted from a comprehensive checklist.

Based on the inspection report findings, you can renegotiate your offer if anything is found in his report. Homes may need unexpected repairs; you can ask the buyer to remedy some of these. You can even withdraw the offer if the report reveals significant damage. An inspection contingency is always a smart addition to a purchase contract.

Get the Home Appraised

The role of a third-party appraiser is to let all parties involved in the sale know that you’re paying a fair price for the home. Any home being purchased with financing will have an appraisal contingency. Your lender will arrange the appraisal with a third-party certified home appraiser to gain an independent home value estimate. The appraisal process solely looks at home value and not necessarily its condition. You will receive a copy of the appraisal report. Any significant differences can be grounds for re-negotiation.

Secure Financing

In one of the final steps to purchasing a home, you’ll work towards officially getting your home loan during the contract period. You’ll put in a mortgage application with your chosen lender. As part of the process, the mortgage company will pull your credit report and credit history, ask for tax returns, and verify your monthly income. All mortgage brokers require you to carry homeowners insurance, so you’ll shop for this and provide proof you have purchased coverage. They will lock in your mortgage rate. Review all the loan terms and expected mortgage payments in your closing disclosure.

Close the Sale

You made it! You’re at the finish line of the homebuying journey and will sign a pile of paperwork, including loan documents, to complete your home purchase. The closing process is usually conducted in the office of a real estate attorney, but it could be a title company. Every state has different requirements. You will wire funds or bring a check to cover the closing costs. The closing disclosure includes all of these fees, like property taxes, origination fees, title fees, homeowners association fees, and homeowner’s insurance. After your last document is signed, it typically takes a couple of days for your loan to be funded and the check delivered to the seller. Congratulations, you have completed all the steps to purchasing a home!

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

Updated November 2024

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Preston Guyton

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