How to buy a home - Initial steps
Buying a home can be the largest purchase many of us make in our lifetime and, while exciting, can also be stressful. With so many factors to consider and so many online sources available, it can be difficult to know where to start. We know that buying a house requires a lot of time, effort, and research, but knowing what steps to take can make the home buying process easier.
Check out these 10 steps to buying a home so that you can make an informed decision and get started today:
Step 1: Find out your credit score
First, check your credit score with the three main credit bureaus: Equifax, Experian, and TransUnion. The higher your credit score is, the better chance you’ll have at qualifying for a lower interest rate. This can significantly lower your monthly mortgage payments, so if your credit score could use some help, consider delaying your purchase until you’ve improved your credit.
Step 2: Determine how much house you can afford
You’ll also need to determine how much you can afford to spend on monthly mortgage payments.
It's also important to account for additional expenses, such as moving costs. You'll also want to consider how the new location may affect your commute and how much you typically spend on gas each month. While these may seem like small costs compared to buying your first home, they'll add up over time.
Step 3: Save cash for a down payment
While some loan types may require as little as 3% down, having cash for a down payment can significantly lower your monthly payments. Financial experts generally recommend putting at least 20% down—anything lower means you'll be required to purchase private mortgage insurance (PMI). PMI functions as a safety net for your lender in case you fail to make your monthly mortgage payments. The yearly cost of PMI is about 1% of your outstanding loan balance and is added to your monthly mortgage payment.
Step 4: Budget for surprise expenses
After you've determined your ideal monthly mortgage payments, you still need to factor hidden costs into your budget. Making the move to homeownership leads to new expenses that you may not have considered. Some of these include insurance, property taxes, home inspection fees, closing costs, renovations, and maintenance fees. These unexpected costs can quickly add up.
Step 5: Get pre-qualified for a mortgage loan
Before you start looking at prospective homes, you need to know how much you can afford to spend. A good way to do this is to get pre-qualified for a mortgage loan. Your mortgage banker will be able to review your financial situation, such as your income, investments, and any savings you may have, and tell you how much you'll likely be able to borrow.
Once you're pre-qualified for a mortgage loan, you'll know exactly how much house you can afford. Not only will getting pre-qualified help you stand out to potential sellers, but it'll help you narrow down your home search. Additionally, when you start working with a real estate agent, you'll have these initial steps taken care of—and you'll know the price range you need to stay in.
Step 6: Find the right real estate agent
Finding a great real estate agent is a crucial part of your home buying experience. While there are many real estate agents out there, you'll need to find one that's knowledgeable about the specific area you're hoping to move to. A quality real estate agent will be reputable, informed and help you at every step of the process.
Teaming up with a real estate agent who has your goals in mind will help make the home buying process easier. Make sure to be thorough when discussing your needs. Whatever is most important to you, be sure to communicate to your real estate agent.
Step 7: Narrow down your search
Now that you've narrowed down your price range, are pre-qualified for your mortgage loan, and have found a real estate agent, you're ready to start shopping for your dream home. Your real estate agent will be able to help you narrow your search to homes that meet your budget and location requirements.
While your real estate agent will likely already be familiar with the community, it doesn't hurt to do a little digging on your own.
It's important to check out your future neighborhood and make a note of things
- Is this neighborhood clean?
- Is there a lot of traffic on your street?
- Is there ample parking space?
It's also important to make sure your new home will be near places you and your family frequent, such as work, schools, public transportation, shopping centers, and parks, to name a few.
Step 8: Make an offer and be prepared to renegotiate
It's okay to take as much time as you need when searching for your new home. After all, you want to be sure the house you've chosen is right for your unique needs. When you've settled on a home and are ready to move forward, your next step is making an offer. Your real estate agent will help by assessing the value of comparable homes in the neighborhood. Then, you and your real estate agent will determine an amount that reflects the value of the home and present your offer to the seller.
Once you and the seller reach an agreement, the house will go into escrow. During this time, all of the remaining steps in the home buying process will have to be completed.
Step 9: Get a home inspection and appraisal
Home Inspection
Now that you have made an offer on a home, you'll want to get a home inspection. While you aren't required to have one done, it's highly recommended. When searching for a home inspector, seek out recommendations from friends or family, or ask your real estate agent for a list of home inspectors they've worked with in the past. Getting your home inspection taken care of within the contingency period of your offer allows you to renegotiate based on the findings of the inspection.
Home Appraisal
The next step in the home buying process is to get a home appraisal. Your lender will arrange for an appraiser to verify the value of the home. The appraiser isn't associated with the lender or agent, which means you can trust them to provide an unbiased estimation of your home's value. Knowing your home's overall value helps your lender confirm your home has been valued appropriately. Additionally, this means you'll have a professional assessment documenting how much your home is worth.
Step 10: The closing process
Your home has been inspected and appraised, now you're ready to close. This process can vary slightly depending on which state you're in, but you can likely expect additional paperwork and closing fees. Closing costs may include things like attorney fees, title insurance, or property transfer taxes. Be sure to review your closing costs with your real estate agent.
Congratulations — You're officially a homeowner
You've made your way through what may have seemed like an endless amount of paperwork, inspections, and phone calls, but you made it — congratulations! You're officially a homeowner, and you now have a place to call your own. All that's left to do is to take care of any necessary renovations and start unpacking. While the home buying process can seem overwhelming at first, once you know what's expected, the whole process goes a lot smoother.
