Buying a home can be challenging for a first timer. After all, there are so many steps, tasks, and requirements, and you may be anxious about making an expensive mistake. But first-time homebuyers enjoy some special advantages created to encourage new entrants into the real estate market.
To demystify the process so you get the most out of your purchase, here is a rundown of what you need to consider before you buy and what you can expect from the buying process itself, plus tips to make life easier after you buy your first home.
The new home purchase process isn't as complicated as it used to be. The mortgage process has been simplified and now buyers can just apply for a mortgage at their lender of choice. In the past, buyers had to visit a branch location to sign papers, but now they can do everything from the comfort of their own home.
Home Partners is taking a different approach to buying homes, where they are looking for renters who want to buy their home. This means that Home Partners is looking for people who can afford to pay their rent and mortgage simultaneously, which is a safer approach than putting everything on one loan.
Buyers also have more information available than they did in the past. They can find out about neighborhoods on websites like Zillow or Redfin before they even start searching for homes on the market. And with tools like Google Street View, they can see photos of an entire neighborhood at once.
How To Buy a House In 12 Steps?
Most home sales involve the following 12 steps:
Decide Whether You’re Ready to Buy A Home
Preparing your income is all about pulling the right documentation together to show steady employment. If you’re on payroll, you’ll likely just need to provide recent pay stubs and W-2s. On the other hand, you’ll need to submit your tax returns and other documents the lender requests if you’re self-employed.
Calculate How Much House You Can Afford
Once you decide you’re ready to buy a home, it’s time to set a budget. A good place to begin is by calculating your DTI ratio. Look at your current debts and income and consider how much money you can reasonably afford to spend each month on a mortgage.
Save For A Down Payment And Closing Costs
Down payment: Buying a home with no money down is possible, but most homeowners need to have some cash for a down payment. A down payment is the first major payment you make on your loan.
Closing costs: You’ll also need to pay for closing costs before you move into your new home. Closing costs are fees that go to your lender and other third parties in exchange for creating your loan.
Get Preapproved For A Mortgage
To get preapproved, you need to apply with your lender. The preapproval process typically involves answering some questions about your income, your assets and the home you want to buy. It will also involve a credit check.
Conventional Loans: sometimes called conforming loans, are loans that are backed by Fannie Mae or Freddie Mac. The majority of mortgages in the U.S. are conventional loans. Conventional loans are always a popular option for homebuyers, and you can get one with as little as 3% down.
FHA Loans: Backed by the Federal Housing Administration, FHA loans are less of a risk for lenders because the government insures them if you stop making payments. As a result, FHA loans have credit score requirements that aren’t as strict. You can get an FHA loan with a down payment as small as 3.5%.
VA loans are mortgage loans for veterans, active-duty members of the Armed Forces, and qualifying surviving spouses. The most popular benefit of VA loans for homebuyers is no down payment required. VA loans are insured by the Department of Veterans Affairs.
Another type of government-backed loan, a USDA loan, helps people in rural and suburban areas buy homes. You can get a USDA loan with 0% down, but your home must be in an acceptable rural area, and you must meet income eligibility rules.
Find The Right Real Estate Agent
A real estate agent represents you and helps you understand how to buy a house. Your agent will show you properties, write an offer letter on your behalf and assist in negotiations. Real estate agents are local market experts and can also advise you on how much to offer for each property.
For first-time buyers, it is recommended to with agent as the process can be complicated and emotional. Having an agent by your side can help you navigate the housing market, submit a legally sound offer and avoid overpaying for your property.
It’s a good idea to make a list of your top priorities, some of which might depend on whether you’re looking for a starter home.
Rank your priorities from most to least important and show this list to your agent. Your agent will then show you homes that fit your criteria. You may need to spend some time searching for the perfect home, so don’t get discouraged if your hunt takes longer than you expected. Only you can decide which property is right for you. Make sure you see plenty of homes before you decide which one you want to make an offer on.
Make An Offer On A House
When you decide to make an offer on a home, you must submit an offer letter in writing. Your offer letter includes details about yourself (like your name and current address), the price you’re willing to pay for the home and more. It will also include a deadline for the seller to respond to your offer.
Most offers also include an earnest money deposit. An earnest money deposit is a small amount of money, typically 1% – 2% of the purchase price. Your earnest money deposit goes toward your down payment and closing costs if you buy the home. If you agree to the home sale and later cancel, you typically lose your deposit.
Your agent will almost always write the offer letter on your behalf, but you can write it yourself if you choose. Your agent will then get in contact with the seller or the seller’s agent to submit the offer.
Negotiations may go on for some time after you submit your offer. Let your real estate agent help you manage negotiations – don’t be afraid to walk away if you can’t reach an agreement. Once you and the seller agree to an offer, it’s time to move on to the appraisal and inspection.
Get A Home Inspection
During a home inspection, an inspector will go through the home and specifically look for problems. They will test electrical systems, make sure the roofing is safe, make sure appliances are working and much more. After the inspection closes, the inspector will give you a list of problems they found in the home.
When you receive your inspection results, go over each item line by line and look for major issues. If a home has a serious health hazard (like lead paint or mold), ask the seller to correct the problem before you close. If you can’t reach an agreement, you may want to move on and consider other options. Read over your inspection results with your agent and ask whether they noticed any major red flags.
Bear in mind that you’ll be liable for any major repairs after your sale closes. A clogged toilet or a sink that won’t drain aren’t major issues. However, if your home inspection reveals an expensive problem (like cracks in the foundation or poorly installed windows), you may want to reconsider the purchase.
It’s common for homebuyers to include a home inspection contingency in their purchase offer. A contingency gives buyers the option to back out of a purchase (or negotiate repairs) without losing their earnest money deposit if the home inspection reveals major issues with the home.
Get A Home Appraisal
Lenders require appraisals because they can’t lend out more money than a home is worth. If the appraised value comes back lower than your offer, you might have trouble getting financing. Be thoughtful about your offer and consider contesting the results of the appraisal if you believe the appraised value is too low.
Homebuyers should also include an appraisal contingency in their offer. Appraisal contingencies are often drawn up to allow buyers to back out of a purchase (or negotiate a lower price) without losing their earnest money deposit if the home appraises for less than the offer amount. As with inspection contingencies, appraisal contingencies may vary, so make sure you understand the nature of your agreement.
Ask For Repairs Or Credits
Your real estate agent will submit your requests to the seller’s agent. If you’re buying a house that’s for sale by owner (FSBO), your agent will negotiate with the seller directly. The seller might accept your request, or they might reject it. If your seller rejects your request, it’s up to you to decide how to proceed. If you have an inspection contingency in your offer letter, you can walk away from the sale and keep your earnest money deposit.
Do A Final Walkthrough
You should do a final walkthrough in your new home before you close, even if you’re 100% committed to the property. This time allows you to check and make sure that the seller has made the repairs you requested and cleared out the property.
Walk through the home and make sure the seller hasn’t left any belongings. Check your repair areas if you requested them and keep an eye out for pests. You may also want to double-check your home’s systems one final time to make sure everything is in working order. If everything looks good, it’s time for you to confidently move toward closing.
Close On Your New Home
Your lender is required to give you your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details, three days before closing. Read through your Closing Disclosure and make sure the numbers don’t vary too much from your Loan Estimate, which you would have received three days after your initial application.
Once you’ve reviewed your Closing Disclosure, it’s time to attend your closing meeting. Bring your ID, a copy of your Closing Disclosure and proof of funds for your closing costs.
You’ll sign a settlement statement, which lists all costs related to the home sale. This is when you pay your down payment and closing costs. You’ll also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note.