Buying a home is a big deal and it’s a major milestone for many. Understandably, it can feel overwhelming, stressful, and scary - but it doesn’t have to be! With some research and this step-by-step guide, you can be in control of the home buying process.
Step 1: Ask yourself, Is now really the best time?
Is buying a home truly what you want? Or does the desire stem from pressure you might be feeling from friends, family, or society as a whole? Don’t get swept up in the idea that buying a home is the next step in life if you’re not ready. Buying a home is a big investment that requires full commitment. With homeownership, there are a few transitional costs that many renters fail to account for, such as: general home maintenance, unexpected repairs, home insurance, property taxes, and higher utility bills. While homeownership can be a great investment in the long run, it’s crucial to take all these additional expenses into consideration and evaluate if you can financially afford to buy a home. When you buy a home, it should feel like the next natural step in your financial journey and that you are truly ready to be a homeowner.
Step 2: Research.
Begin by reading websites, magazine and newspaper articles, and real estate listings. Note any homes in neighborhoods you like and see how long they stay on the market. Get an idea of how much homeowners insurance, utilities, taxes, etc. will cost beforehand, so you don’t suffer from sticker shock.
Step 3: Determine how much you can afford for your home with your loan officer.
It’s generally recommended your future home costs no more than three to five times your annual household income.1 But of course, you should also talk to a lender to confirm what you’d be approved for based on your income and current financial status.
Once you’ve defined your budget, determine how much you’ll need for a down payment. While it’s most common to aim to have 20% of the home’s value for a down payment, there are other options to help you afford your dream home. You can talk to your lender to determine the best loan product for your financial needs.
It’s also important to take interest rates and closing costs into consideration. And don’t forget about any miscellaneous moving, home improvement, and maintenance costs that may arise.
Step 4: Get pre-approved for a home loan.
While you can use online mortgage calculators to get an idea of how much house you can afford, it’s a good idea to meet with a mortgage lender to get pre-approved before you start shopping. When you become pre-approved, your credit and documentation is checked and verified by your lender to make you a legitimate candidate to buy a home. This pre-approval process is important because you’ll be taken more seriously and it shows your genuine intention to buy a home.
To get pre-approved, you’ll need to submit copies of financial documentation to your mortgage lender, such as your annual household income and any investments, savings, or outstanding debt you have. You may also be asked to provide W-2 forms, paycheck stubs, bank statements, or other financial documents.
Step 5: Decide which features are must-haves.
Before you go house hunting, brainstorm a list of features that are an absolute must in a home and those that would simply be nice to have. Must-haves could include the number of bedrooms or bathrooms, a short commute to work, and residing in a good school district. You might even feel strongly on whether the house is move-in ready or the house lives on a large acreage plot with lots of trees for privacy. Refer to these must-haves if you are debating between two or more houses and to remind you of what’s truly important for your home needs. Be sure to also share this list with your agent.
Step 6: Find your real estate agent.
When going through the house hunting process, a real estate agent can make the process of buying a home much easier. A good real estate agent will provide you with invaluable knowledge of the home buying process. Their expertise on the local market and their negotiating skills will help you win the deal. And in most cases, the upfront costs of using an agent are typically paid for by the seller of the house.
Step 7: Find your dream home.
Using your real estate agent, listing websites, and local publications, start looking at homes in your price range. As you start touring more and more homes, you’ll develop a sense of what you like and what you don’t like. When touring, seek to learn when the windows, roof, HVAC, hot water heater, or other maintenance work was last updated; this will help you understand what you can expect in the coming years of homeownership. It’s also important to note what the surrounding neighborhood is like, such as the home maintenance, the amount of traffic that comes through on the street, and the time it takes to get to shopping centers, restaurants, schools, and parks.
Step 8: The offer.
When you find the perfect house that meets all your needs (while also falling within your price range), work with your agent to put in an offer. You don’t want to go too low and risk the home being sold to another buyer and you don't want to go too high and pay more than is necessary. To get an idea of where to start, look at other homes sold in the area to use as a comparison; your realtor can help you get a better idea of this figure as well, while verifying that a home of interest is priced fairly before even looking at it. It's also important to consider how long the home has been on the market and how quickly the seller would like to sell the home. And lastly, what is the neighborhood like? If it's a highly sought-after area, you'll likely pay more than in other surrounding neighborhoods.
Step 9: Ask for a home inspection.
In certain states, home inspections occur before the offer is finalized and some take place after. Nonetheless, it's critical to get one done so you can renegotiate your offer or withdraw without a penalty if there are issues with the home you aren’t prepared to fix yourself. There are numerous inspections and tests that can be performed; narrow down these options with your real estate agent.
After the inspection is conducted, you and your agent will receive a report with the findings. From there you can decide if you want the seller to fix anything on the home before closing or withdraw completely. Before closing the sale, you’ll be able to walk through of the house to confirm the agreed-upon repairs were made as a part of the negotiation process.
Step 10: Pick out your loan with a loan officer.
When choosing a home loan that’s right for your needs, make sure you understand your options. Do you want a lower monthly payment? Are you looking for a fixed rate or are you okay with a variable rate loan? Whatever loan you end up choosing, make sure it meets your financial goals.
Step 11: Assess the home appraisal with your loan officer.
After your home loan has been approved, the lender will send a third party to appraise the value of the home you are buying. This appraisal will let all involved parties know that the property has been fairly priced.
Step 12: The paperwork.
As you can probably imagine, a large stack of financial and legal paperwork will need to be completed to purchase the home. A title company will be arranged by your lender to handle all the paperwork and ensure the seller is the true owner of the property you are buying.
Step 13: Close the sale and get the keys!
Once the sale is closed, all the purchase paperwork is signed, and the seller has received the check from your lender, you will receive the keys to your dream home! On average, the home buying process can take anywhere from 30 to 50 days, depending on when the bidding process starts.2
Although buying a home can be overwhelming, stressful, and scary at first, it can be a gratifying and rewarding experience if you have the proper tools and knowledge. Use these steps as a guide for expectations and have faith and patience that the perfect house is out there just waiting for you! When you are ready to make the leap and buy a new home, contact our real estate services to help you through the home buying process and our mortgage professionals to help you find the perfect loan for your housing needs.
- 11 Things to Know as a First-Time Homebuyer
- Fixed vs. Adjustable Rate Mortgages
- A Guide to Getting Your First Mortgage
- 5 Tips for First-Time Homebuyers
1 Dough Roller How Much House Can I Afford?
2 Bankrate How Long Does It Take to Buy a Home?