If you are thinking about buying a house for the first time, it is important to know all the steps in the process from beginning to end. Fortunately, assistance and information for first-time homebuyers is widely available.
Completing all of the steps for buying a home from beginning to end will require some effort and time. However, understanding the buying process for the perfect home is manageable and can help you make the best possible decisions. Continue reading to get a general overview of the steps you will need to complete if you want to buy a home.
Save for a Down Payment
Long before you decide to buy a house, you will have to start saving money for a down payment. Assigning a special bank account to save money for your down payment will come in handy.
Traditionally, a down payment of at least 20 percent of the home’s sale price is recommended. However, the typical down payment amount is now closer to 7 percent. Mortgage loans such as the FHA loan require a down payment as little as 3.5 percent of the home’s sale value.
If you have a down payment that is less than 20 percent, you may be required to get private mortgage insurance (PMI). The monthly PMI cost may vary depending on your credit score and the amount of your down payment.
Do Early Research Before Your Home Purchase
Start reading listings of real estate in the area you prefer to live as soon as you can. Take note of specific homes you want, and see how long they typically remain on the market. Note any price changes in the various property listings. This will give you an idea of the real estate trends in the location you are interested in.
Find Out What You Can Realistically Afford
Generally, lenders recommend that buyers look for homes that do not cost more than 3-5 times their yearly income, as long as the buyer plans to make a 20 percent down payment and has a moderate debt amount.
Determine how much you can afford based on your financial situation. You can learn more about what you can afford by using a mortgage affordability calculator, which are available online for free. Continue saving for a down payment by putting money aside each month.
Become Pre-Qualified and Pre-Approved for Mortgage Credit
It’s a much better idea to get pre-approved for your mortgage well before finding a house you want to make an offer on. To accomplish this, you need to provide a mortgage lender with financial information, such as how much savings and income you have. You may have to provide bank account statements, paycheck stubs and W-2 statements, as well as other financial documents, so your lender can verify your credit and financial status.
Lenders review your financial information and inform you how much you are eligible to borrow. They tell you the price ranges of the houses you will be able to afford. This makes it much easier to know which homes are in your price range as you hunt for houses.
Get a Good Real Estate Agent
When selling or buying a home, your most important partner is going to be your real estate agent. Most importantly, the agent has access to homes for sale listings that they can share with you. Additionally, a good real estate agent can provide you with key information about the neighborhood and homes that the public cannot access.
An agent’s knowledge of neighborhoods, negotiating skills and know-how about the buying process is going to come in handy.
The best part? It will not cost you anything to find a great real estate agent. They are compensated with sales commissions after selling the house.
Make an Offer After Finding a House
Start looking at houses that you can realistically afford. Take notes of all the houses you see. Be sure to take videos or photos of each home to help you remember.
Check out each house’s little details that might go unnoticed. Open and close doors and windows to see if they work properly. Turn switches off and on, and check the electric system. Run the shower to test the plumbing. See how strong the water pressure is and how long it takes before hot water comes out.
If something does not work properly, you can use it to negotiate the value of the house.
Additionally, take note of the neighborhood and evaluate how well-maintained the other houses are. How much traffic does the street get? Is it located conveniently near important places such as public transportation, parks, restaurants, shopping and schools?
Take your time with home selection. Negotiate a fair offer based on the comparable value of other homes in the neighborhood.
Once you and the seller agree on the price, you will make a small payment (typically between 3-10 percent of the price), which goes into escrow. After the closing, this payment will get applied to your down payment.
Get the House Inspected
Your offer to buy the house will depend on property inspections to check for things that need fixing or structural damage. Usually, your agent will help you arrange the inspection after the seller accepts your offer. You are protected at this stage, as you can withdraw or re-negotiate your offer with no penalties if the inspection reveals significant damage to the home.
The findings of the home inspector are going to be sent to both you and the seller. Ask the seller to fix any part of the property before you close the sale, or instead ask for a lower price on the house. Before closing the sale, perform a home walk-through. This gives you a chance to confirm that the repairs you have agreed upon have been made.
Select Your Loan With a Mortgage Banker
There are a lot of competitively priced loans offered by many different lenders. Select a mortgage according to your preference for mortgage terms. Factors to consider include a variable versus a fixed interest rate, as well as the length of the loan. Some homebuyers prefer the lowest monthly payments they can get. Others prefer making bigger payments to finish paying off the mortgage sooner rather than later.
Your lender will then arrange for a house appraiser to provide an estimate of the value of the house. The house appraisal lets all the involved parties know that the price is fair for the house you chose.
Time For Paperwork!
Buying a house involves a lot of paperwork. Lenders arrange for a title company to handle all the documents and make sure that the seller is indeed the rightful owner of the home you plan to purchase.
Closing The Sale
Sign all the documents necessary to complete the sale. This includes all of your loan paperwork. Typically, this takes a couple of days after all the documents are returned to the lender. Once the seller gets the check, you can now move into your new home.