Purchasing a new home is no easy task, even if you’ve done it before. Luckily, we’ve created this guide to help you get through the most difficult parts of the journey. For first-timers, purchasing a home can be scary, but you can arm yourself with the knowledge to make buying a home much easier. When you’re ready to move into a home of your own, you’ll need to begin the home buying journey by learning about your finances, working with mortgage lenders, real estate agents, and closing on your home.
Understand the Financial Requirements of Homeownership
Many people can’t afford to buy a cash home, so you’ll need to take out a mortgage to become a homeowner. When applying for a mortgage, a lender will look at certain financial factors that can affect your eligibility for a home loan.
Mortgage Pre-approval
The first formal step when you’re ready to buy a home is to get pre-approved. Getting pre-approved means you contact a mortgage lender and submit an application. You’ll be asked to provide income verification documentation during the application, including pay stubs and tax forms. They will also check your credit.
Once you receive pre-approval, you’ll receive a letter that specifies how much you qualify for. With a pre-approval letter in hand, you can begin house hunting and put yourself in a stronger negotiating position.
Finding Out How Much You Can Afford
Your pre-approval letter will let you know how much house you can afford based on your income, debt, and credit score. Your location also plays a factor in how much you can afford based on mortgage rates and the average housing cost.
Pre-approval versus Pre-qualification
Getting pre-approved is just one step toward approval. You can also get prequalified, which can help you understand how much you can afford. You can get pre-qualification by contacting a lender and providing them with information like your income. The advantage of getting prequalified is it’s free, but the biggest disadvantage is pre-qualification is not approval.
Working with Real Estate Agents
After you have your pre-approval in hand, you can start working with real estate agents to find your first home. As a buyer, you don’t have to pay the real estate agent anything.
Real estate agents can do a lot for you and make the process of purchasing your first home less stressful. A few of the services they provide are:
Helping you find options: Agents have access to all of the listings in your area, which makes it easier for you to find a home you like for a good price.
Gathering details: An agent can help you further narrow your search by finding houses with all of the features you prefer.
Negotiations: Real estate agents are experienced negotiators and will negotiate on your behalf once you’ve decided to make an offer on a home.
Covering your bases: Your real estate agent knows every step within the homebuying journey, so they can help ensure you that all of the necessary steps are taken, from getting an inspection to completing a title search.
When hiring a real estate agent, prepare a list of questions so you can interview them and determine if they’re the right person for the job.
It’s important to note the home buying process depends on you as much as it does your agent. You’ll need to be realistic with your agent about features you can afford in the home and your budget.
Making an Offer on a House
Once you’ve found a home you like and can afford, it’s time to make an offer. Your real estate agent will draft an offer on your behalf, which they will then submit to the seller’s agent or directly to the seller if they are not working with an agent. The seller can then:
1. Accept the offer
2. Counter the offer
3. Reject the offer
Depending on what the seller chooses to do, your real estate agent will provide you with multiple steps to follow. If your offer is accepted, then you need to close on your loan. If the offer is countered, then you’ll need to negotiate a little bit more. If the offer is rejected, you can ask what was wrong with the offer, but the seller is under no obligation to tell you.
Closing on the Home
Once your offer has been accepted, and your loan has been approved, it’s time to close. At the time of closing, you’ll sign your mortgage and other documents, make any payments, and get the keys to your new home. Make sure to bring a certified check to cover your down payment, closing costs, and other fees.
Down Payment
To be eligible for a conventional mortgage loan, you should aim to put at least 20% of the home’s price down. In certain circumstances, you may be required to put down more or less than this amount. FHA loans, for example, can offer a much lower down payment.
Unfortunately, in many low-down payment mortgages, you’ll be required to have mortgage insurance, which can increase your monthly cost. It can also result in a higher interest rate, which can raise your monthly payments as well.
Closing Costs
Other than the down payment, a significant cost you’ll have to pay out of pocket is called closing costs. Closing costs vary depending on the value of the home and the mortgage lender you work with. In any circumstance, they fall into:
Origination fees
Origination fees include anything from administrative fees and application fees to underwriting fees. These fees also vary by lender.
Title Fees
Title fees, also known as settlement fees, include: Appraisal fee, Attorney and closing fees, Credit report fees, and more. The types of fees do not ordinarily range, no matter what lender you work with.
What Next?
Now that you have closed, you can move into your new home when ready. The hard part isn’t over yet, though. You’ll still need to go through the moving process, which can be even more stressful than buying a home. Make sure to plan and prepare ahead of time to make moving into your first home easy.
Guest article is written by Matt Casadona, he has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is an editor at 365 Business Tips and is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.