Thinking about buying your first home? Before you start dreaming about soaking up the sun on your new porch (and saying hasta la vista to your landlord), we’ve put together the five basic steps of the first-time home buying process to help you understand how it will go.
Step 1: Research, research, research.
Okay, three “researches” might be overkill, but you get the point. When it comes to buying a first home, research is your friend. Here are at least two things you should determine from all that Googling: where you are going to seek a loan from and what first-time home buyer loans are available in your area.
In addition to banks and credit unions, home builders can sometimes offer financing. So having an idea of what type of home you’d be interested in, like a new construction, can help as well. And remember: different lenders offer varying interest rates for mortgages. Comparing rates could potentially save you over $400 in the first year of your home loan.
In your research phase, we’d suggest also perusing some blog ghosts of Kasasa past for info and inspiration:
- 6 tips for first-time home buyers
- The ultimate guide to buying your first home with confidence
- Hidden costs of homebuying
Step 2: Get approved.
Before you start viewing available homes in your area and possibly falling in love with one that might be too expensive, you need to get pre-approved for a loan amount. The financial institution you choose will look at a few different factors to determine how much money you can qualify for, specifically your income, debt-to-income ratio, and your credit score.
Based on your information, current situation, and how much you have been approved for, the financer can recommend different mortgage types. For a first-time homebuyer, there are a couple of additional loan options you could consider besides a traditional mortgage:
FHA loans are a popular option for first-time homebuyers because the application requirements are less strict. Down payments of 3.5% and a credit score of 580 make this a very attractive option for many first-time and repeat buyers.
If you or your significant other have served in any branch of the military, you should look into a Veterans Affairs (VA) loan for your first home purchase. Many service members utilize these loans because they have competitive mortgage rates, easier requirements, no mortgage insurance, and usually don’t require a down payment.
Step 3: Start the house hunt.
Now that you know your spending limit, it’s time to start looking for your dream home — or at least something close to it. Enlist a reputable realtor and start hitting the pavement.
While you may have been pre-approved for a larger-than-expected sum, it is advisable to shop within your means. Just because you were approved for $400,000 doesn’t mean you have to spend $400,000. Make a list of your must-haves in a home, such as the number of bedrooms or bathrooms, location, garage, etc. Then create a second list of things that would be nice to have — but aren’t necessarily deal breakers.
Step 4: Make an offer.
Once you’ve found a home that checks most, or all, of your desired marks, you can move forward with putting in an offer on the home. With the current housing market so competitive for buyers, many people are offering higher than the asking price for houses. Your realtor can help you determine what you should offer on a home, and how to handle the inevitable back and forth when the seller submits a counteroffer.
Be prepared for negotiations to take a while, or even fall through completely. Most first-time homebuyers put in at least three offers before one is finally accepted. It’s part of the process — so don’t be discouraged if it happens to you.
Step 5: Prepare to sign on the dotted line.
After the seller accepts your offer (yay!), things can potentially move pretty quickly. While you have an inspection on the home, your financial advisor will request documents to finalize your loan. On closing day, you’ll sign your name on the dotted lines and the home will officially become yours.
Buying your first home doesn’t have to be an intimidating process — so long as you do your research and prepare yourself to take on all the responsibility and excitement homeownership has to offer.