A Guide on How to Buy a House.
The steps to buying a house might seem complicated—particularly if you’re a first-time home buyer trying to purchase real estate for the very first time. Between down payments, credit scores, mortgage rates (both fixed-rate and adjustable-rate), property taxes, interest rates, and closing the deal, it’s easy to feel overwhelmed. There’s so much at stake with a first home!
Still, if you familiarize yourself with what it takes to buy your first home beforehand, it can help you navigate the real estate market with ease. So let’s get started!
In this step-by-step guide, you’ll learn what it takes to buy your first home, from beginning to end. Whether it’s your first time in the real estate market or you’re an experienced homeowner who wants to brush up on your skills, this list has you covered.
Step 1: Start gathering a down payment
The very first step every first-time home buyer should tackle is to figure out their finances. Buying a new home (particularly for the first time) requires a mortgage, where a lender fronts you the money and you pay it back over time. However, in order to get a mortgage, you’ll need some sort of down payment.
So how much do you need?
Ideally, a down payment on a mortgage should be 20% of the home’s price to avoid added fees, but if you don’t have that much down payment, don’t worry. A mortgage down payment can be as low as 10%, 5%, or even 0% for certain types of mortgages (e.g., VA loans or a USDA loan).
Step 2: Check your credit score
Did you forget to pay off a couple of credit cards? Unfortunately, it’ll affect your credit score.
In addition to having a down payment, a first-time homebuyer will need a decent credit score. This three-digit number is a numerical summary of your credit report, a detailed document outlining how well you’ve paid off past debts like credit cards and college student loans.
A lender will check your score and report in order to estimate the odds that you will deliver your monthly payment, too.
Step 3: Get pre-approved for a mortgage
Before you head out home buying, you should seek pre-approval from a lender for a home loan. This is where you meet with a loan officer, ideally a few at various mortgage companies.
Each mortgage lender will scrutinize your financial backgrounds—such as your debt-to-income ratio and assets—and use this info to determine whether to loan you money and what size monthly payment you can realistically afford. This will help you target homes in your price range. And that’s good, because a purchase price that’s beyond your financial reach will make you sweat your mortgage payment and puts you at risk of defaulting on your loan.
Step 4: Find a real estate agent.
Want a trusty home-buying guide by your side? Most first-timers will want a great real estate agent—specifically a buyer’s agent, who will help them find the right houses, negotiate a great real estate deal, and explain all of the nuances of home buying along the way.
Step 5: Go shop for a home!
This is the fun part! As a home buyer, you can peruse thousands of real estate listings on sites, then ask your agent to set up appointments to see your favorites in person.
Since the sheer number of homes can become overwhelming, it’s best to separate your must-haves from those features you’d like, but don’t really need. Do you really want a new home or do you prefer a fixer-upper? Make a list of your wants and needs to get started, and whittle down your options.
Step 6: Make an offer
Found your dream home? Then it’s time to make an offer to the seller.
Step 7: Get a home inspection
A home inspection is where you hire a home inspector to check out the house from top to bottom to determine if there are any problems with it that might make you think twice about moving forward. Think termites, faulty foundation, mold, asbestos, etc. Sure, a lot can go wrong, but rest assured that most problems are fixable.
Step 8: Get a home appraisal
Even if you got pre-approved for your home loan, your lender will want to conduct a home appraisal. This is where the lender checks out the house to make sure it’s a good investment. It’s similar to a home inspection, but for your lender.
Step 9: Head to closing
Closing, which in different parts of the country is also known as settlement or escrow, brings together a variety of parties who are part of the real estate transaction, including the buyer, seller, mortgage representative, and others.
Closing is the day you officially get the keys to your new home—and pay all the various parties involved. That will include your down payment for your loan, plus closing costs, the extra fees you pay to process your loan.
Step 10: Move in!
Done with closing? Got your loan? Congratulations, you’ve officially graduated from a home buyer to a homeowner! See, the long-term process of buying a first home wasn’t so scary after all, right? Now it’s time to kick back and enjoy the many benefits of becoming a homeowner.