“Patience and fortitude conquer all things.”
–Ralph Waldo Emerson
Buying a home is arguably one of the most exhilarating and frustrating milestones you’ll experience in your lifetime. When you’re in the market for a home, having patience and the right attitude will help in your hunt. Whether you’re a first-time homebuyer or need a quick refresh, this step-by-step guide to purchasing a home can help you temper expectations, make sense of the process, and reach the closing table.
Prepare Your Finances
The first step in the home buying process is to understand where your money is coming and going each month. Having a zero-based budget, which means your income minus expenses equals zero, is ideal because you’ll know how every dollar was spent. You can use this budget to meet your savings goals throughout the year, even if you make an irregular income. If you’re new to budgeting, spend at least three months tracking your income and expenses so that you can create realistic savings goals.
Load Your Emergency Fund
Speaking of savings, if you haven’t already, you can establish or strengthen your emergency fund to cover 3-6 months’ worth of expenses. The fund’s purpose is for actual emergencies, like your car breaking down or a job loss. Emergency funds for prospective buyers make it possible to cover a sudden house-related repair or cost. Place your funds in an account that is not used for frequent withdrawals, like a high-yield savings account.
Gather Your House Down Payment
The ideal down payment is 20% to avoid paying private mortgage insurance (PMI) and excess interest if you carry a loan. If you have a down payment set aside already, great! If not, find creative ways to save money for one—set aside more of your paycheck each month, cut down on your expenses, find a new job, or take on a side hustle after work.
Consistency is key here.
You won’t know the exact amount you’ll need for a down payment at this step, but you can make an educated guess based on your home preferences and location. Remember to include closing costs on the estimated home price, which is about 3%.
Verify Your Credit Report and Improve Your Credit
There’s one final step to prepare financially for homeownership: Order a copy of your credit report, check to make sure your information is correct, and learn how to improve your credit score if necessary. If you spot an error in your credit file, contact your lender right away to resolve the issue. A good or excellent credit score tells a mortgage lender that you’re responsible for your debt obligations and can help you receive loans on favorable terms.
Some simple ways to improve your credit include:
- Paying your debts consistently and on time.
- Keeping your oldest line of credit intact.
- Ensuring your debt-to-income (DTI) level is below 30%.
Get Preapproved with a Lender
The next step in the homebuying process is to get preapproval for a mortgage if you’re pursuing financing. Give yourself plenty of time to research a variety of lenders, such as brick-and-mortar banks, credit unions, online banks, and real estate brokers. You should shop around for the best rates because you can save thousands in interest over your loan’s lifespan.
Once you’ve applied, a loan officer will typically contact you within a couple of days with the lender’s decision. The preapproval amount offered is the maximum amount they’ll lend—you don’t have to take all of it!
Partner with a Real Estate Agent
One of the most important steps in the process is to hire a real estate agent. He or she has a responsibility to act in your best interest and help you procure a home. Agents are essential because they can help you avoid red flags, answer your questions, and give you an idea of what a home is worth. Your agent will set up private showings and open houses and walk you through important paperwork.
To find agents in your area, ask friends and family for their recommendations and use AgentStory to search for agents with experience assisting buyers who have similar home preferences. Interview a few agents before you make a final decision.
Start Home Shopping
Now comes the exciting part: starting your home search! Browse listing sites such as Realtor and Zillow and bookmark homes that grab your attention. As you look, determine the features you want most in a home, the amount you can afford and are willing to spend, and the home type. Attend private showings and open houses and get to know the surrounding neighborhood for further insight.
Make an Offer/Put Offers on Homes
Congratulations, you’ve found your ideal home! Now here comes the scary part: making an offer. You should chat with your agent to review the neighborhood, comparable homes, upgrades, the HVAC system, and any necessary repairs. Making the right bid is a tricky process, but it can strengthen your offer if you come in armed with data.
If the seller counters your offer, you’ll need to accept, reject or make a new offer you find acceptable. Once your offer is accepted, you’ll pay the earnest money deposit to the title company.
Get a Home Appraisal
When you’re financing your home purchase, your lender will order an appraisal. The appraisal is an opinion of value that will help the lender determine if they are willing to take on the risk of repossessing the home should you default on your mortgage.
Insure Your Home
While it’s exciting to run towards the closing table, you’ll want to ensure your home first to protect your investment. Consider asking your existing insurance company if they’ll offer you a multi-policy discount. Pay your first year of premiums so that you can walk to the closing table with confidence.
Get a Home Inspection
Another item on your to-do list is to get a home inspection. You wouldn’t want to purchase a home that had potential damage, would you? The home inspector will note any health and safety concerns, such as foundation issues and major repairs that either you or the seller should address. Consider paying for a pest inspection or other specialty inspection for additional peace of mind.
Take a Final Walk-Through
You and your agent should conduct a final walk-through before signing closing documents to ensure the home’s condition hasn’t changed since the original viewing.
Close Escrow
You’ll meet with your agent, the escrow officer, and your lender in separate meetings to prepare for the final details to close the deal. The seller will meet separately with their real estate agent and the title company. It is entirely probable that you may never meet the seller, and that the key handoff will occur through your respective real estate agents.
Your last step is to write a cashier’s check or wire funds to the lender, who will then wire the funds to escrow so the seller can receive the payment. If your state is one that requires an attorney then the closing attorney will verify that your remaining funds have gone through. If your state doesn’t use attorneys, then you’ll go to the title company to sign the final papers.
You’ve done it! You are now a homeowner and it’s time to pick up your keys!
The Bottom Line
Continue to exercise due diligence so you can go into the process knowing what to expect. Ensure your finances are airtight and find the home that meets your requirements. Like a real estate agent, lean on the experts in your corner to place the winning bid and navigate the complexities of home appraisals and inspections.
While some buyers may have to wait longer than others to find the perfect home, you’ll have a high chance of success if you can stay proactive and realistic.
