You’ve finally decided to buy a home instead of renting. But as with any other financial commitment, buying a home especially as a first-timer can be challenging. After all, there are so many steps that must be met before you can finally call yourself a homeowner.
With this step-by-step guide, we’ve broken down the typical home buying process to help you understand the entire process and save you from the uncertainties that come with buying a house.
Let’s get started!
- Get Your Credit in Good Shape
Purchasing a home especially in 2021 is a serious financial commitment. Before you start visiting open houses or hiring a local real estate agent, you must get your finances in order. What this means is that your credit scores must be in good shape. Your credit score plays a huge role in determining the type of mortgage and interest rate you will qualify for.
You can use websites like Credit Karma and Free Credit Scores to get a copy of your credit report.
- Find Out How Much Home You Can Afford
Just because you found a home that clicks all your home buying checklist doesn’t mean you can afford it. Buying a home goes beyond finding a home with spacious bedrooms or well-paved driveway, it involves affordability.
Take a look at your monthly debts and living expenses in relation to your monthly income to see how much you can realistically spend on mortgage payments. Additionally, you will need factor in the cost of maintenance, HOA fees, down payment, and utility bills.
- Find the Best Mortgage
Adjustable rate mortgage versus fixed rate mortgage? Government-backed lenders or conventional lenders? 30-year loan or 15-year loan? Before buying a home in 2021, you must decide on the mortgage option/terms that suits your current financial situation. Choosing the right mortgage can hasten your approval and save you money in the long run.
Once you find the right mortgage type, approach a mortgage lender for a pre-approval letter. A pre-approval letter is a note from a lender that shows they are tentatively willing lend to you, up to a specific amount. Getting a pre-approval letter proves to the seller that you are serious about purchasing their house.
- Start House Hunting
With your pre-approval letter in hand, the next step is to start searching for a house in your desired neighborhood and within your home affordability rate. While it is not compulsory to work with a real estate agent, you should consider hiring one to save you from the stress associated with buying a home. If you decide to hire a buyer agent, you should opt for a local real estate agent since they are usually familiar with the real estate market in your desired area.
- Make an Offer
Once you’ve found a house that meets all your housing needs—size, location, and price, the next step is to make an informed offer. This is one of the reasons why it is important to work with a local real estate agent. Typically, your real estate agent will help you come up with an offer or bid based on their knowledge of the current real estate market and the physical state of the house.
If your offer is accepted by the seller, you will need to make a good faith deposit or earnest money deposit into escrow. Earnest money deposit is usually 1-3% of the total sale price and held in an escrow account until the sale is closed.
- Apply for a Mortgage
Once you and the seller reach an agreement, the next step is to apply for a mortgage. This step usually takes few days to a week to conclude. During this period, your lender will send you the loan estimate, approximate interest rate, monthly payment, and closing costs. Your lender will have to carry out an appraisal of the property before underwriting your loan.
Depending on your agreement with the seller, you may decide to carryout an inspection of the property or waive it off at this point. From a professional perspective, it is advisable to conduct thorough inspection of the property to prevent surprises upon purchase.
- Close on the Property
This is the final phase of every home buying process. Once your mortgage is approved by the lender, you will receive a closing disclosure at least 72 hours before the scheduled closing date. The closing disclosure will contain the list of fees expected of you to pay, which typically are 2 to 5 percent of the total home sale price.
Carefully study this document to see if there are any errors or changes that needs to be made. If there are errors, reach out to your buyer agent for help. On the closing day, you may need to go with your ID card and any payment due. Once the loan closes which may take a few days, the funds will be transferred to the seller, while you will receive the deed and keys to the house.
Congratulations, you are now a certified homeowner!
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