Last year 32% of all home buyers were first time home buyers! Owning a home is a priority for many people and part of the American Dream. If you are preparing to buy your first home, check out these eleven steps to guide you through the process from start to finish!
1. Start the process early. You may be thinking about buying a home sometime this year. Don’t wait until you’re “ready” to start the process. The next several months, even the next year, is the time to prepare. It’s so important to start talking with your realtor and your lender about buying a home. So many home buyers don’t know how much to save or budget, which debts to pay off first, how to increase their credit score, if they should pay down student loans, etc. All of these things can take time to do, and you want to do them the right way and in the right order. Your real estate professional and your lender will guide you. Don’t try to do things haphazardly, but follow a plan. You want to prepare so you can get the best mortgage terms and the most home for your money.
2. Determine how much house you can afford. Start by writing out a budget or using an app on your phone. Track your monthly expenses and income. You may need to project things like water/sewer and electric bills if you currently live with someone else. When my son was ready to buy, I showed him all the categories in my budget and helped him estimate costs. Understanding your monthly finances is very important as you start looking at the cost of a monthly mortgage. You need to know the payment range that will work for your budget. This is vital information in determining how much house you can afford to buy.
3. Choose a lender and get your pre-approval. You need to talk to a lender early in the process. The lender can review your income, debts, credit score, and eligibility for any financial assistance, such as closing cost help. This is where problems can show up. Your debt to income ratio may be too high, or your credit score too low. The lender is an expert at making a plan for you to get your finances in shape so that you are ready to buy. He or she will know which steps are the most important to take and in what order. Once you have everything taken care of, you will receive a pre-approval letter from the lender. This is what you need to start shopping for a house. It shows the amount you are approved for, the interest rate, the type of loan, and your down payment. This letter must accompany any offer you will write.
4. Find the right real estate agent. Step three and four go together! You should choose a realtor early in the process. Your realtor can recommend lenders who have proven to be reliable and offer good service. Your realtor will explain the entire home buying process from start to finish, and guide you on every step. He/she will help you understand home prices, how property taxes affect mortgage payments, types of homes for sale and areas, and so on. Your realtor will show you homes, review cost estimates, write offers, and negotiate on your behalf. Once you’re under contract, your realtor will make sure all due dates, documents, and timelines are executed. You need to find someone you like and trust, who is reliable and a great communicator, because you will be spending a lot of time with this person!
5. Shop for a home that works for you. Now that you have your realtor, your lender, and your pre-approval letter, it’s time to shop for a home. Your realtor will set up a home search for you in the MLS that matches your criteria. As soon as a home is listed that matches your criteria, you and your realtor will receive notification. If you see a home that you like and want to see it, your realtor will set up a showing and provide you with any documents about the home, such as the seller’s property disclosure. Your realtor will meet you at the home and walk you through it, review any items of question from the disclosure, discuss if items are included in the sale (such as appliances), and contact the listing agent for any unanswered questions.
6. Make an offer. You’ve toured several homes and found one that you love. You want to write an offer! Your agent will contact your lender for an updated pre-approval letter and an estimated fee sheet. This is the estimate that shows you all the numbers for buying this home – interest rate, lender fees, escrows and prepaid items, prorations, etc. – and most importantly, your total closing costs and your monthly payment. Your realtor will explain all the terms of the offer and help you decide what to offer, your earnest money amount, which inspections to order, closing date, and so on. Once all the paperwork is signed, your realtor will submit your offer to the listing agent and keep you posted on your offer status.
7. You are under contract! Now begins all the timelines, deadlines, and more paperwork. Don’t worry, though, your realtor and lender will keep everything on track. After celebrating, your realtor will explain the next steps of turning in your earnest money deposit and starting your title work. He/she will have more documents for you to sign for the transaction and explain what each one is. The lender will let you know what further documents are needed for them to begin working on your mortgage commitment.
8. Get a home inspection. The home inspection is usually completely within ten days of you going under contract. Your realtor can recommend home inspectors, or you can choose your own qualified inspector. An appointment will be set to have the home inspected. You will meet the inspector and your realtor for the inspection. At this time you will pay the inspector, or you will have paid via credit card before the appointment. The inspector will go over any concerns with you onsite and also provide a detailed written report with photos. From this report, your realtor will help you decide any items you wish to negotiate with the sellers on and write your “reply to inspections”. Once you and the seller agree on any repairs or credits, these items will be written in an agreement that you both sign.
9. Have the home appraised. Once you’re under contract, the lender will order the appraisal of the home. You will pay this with your credit card and the appraisal will be scheduled. You will not be present for the appraisal and usually the seller also leaves the home during this time. The appraiser carefully assesses the value of the home and completes an appraisal report for the lender. The appraisal must be the same amount or higher than the contract price. The lender can only give you a loan for what the appraiser reports the home is worth. If the appraisal comes in lower than value, your realtor will guide you in the next steps of negotiating with the seller or making up the difference in value.
10. Meet all deadlines and requirements. There are important dates and deadlines throughout the transaction. These deadlines must be met or extended in order to not breach the contract. Your realtor will stay on top of all of these dates to make sure each deadline is met. During the transaction phase, you may need to submit more documentation to your lender. It’s very important to do this in a timely manner to avoid any delays in your closing. You will also be advised on things to avoid (like opening new credit lines) to make sure your mortgage goes through. Any other details are handled, such as reviewing HOA documents and beginning utility transfer.
11. Close on your new home. Finally, it’s time to close on your new home. At least three days before closing, your lender will send you the final loan document (closing disclosure) that you need to acknowledge. The title company will pull together all the final numbers and you will receive the settlement statement with your amount to bring to closing. You will do a final walkthrough of the property with your realtor. Then you, your agent, the sellers, and their agent will meet at the title company to sign all the closing documents, exchange keys, and answer any final questions. Congratulations, you’re a homeowner!
Buying your first home can be both exciting and scary. Having the right people by your side makes all of the difference! If you would like a copy of my Home Buyer’s Guide, or would like to set up a buyer’s consultation, please drop me an email at lisagrahamrealtor@gmail.com.
By Launch Kits