The home buying process can be overwhelming, especially for first-time home buyers. We want to give you a quick overview of the process, including some important steps you should do at the beginning of the process.
1. Attend a pre-purchase education course
This is a very important first step that too many people skip, or wait until too late in the borrowing process to complete. Anyone buying a home can benefit from a home buyer education workshop. New homeowners will be given access to services specifically for First-time Home Buyers, like down payment and closing cost assistance.
Even people who have owned a home before can benefit from this HUD-approved education. The steps outlined below will be explored in much greater depth, and those who complete the course will be much better prepared to embark on the home buying process.
2. Check your credit reports
A mortgage is a big loan, and will require a lot of paperwork to get. This includes a thorough examination of all of your credit reports & scores. Before talking to a lender, you should get copies of your credit reports for yourself, and look them over for any errors or outdated information. Your goal should be to make sure the credit reports are accurate, up-to-date, and reflect positively on you.
If you do find problems, there are ways to get the reports corrected and/or updated. Check out our free Consumer Guide to Good Credit for help with the process.
3. Get pre-qualified for a mortgage
Once your credit reports are ready, you can get pre-qualified for a mortgage. This is a quick estimate of sorts; you tell a lender you’re thinking of buying a home and provide some basic information. This process should be free of charge, and can often be done online. Then the lender gives you an idea of how much you can afford.
The pre-qualification is not a guarantee that you will get the loan, nor does it obligate you to work with a particular lender. You’re just getting a financial institution or mortgage company to tell you what your realistic price range should be.
Generally, we don’t think borrowers should always borrow the maximum amount available; lenders will often give you an amount that is mathematically possible, but higher than homeowners can comfortably afford. Plan to give yourself some financial breathing room, and borrow less than you’re being offered.
4. Find a real estate agent
When making a purchase as large and important as a home, it’s important to work with professionals. Seek out the services of a qualified real estate agent, who will help you find the right home for you. A real estate agent will know more about the neighborhoods you’re looking at than anyone else, and will be able to refer you to great home inspectors, insurance companies, contractors, and more.
He or she might also have recommendations for a good home lender; you always want to compare multiple offers for a mortgage, so definitely take your agent’s recommendation and add it to your list.
5. Compare mortgages and get pre approved
Now you’re ready to start the official mortgage process. Remember that mortgage financing comes in lots of different flavors, so shop around for a lender, comparing their interest rates & terms, customer service, and reputation.
Once you figure out what kind of loan you want and which lender you want to work with, it’s time to get pre-approved.
Pre-qualification gave you a realistic home buying budget; now pre-approval gets the application process rolling. You will fill out a mortgage application, your credit reports will be reviewed, and you’ll get an official interest rate and approved loan amount.
This step might seem daunting, but if you start with a pre-purchase education course like we recommended above, you should be more than prepared. You can also access one-on-one home buyer coaching any time you need it.
6. Look for the right home for you
Armed with all the information you have, a mortgage pre-approval, and your real estate agent’s help, you’re ready to start narrowing down your options. By now you’ve probably looked at a lot of properties, and you’ll want to be careful in setting your top priorities when home shopping.
There are a lot of considerations here, and this part can really drag on if you’re indecisive. Don’t move faster than what makes you comfortable, but if your real estate market is hot, good properties are likely to get snatched up before your eyes.
One thing we tell first-time home buyers to remember is that your first home doesn’t have to be your dream home! Most people sell & upgrade after six years or so—the point here is to get on the property ladder, not rush straight to the top.
7. Inspect the home
Once you make an offer, you can work with your real estate agent to have the home inspected. Don’t skip this step! Unwanted surprises in this area will lead to financial devastation later.
This will involve multiple inspectors. Your primary inspector will let you know if the electrical, heating, air conditioning, and plumbing systems are in working order, there is no structural problems with the house, and things like the roof and windows are up to snuff. Testing for things like radon gas and mold might involve a second inspector, and checking for insect infestations might involve yet another inspector. If there are lots of trees in the neighborhood, it’s probably best to spring for a scope into the home’s main drain, as problems here will lead to a very expensive repair bill down the line.
If your inspectors find any problems, you’ll have the chance to amend your offer; the seller may complete the repairs or reduce the selling price to afford you the ability to pay for the repairs yourself.
8. Get utilities and insurance
This step involves tricky timing. You want to be sure the home continues to have gas, water & electrical services uninterrupted. But at the same time, you want to be sure the home is yours and you’re not paying someone else’s utility bills.
The seller will arrange to have service disconnected the day of the loan closing (or perhaps the day after). You need to schedule these services to be turned on at the same time. If you handle it right, nothing will need to actually be switched off or on, the utility companies will simply transfer the service to your name.
This is a serious undertaking, because gaps in service here could lead to damage down the line—the last think you want when moving into your new home is a frozen water line breaking and flooding the house.
You’ll also want to establish insurance coverage; your mortgage lender will require some level of insurance, but make sure you have as much coverage as you truly need. If you live in a flood zone, for instance, that coverage is separate from your homeowner’s policy.
In many locations, it’s normal for a seller to pay for the coverage of a one-year home warranty policy, not to be confused with home owner insurance. It is a seller benefit, because the buyer won’t be calling the seller after closing if something breaks. Many real estate agents will also give buyers a home warranty as a gift at closing. https://www.realtor.com/advice/buy/what-is-a-home-warranty/
9. Close on the loan
The loan closing process will involve a huge final push of paperwork, with disclosures and signatures, and possibly some new people you haven’t met yet. It’s likely your lender will employ a title company to handle this part of the process, but some states may involve attorneys for you and/or the seller.
Prior to the closing, you should get a disclosure that will explain the exact terms of the loan and fees due. If you see anything confusing here, talk to a professional! Ask your real estate agent or a home buying coach if you have any questions at all.
10. Move in
You’re ready to move into your new home! This can be a time consuming process, and if you hire professional movers, can be expensive.
Before fully moving in, now is the time to re-key the locks and patch & paint the walls. It’s also a good time to steam-clean the carpets or replace them entirely.
Once the place is clean and basic repairs are complete, you can start making it your own. It’s wise to have a small fund set aside for last minute expenses here, as there will always be unexpected things that come up.
Buying a new home is a monumental event for any family, and it’ll take advance preparation to make sure it goes smoothly. Get started the right way with home buyer education, and you’ll have a much easier time throughout the process. Check out our guide to homeownership or call us today to talk to a HUD-approved counselor.
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