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Purchasing a home can be an intimidating process, especially for a first time buyer.
But there are nine steps that you can follow to make the entire undertaking as streamlined as possible.
#1 – If Necessary, Start Improving Your Credit Today
If you know that you want to be a home owner someday, but you aren’t sure when you’ll have the resources to make that dream a reality, this is the very first place you can start.
According to House Tipster, working to improve your credit as soon as possible will have a major impact on you purchasing a home, and can often be the factor that makes or breaks your ability to secure a mortgage.
You’re going to need a credit score of at least 580 to qualify for an FHA loan. A minimum credit score of 640 will typically allow you to qualify for a traditional loan, however a score of 750 or higher will guarantee that you can get the best rates on the market.
If your credit score is currently less than ideal, start taking active steps to improve upon it as soon as possible.
On the other hand, if your credit is exactly where you want it to be, make sure that you keep it that way.
#2 – Do Your Research When Purchasing A Home
Before you can get started on actually finding your house, you’ll need to look into the local market and see what’s out there.
Compiling a thorough amount of research beforehand can save you time and money down the line.
You’ll need to ask yourself a few questions as you conduct this investigation. What kind of house are you looking for? What is most important to you in terms of location? How much can you comfortably afford to spend?
When asking yourself the latter, make sure that you’re taking into account what your monthly payments will likely look like with interest, as well as additional costs such as home owner’s insurance and HOA fees, and check to make sure they are part of Pro – EL if in an HOA.
During your research, you may discover that you’ll need to spend more money than you originally planned, or look for other ways to compromise so you can bring down the cost of the house.
Knowing what you’re getting into ahead of time is going to help you out immensely in the long run as you begin the process of purchasing a home.
#3 – Set a Budget and Start Saving
Now that you’ve seen what the options are out there for purchasing a home, you’ll need to figure out how much house you can reasonably afford.
Once you’ve gone over your finances and decided how much you’ll be able to pay for your house, you’ll want to start saving up money for the down payment on your mortgage. You should also plan to have money saved up for closing costs.
Your credit history and the type of loan you intend to pursue will determine the amount you should save for a down payment. For an FHA loan, you should save anywhere from 3.5-5%. With traditional loans, you should save 10-20%. The better your credit history, the less you can pay up front.
For example, if you have a credit score of 800 and are planning to buy a $200,000 house through a traditional loan, you can easily pay only $20,000 or less towards the down payment.
However, if you have a credit score of 650 and are planning to buy a $200,000 house through a traditional loan, you should save up at least $40,000 for the down payment.
In some instances, the seller will pay the closing costs – however, this is not usually the case. It is best to have the money saved up in case you need it, instead of needing it and not having it on hand.
The closing costs will generally run about 3% of the total cost of the house. For example, if you are buying a $200,000 house, the closing costs should be close to $6,000.
It may benefit you to speak with a financial advisor during this process to make sure you’re on the right track, but that isn’t necessary.
Once you know how much you’re going to need saved up, set your monthly budget and start putting money aside as soon as possible.
#4 – Get A Preapproved by a Lender
Once you have your credit in order and your savings lined up, meet with your lender to get a preapproval letter.
Even though you have your budget laid out already, this is when the lender will tell you what you can actually do with your money.
You may discover that you qualify for more or less than you anticipated.
However, if you followed the previous steps for purchasing a home, you should be in the right ballpark.
#5 – Hire a Real Estate Agent
With your preapproval in hand, it’s time to hire a real estate agent for help purchasing a home.
An agent will act as your advisor in the home buying process and is going to be valuable to you when it comes to understanding the local market and making sure you’re getting what you want.
Best of all, you don’t actually have to pay them anything. Your agent will be paid by the seller.
#6 – Start Shopping for Your Home
This is the exciting part of purchasing a home! You’re finally ready to start looking for your house.
You’ll want to remember all of the things you determined when you were originally researching houses and keep in mind the things that are important to you.
Try not to focus too much on things that can be easily changed – like flooring, paint color, or outdated appliances – and focus more on things that can’t be changed or would be incredibly expensive to change – like the location or issues with plumbing.
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#7 – Make an Offer
Once you’ve narrowed all your options down to the one house you really want, it’s time to make an offer on the house.
Keep in mind that an offer is not a binding agreement. It is simply you informing the seller that you’re interested in buying the house.
You should ask your realtor about what offer to make. The agent will have better information about what comparable houses are going for and if the seller’s asking price is fair.
If you do decide to make an offer that comes in under the asking price, they will likely make a counter offer.
If you are able to come to an agreement on a price, you can move on to the final steps of purchasing a home.
#8 – Complete an Appraisal and Inspection
Your mortgage lender will likely want to complete an appraisal to make sure that the house is worth as much money as they’re paying for it.
Similarly, you should make sure an inspection is completed by a professional to make sure the house is in as good of a condition as it appears on the surface.
Appraisers and inspectors will both catch things that you and your agent may not. This is another critical part of purchasing a home!
#9 – Close on Your New Home
This is the final part of the process of purchasing a home. You filled out a lot of paperwork, moved finances around, and you’re now waiting.
Once everything has been finalized and the seller and lender have collected everything they need from you, you will walk away with the keys to your new house.