Buying a home is one of the biggest decisions you’ll ever make in life—it’s exciting and terrifying, even more so for the first time home buyer. Some home buyers already have an ideal home in mind, but they don’t know where to begin.
If the home buying process appears intimidating and complex to you, don’t worry! In this guide, we will break down the entire process into 15 simple steps to buying a house.
Step 1. Research: Start Looking Early
What do you want in a home?
It’s always advisable to do research in advance whether you are a serious home buyer or someone who is still considering it. Start with the property listings in the vicinity where you want to buy a home.
Take the time to scan listings online and in the classified ads section in your local paper. Even if you’re not ready to buy, scanning properties in advance helps you get a better sense of the average property prices in your ideal location. You can also understand the seasonal trends affecting property prices. All this research helps you come up with a realistic budget for buying a house.
It would be helpful to take note of important details such as the following:
- Price range of homes in your ideal location
- Changes in the asking price
- How long the listings have been in the market
- Seasonal trends
Step 2. Set a Budget: Determine What You Can Afford
Make sure to draft a budget first and determine how much you can afford to spend on a home. Some mortgage lenders recommend buying houses that cost less than five times your yearly income to make room for other expenses like utility bills or outstanding debt. However, it’s always best to talk to a financial advisor.
Online tools like home affordability calculators also help you assess the maximum monthly loan payments you can afford. Home affordability calculators usually require basic financial information like your annual income, other financial obligations, outstanding debt, an overview of your credit score and your cash ready for the down payment.
Aside from home affordability calculators, you can check out mortgage repayment calculators. This tool will provide you with a better picture of how much the mortgage will cost depending on the price of the property you plan to purchase and the term of the loan.
Step 3. Improve Your Credit Score
If you’re planning to get a loan to buy a house, you need to keep an eye on your credit score. Being a first time home buyer with bad credit is the last thing you want. Keep in mind that it’s easier to get approved for a loan and qualify for better rates with a good credit score
What’s your credit score? Here’s how credit scores are classified:
- Excellent: 750 to 850
- Good: 700 to 749
- Fair: 650 to 699
- Poor: 300 to 649
Is your credit score hovering around the 650 mark? You’re not alone! In fact, the average 18 to 29-year-old has a credit score of 652 which is a ‘fair’ credit rating.
Most lenders are willing to offer loans to individuals with ‘poor’ and ‘fair’ credit scores, but it’s still advisable to improve your credit scores.
Borrowers with excellent credit scores get the best interest rates. So, if you want to save more in the long run, start monitoring your credit score.
Step 4. Get A Pre-Approval
Most experts agree that getting pre-approved for a mortgage should be a priority over shopping for your ideal home. Meet with a lender first and get a ‘fully underwritten approval’ so you won’t have to stretch your budget in case the competition for a house you’ve fallen in love with grows fierce.
Step 5. Check First Time Home Buyer Grants And Programs
Qualifications for each program may differ. However, most government programs target first time home buyers with low to moderate income, individuals planning to reside in a rural area and military personnel.
Here are some of the most common programs open to most first time home buyers:
Federal Housing Association
The FHA collaborates with local lenders to help individuals who may not qualify anywhere else. With FHA loans, the government guarantees a portion of the loan so borrowers can get good rate loans sans the excellent credit score.
United States Department of Agriculture Loan
The United States Department of Agriculture (USDA) offers low-interest mortgage loans to Americans who wish to reside in rural locations. USDA loans usually come with little to no down payments for people with good credit scores. Those with credit scores below 680 may need to shell out more than 10% for the down payment.
Veterans Affairs Loan
Exclusively for qualifying military members, this loan allows borrowers to take advantage of to zero-down payment loans with lower interest rates. However, this loan is only open to:
- Veterans with 90 to 181 days of continuous service
- National Guard/Reserve member for a minimum of 6 years
- Active service duty member for a minimum of 90 days
- Un-remarried spouse of a veteran/service member who died from a service-related accident or in the line of duty
Fannie Mae And Freddie Mac
Government-sponsored entities Freddie Mac and Fannie Mae work with local lenders to offer mortgages to low-income borrowers or individuals with less than ideal credit scores. Fannie Mae, for instance, has a ‘HomeReady’ program meant for low-income first time home buyers. While this is the case, having a good credit score will help you avail lower interest rates.
These are just some of the programs available for first time home buyers. Always start looking for programs in your county or state.
Step 6. Have A ‘Buying A House’ Checklist
Having a ‘buying a house’ checklist isn’t limited to how you want your dream house to look. You should also consider things such as :
- Location. Is the distance close to your or the children’s school and your workplace?
- Kind of neighborhood. Is the neighborhood safe? Does the community share your values?
- Access to Transportation
- Pace. Do you want to live in a fast-paced city? Or do you want to live in a laid-back community?
Aside from the outward appearance of a property, you should consider other things such as the items above.
Step 7. Hire A Real Estate Agent With A Lot Of Experience
Hiring a seasoned real estate agent may seem like a waste of money but it could also be worth it.
Experienced real estate agents know the ins and outs of the housing market. With this knowledge, the home searching and buying process becomes more efficient. Hiring a local agent would also be more preferable. You can take advantage of the agent’s connections and understanding of the community to get a better deal.
Step 8. Visit Open Houses
After inking a deal with an agent, it’s time to search for a home!
Before you start viewing properties, come up with a list of what you need or want in a home. This list can be very handy. Discussing your preferences with your real estate agent may also be helpful in narrowing down your options.
If you decided to make do without an agent, you have probably started to check out properties for sale online. But don’t ignore open house events in the location you are eyeing.
When visiting a prospect home, check small but relevant details like the state of the plumbing, electrical system, windows, and doors.
Look beyond the physical appearance of the property. Consider things like accessibility, traffic, neighborhood, and other details (which takes us back to step 6).
Step 9. Make An Offer And Negotiate
When you find the home that ticks all the boxes in your checklist, it’s time to make an offer. By this time, you should have checked the market prices for similar properties. You should also have a better idea of how much you can afford. Your real estate agent would normally be the one to hand your initial offer to the seller’s agent.
Having a reliable agent takes the load off your shoulders. Experienced agents can negotiate terms like getting the seller to shoulder repairs and closing costs as part of the deal.
Step 10. Hire A Lawyer To Go Over And/Or Negotiate The Contract
Once you and the seller agree on the terms of the deal, you should receive a real estate purchase agreement. With all the legalese involved, it’s advisable to seek legal help.
A real estate attorney may appear expensive and unnecessary, but it is actually crucial to hire someone to take care of legal matters. And don’t think about cutting corners by going for an inexperienced real estate attorney. Always choose a reputable and established real estate lawyer to assist you in negotiating your contract.
Your lawyer will help you understand the real estate purchase agreement and negotiate the terms if necessary.
Without an experienced lawyer, sellers may find loopholes they can leverage against you. Real estate attorneys look at contracts with a different set of eyes. These lawyers look out for clauses that would make it hard for you to get out of the contract if there are issues with the property.
As a first time home buyer, a lawyer with an excellent understanding of real estate laws can prevent costly mishaps that attorneys with very little experience usually miss. While expert real estate attorneys may ask for handsome fees, working with them to represent may be the better choice depending on how complicated the transaction is.
Step 11. Hire A Home Inspector
Home inspectors are experts in diagnosing and unearthing possible problems in the house. While you may have had the opportunity to inspect the home during occasional visits or during the open house, inspectors provide a better appraisal of the home’s condition. These professionals consider several factors to see if the house is indeed as good on the inside as it looks on the outside.
Inspection reports help you decide to continue with the purchase or not. Hence, you will need a reliable home inspector to make sure that the house you are planning to buy has no ‘dirty’ secrets.
Step 12. Get Your Loan Approved
Next, stop is the mortgage lender. This is the time to get your loan approved!
Once you get the go signal from your lender, you can close the sale. Provide the files required by your lender as early as you can. This way, there won’t be any delays when it comes to your approval.
Step 13. Start Shopping For Property Insurance
Property insurance can be complex. So, it’s better to ask for professional advice if you’re not familiar with it. Moreover, start researching insurance companies ahead of time. This way, you won’t be pressured into buying insurance hastily with no more time to evaluate your choices properly.
Step 14. Do A Final Walk-Through
After doing everything above, do a final walk-through of the property. This is also the best time to go over the contract to make sure that you didn’t miss anything important. Use this time to think about inspection problems or any property-related issues that could serve as grounds to back out of the contract.
Step 15. Close On The Property
When all is said and done, it’s time to close the deal! Coordinating with your lender, bank or seller may take time. But after crossing your t’s and dotting your i’s, you can go ahead and sign the papers to close the deal.
It can take a few days for your loan to be funded. So, you may have to wait for a while to accommodate the waiting time. But when everything’s set, you can get the keys and move in!
How Long Does It Take To Buy A House For First Time Home Buyers?
How long it takes to buy a house actually depends on how much time you spend on each step of the process. You should account for the time you’re willing to spend searching for the right property. It’s also useful to think about the time you’ll need to plan and prepare your finances. Getting your loan approved and preparing the documents can also affect your timeline. However, most first time home buyers complete the process in 6 months.
Buying your first home is a big achievement, just ask a recent homeowner in your circle of friends! With the right people on your team to help you find the best house and deal with the paperwork, you’ll be moving into your first house in no time!