While the journey to homeownership has its peaks and valleys, the ride is almost always worth it. Buying a home will likely be the biggest and most important purchase you will ever make. If it’s your first time purchasing a home, you are probably wondering, what is the process of buying a home?
Before embarking on this life-changing experience, it is essential to fully understand each step, from creating a budget to closing on a home, to make the process more seamless.
This post will define the home-buying process steps and give you four tips and reminders for selecting the home of your dreams!
What is the Home-Buying Process?
The home-buying process does not need to be complicated but you do need to understand the following steps:
Step 1: Prepare Your Finances
Once you have decided to purchase a home, don’t start hitting up open houses yet. Ensure all your finances are in order so you can determine affordable housing costs and mortgage payments. A good mortgage calculator can help you estimate your financial plan based on savings, debt, income, and other obligations.
It’s also an excellent time to check your credit score, which will show your current debt-to-income ratio. You must be financially comfortable paying your full mortgage payment (including insurance and taxes) every month. Part of preparing your finances is saving for a down payment and closing costs.
A good rule of thumb is to expect to pay two-three percent of the purchase price in closing costs as a buyer (though your agent can certainly negotiate that cost with the sellers at the closing table). Realistically, most first-time homebuyers put down less than a 20-percent down payment, opting instead to pay three-five percent, depending on the lender’s requirements.
Step 2: Find the Right Loan
Once you have determined a budget, you’re in a better position to meet with lenders and discuss the amount you can borrow, loan types, and current interest rates. When you find the best loan for your finances, request a prequalification letter that utilizes your financial information to estimate your borrowing power.
It is essential to understand that a prequalification is not a lending commitment. You still need to submit further information for approval. Nevertheless, this letter shows sellers you are serious about home buying and allows you to have negotiating leverage.
Step 3: Find the Home of Your Dreams!
Now that you are preapproved for a loan, you can start the fun part of the process: looking for homes with your Realtor. Immediately save emotional energy and time by narrowing your search to the houses you can afford. First, look at the property online and have your Realtor show you the listings that fit your needs.
Once you find a match, your agent can make an informed and intelligent offer to the sellers. If accepted, the Realtor will draw up a purchase contract that includes a good-faith deposit that will be placed into escrow to confirm your commitment.
Related reading: Check out our article How to Choose a Realtor for more information on finding the best Realtor that can find your dream home within budget!
Step 4: Apply for a Mortgage
Once your offer is accepted, then you can apply for a mortgage based on the amount. Remember, you must move fast since you usually have 45-to-60 days to fulfill the purchase contract.
Within three business days of submitting your mortgage application, your lender will send an estimate, including the monthly payment, interest rate, and closing costs. It is critical to review this document carefully and thoroughly for accuracy. To proceed, verify your assets and income, which requires extensive documentation. The lender must confirm you will be a responsible homeowner who can manage long-term loan payments.
Step 5: Coast into Closing
Once you have an approved mortgage, you will receive a closing disclosure at least three days before you close. This document lists the fees that you must pay and can range from two-to-five percent of the price. Also, thoroughly read this document and inform your lender of incorrect information. Make sure to bring the required payments and your ID to the closing meeting.
If you have a cosigner, then that individual must also be present during closing. Most of the time is consumed by signing forms, and once the loan closes, the funds are sent directly to the seller, and you receive the keys to your new home!
Why is Home-Buying Important?
Owning a home is the gateway to short-term and long-term financial success while providing a place for your family to grow and have memories. You will enjoy potential tax deductions and are building equity instead of paying a landlord in the short-term. In the long-term, you are creating a financial nest egg for your future.
4 Home-Buying Tips and Reminders
Purchasing a new home is an exciting process that can also feel overwhelming. Therefore, it is crucial to be prepared by following these tips:
1: Pay Off Debt
Owning a home is expensive, even if your monthly payment is equivalent to or less than your rent payment. You are responsible for all upkeep and maintenance costs when you own, and these expenditures can add up quickly. For this reason, it is critical to pare as much debt as possible before considering purchasing a home.
2: Research Neighborhoods
Once you have found homes in your price range, always look at the neighborhood’s quality, distance from a school, crime rates, school ratings, and access to daily conveniences. A 2019 National Association of Realtors study found that 23 percent of buyers are more willing to compromise on the home’s condition and size than the neighborhood’s quality. Your real estate agent can provide more information on these critical points.
3: Think Long-Term When Attending Open Houses
When attending open houses, a good strategy is to find the most affordable home in the best neighborhood, so you have room to build home value. That way, your house appreciates over time, and you can sell it at a higher amount than purchased.
4: Research Homebuyer Assistance Programs
Many counties, cities, and states offer first-time homebuyer programs to assist with down payments and closing costs. Some programs provide first-time buyer tax credits, so research availability in your area.
Now that you better understand the question, “what is the process of buying a home?” you are now in a better position to coast through the home-buying procedure. Make sure to always follow the steps listed above before starting your home search. Thoroughly research neighborhoods, think of your home as an investment, and research home-buyer assistance programs. If you do this, you will be living in your dream home in no time!
For more information on the home-buying process, contact Bello Real Estate today! Our real estate professionals are standing by, ready to answer all your questions, and can be reached via phone at 954-547-2112, by email at email@example.com, or use our online chat feature.