Congrats! If you’re reading this, you’ve probably either decided to purchase your first home or you’re seriously thinking about it – and that’s absolutely worth celebrating.
Once you’ve calmed down a bit, it’s highly likely you’ll realize you know next to nothing about this process, which can seem daunting, and you may feel overwhelmed. Fortunately, you’ve come to the right place. Read on for simple, straightforward advice and information designed to help you navigate the home buying process with ease.
1. Get pre-approved for a mortgage loan.
If you’re in a position to pay for a home outright, ignore this. Otherwise, pay close attention.
You’re going to need a loan, which means you need to be pre-approved. First, find a lender (this can be through your bank, but doesn’t have to be); he or she will review your credit and verify your employment. If all goes well, you’ll receive a pre-approval letter that states your loan will be approved once you’ve made a purchase offer and have submitted a purchase contract, the preliminary title information, the appraisal, and your income and asset documentation.
“Talk to your lender as early in the process as possible,” says Amanda Cole, affiliate broker with Adaro Realty in Nashville, Tenn. “Presenting a contract to buy with proof of loan pre-approval could set you above other offers. Plus, why get emotionally invested in something without knowing your ability to financially invest?”
2. Determine how much you can actually afford.
Ever heard the term “house poor”? This applies to people who can pay their mortgage but have little to nothing left over for emergencies and other expenses. A good rule of thumb is to spend approximately 25 percent of your take-home pay on your mortgage, or 30 percent if you have no other outstanding debt and plan to keep it that way.
“There is more than just a mortgage to pay monthly,” Cole says. “You’ll likely need to consider loan interest, homeowners insurance, city property taxes, county property taxes, private mortgage insurance, utilities, gas mileage and repairs/maintenance costs.”
3. Make lists of must-haves and like-to-haves.
Before looking at homes, make two lists. First, create a list of must-haves – things you refuse to live without. This will help you narrow down which houses you’d like to see (and ultimately save you a lot of time). For example, if you know you absolutely must have three bedrooms right away, why bother looking at a two-bedroom home?
Next, make a list of like-to-haves, or things that would be nice to have in a home but aren’t necessary. Often this list includes aesthetic preferences, like granite countertops (hello, everyone who’s ever been on HGTV’s House Hunters) or a certain type of flooring. In short, these are things you can live with until you have the time and/or money to update them, and they aren’t deal-breakers.
4. Find a reputable realtor.
Although some home buyers don’t hire a realtor, it’s definitely a good idea to use one on your first go-round. No, they’re not free, but a trustworthy, experienced realtor is worth the money. Think of your realtor as your advocate – someone who’s on your side throughout the home buying process, helping you stay organized and assisting you with the many decisions you’ll have to make.
“Every transaction is unique, and realtors are experienced in navigating the entire process while keeping your best interest their priority,” Cole says. “A real estate transaction requires a plethora of legal documents, disclosures, requirements and contractual obligations. There can be zoning, utility, easement, contingencies and estate considerations you’ve never encountered.”
In addition, Cole points out realtors can help you by continuously searching for homes that meet your criteria; leveraging sources unique to the real estate industry; connecting you with lenders, real estate attorneys, home inspectors and other professionals; guiding you as you determine an offering price; and negotiating with sellers.
5. Be prepared to negotiate.
Speaking of negotiating, this is a big part of the home buying experience. Your initial purchase offer may be accepted, but if you’re in a competitive market, the seller will probably counter. During this process, you’re basically trying to find an arrangement that works for both parties, and there’s often a bit of back-and-forth involved.
Questions to consider: Who will pay closing costs? Is your offer contingent on a successful home inspection? What, if anything, will the seller leave behind (light fixtures, blinds, shutters, etc. – anything that’s not a permanent part of the home is essentially up for grabs at this point)? Are you required to pay earnest money (proof that you “earnestly” want to purchase the home)?
6. Plan on being very busy after your offer is accepted.
You’re going to get to know your loan officer very well over the next month or so because he or she will need a great deal of documentation from you. In addition, you’ll need to hire a home inspector to check out your potential new property as well an appraiser to verify that the home’s value is worth the loan amount you’re requesting. You’ll also need to obtain a home owners insurance policy, which lenders require.
As your closing date approaches, ensure utilities will be turned on by your move-in date, and schedule a final walkthrough of the home to verify any repairs have been completed and that the home is ready to move into.
7. Come to closing with pen in hand, and don’t be afraid to ask questions.
You’re going to be signing a giant stack of legal documents, each one explaining what you’re committing to for the next 15-30 years. If you have any last-minute questions, this is the time to ask. Your realtor will usually be with you during this part of the process, but if not, feel free to ask the closing attorney anything you’re unclear about.
Although closings are typically quick and easy, you never really know how long it will take (or if the folks before you took more time to close than anticipated), so take the day off work.
Pop a bottle of bubbly, throw your hands in the air like you just don’t care and take a moment to let everything sink in. You’re finally a home owner!