Purchasing a home can be an exhilarating, yet somewhat overwhelming experience. Many first time homebuyers meet the task with anticipation, only to feel daunted at all that needs to be done to finally call their dream house their own. We are often asked if there is a step by step process to follow whilst buying a new home and we are happy to say yes there is! Once you’ve decided to dive into the home buying process, here are the 9 steps you will need to follow.
- Determine Affordability
Purchasing a home is no small task, nor is it the type of investment that can easily be backed out of when money begins to be tight. Before even looking at homes or picking out paint colors, future homeowners will need to determine their home buying affordability. Many financial experts recommend that housing should cost no more than 30% of a total monthly income. This will allow enough remaining budget for food, transportation, emergency funds, etc… Remember that the cost of a house includes more than just the monthly mortgage payment; one should incorporate the costs of utilities, insurance, household maintenance and other house related bills into that 30% range. To help determine affordability and the price range of a home that should be shopped for, we suggest utilizing mortgage calculator tools. You can find start by finding one here.
2. Understand Your Rights and Explore Government Programs
The next step after potential homeowners have determined their home purchasing affordability is to understand the rights they have as a homebuyer/owner and to explore the government programs that are available. It is important to look out for predatory lending (find out more information here) and understand your rights as a borrower. Those rights include:
- The option to shop for the best loan that fits your budget.
- The ability to compare the charges of a variety of mortgage lenders/brokers.
- The possibility to ask for a Good Faith Estimate, which estimates all loan and closing charges before an agreement is signed and any fees are paid.
- The ability to be educated on the total cost of a home mortgage loan including fees, interest rates, etc… Don’t be afraid to ask questions about any charges or terms that are not completely understood.
- The right to ask questions and know the exact role a mortgage broker plays in the purchase of your home. This can include knowing how much a mortgage broker is getting paid from both the lender and you as the homeowner.
- The option of knowing why a loan application was turned down.
Once you are aware of your rights, it is time to begin exploring government loan program options. You can find out more about the FHA Loan and VA home loan programs here.
3. Go Loan Shopping
After a future home owner has been educated about their rights and the government programs that are available, the next step is to go loan shopping. When shopping for a mortgage loan, feel free to shop around and compare as well as negotiate. If you’ve determined you’d like to use a government program such as the FHA, seek out approved lenders and discuss your mortgage options.’
4. Hire An Agent
When a mortgage program has been determined and a lender has been selected, it’s time to hire an agent. Your mortgage lender/loan officer may be able to suggest an excellent real estate agent that they’ve worked with in the past. When hiring an agent, be clear about your expectations, ask about their role in the buying process and discuss your home affordability as well as housing priorities (things like 3 bedrooms, a yard, etc…).
5. Go House Hunting
Many homeowners are excited at the prospect of house hunting. There is nothing more exciting than searching for your dream house. In some cases, you may find your dream house on the first outing with your agent and in other cases; you may look at 500 or more homes before finding “the one.” Whatever the case may be, do not feel rushed to place an offer. We suggest visiting the house on another day, shortly after, to ensure it is still what you want. Also when hunting, it is recommended to look at no more than 5 houses per outing. This keeps each house fresh and prevents tiredness and stress.
6. Place an Offer
Once your dream house has been found, the next step is to place an offer. Your agent will know how to walk through this process and it is highly recommended to have your agent present when placing an offer or signing any paperwork.
7. Request Appraisals and Inspections
Following a placed offer, lenders will require that the home undergo an inspection and an appraisal. This protects both you and the lender from purchasing a “lemon” house. Always use your own inspectors and appraisers; never just take the word of the homeowner at face value that the home has passed state inspection or has appraised at the selling value.
8. Search for Home Insurance
Home insurance may be required for some home mortgage loans but regardless of it being required or not, it is always important to have home insurance. By comparison shopping and discussing discounts with an agent, you may be able to receive a fairly inexpensive monthly insurance rate. Other things to remember when searching for home insurance are:
- Insuring the home, not the land under it. In most cases, insurance will cover both but in a disaster; the land should still be there, while the home will need repairs. You can save costs by insuring just your home.
- Research what your insurance will cover. You don’t want to find out too late that you had the incorrect home insurance for your needs.
- Look into replacement coverage. Most insurances work on an “Actual Cash Value” policy which will not pay to replace your home and items if a disaster should happen.
- Discuss other insurance options. Homes can be filled with expensive artwork, jewelry or antique furniture that you may wish to have insured.
- Look beyond standard homeowner insurance policies. If you live in an area prone to flooding, earthquakes or tornados, you will want to research policies that cover those types of disasters. If your home is in a flood prone area, we suggest exploring the National Flood Insurance Program as well.
9. Go to Closing
You’ve finally made it to closing, the last part of purchasing a home (beyond making monthly mortgage payments for the next 15 to 30 years). Be sure to read every piece of paper they give you, ask questions and have your agent present. Usually after closing, it will take one business day for the funds to clear (you may have to pay a down payment) and then you’ll get the keys to your new home. Congratulations!
The Steps to Purchasing Your Home
Purchasing a home can be an exhilarating, yet somewhat overwhelming experience but hopefully with this a step by step process, you can relieve some of the stress and have a better time buying your dream home. If you have further questions about your home buying rights, the government programs that are available or any other piece of this nine step process, we are happy to answer them. Please call 1.888. 407.0010 or contact our team of expert loan officers for more information.