If you’re buying a home for the first time, you may be overwhelmed with new information. Even with an experienced lender like Addition Financial to walk you through the process of buying a house, it can be a lot to handle.
We spend a lot of time helping first-time buyers understand the process. With that in mind, we’ve put together this handy explanation of everything you need to know about buying your first home.
Get Your Credit Report in Order
Before you start looking for a house, it’s a good idea to order copies of your credit report from the three major credit bureaus. Reviewing your reports will help you spot potential problems and avoid delays in getting approved for a mortgage.
If you’re not sure where to start with your credit report, check out our post about the factors that influence your score and what you can do about them.
Get Pre-Approved for a Mortgage
The next step is to approach a lender and get pre-approved for a mortgage. Pre-approval is more complex than pre-qualification, but it’s also a better barometer of how large a mortgage you can get. It’s the best way to start because it will help you understand your price range.
Getting pre-approved may also give you a leg up on other buyers. A seller who must choose between a pre-approved buyer and one without a pre-approval is likely to choose the former. It’s a safer bet for them, and that makes it a safer bet for you, too.
Hire a Real Estate Agent
The next step is to hire a real estate agent. An experienced agent can help you evaluate houses and neighborhoods, negotiate with owners and help you find home inspectors and even – after you buy a house – contractors.
Make an Offer
When you find the house you want, it’s time to make an offer. Your real estate agent will help you determine what the offer should be and then transmit it to the seller’s agent.
The seller may either accept your initial offer or come back with a counter offer. In some negotiations, there may be several rounds of offers and counter offers before a price is agreed upon.
Sign an Agreement
Once you and the seller have agreed upon a price, the next step is drawing up a purchase agreement. Your real estate agent may handle this for you or you may want to hire a lawyer.
The purchase agreement should include the price you’ve agreed upon, the timing of the escrow, any contingencies to the sale and any other information that’s relevant to the transaction. When you sign the agreement, you’ll have to include any conditions. For example, if you’re not doing a title search until after the agreement is signed, make sure to specify that the contract is void if there are encumbrances on the property.
You should also expect to provide a deposit called earnest money. It's an important part of the process, because it assures the seller you are serious about purchasing the home. Earnest money ranges from $500 to $5,000, depending upon the sales price of the home. You or your real estate agent may be able to negotiate the amount. Be aware: if you back out of the deal after signing the agreement for a reason not covered as a contract contingency, the seller has the right to keep your earnest money to compensate for the time the property was off the market while under contract.
Do a Title Search
A title search involves checking public filings to ensure there are no financial or legal encumbrances on the property you’re buying. These might include:
- Additional loans
- Tax liens
- Mechanic’s liens
- Illegal extensions or construction
You can do the inspection yourself or hire a title search company to do it for you.
Pay for a Home Inspection
A home inspection is designed to protect you from buying a money pit. The home inspector will visit the property and check the electrical wiring, plumbing, HVAC systems, construction and many other things. It’s important to hire an experienced inspector.
Be aware that certain things, like pools, chimneys, septic systems and wells are not included in routine home inspections. You’ll have to pay extra (and you should make sure to do so) to check these things if the property you’re buying has them.
Prepare for the Closing
Once you’ve done everything else, it’s time to finalize the terms of your mortgage and prepare for the closing. If you got a pre-approval, the approval process should be quick.
Your lender will be responsible for preparing the loan documents for the closing. Your application fee will cover their expenses.
Close on the House
The closing is where you’ll sign the mortgage documents and the former owners of the house will hand the deed over to you. As soon as the documents are signed and notarized, you’ll be a proud homeowner.
It’s important to account for closing costs when you prepare to buy a home. Many first-time homebuyers are surprised at how much it costs.
After you close on the house and have taken ownership, it's recommended that you change the locks on the house or rekey them before you move in. Many homebuyers do not consider taking this simple security measure, but it's best to feel safe and secure when you move in.
The final step is buying insurance. If you got an FHA mortgage, you’ll be required to buy FHA mortgage insurance. There’s an up-front payment and a monthly payment.
You’ll also need homeowner’s insurance. You can save some money by shopping around and bundling your insurance policies with a single carrier.
The process of buying a home can be a complicated one. The steps outlined here will, we hope, help you understand the process so you know what to expect.
At Addition Financial, we offer flexible mortgage options to suit your needs. Click here to learn more.