Buying a house is a complex process and it can be easy to overlook things as you make what is probably the biggest purchase of your life. For first-time homebuyers, the process itself can be an overwhelming one.
At Addition Financial, we work with our members every day to help them traverse the steps to buying a house and get settled into their new homes with a minimum of disruption.
With that in mind, here are five steps to buying a house and a run-down of the first things to do after moving in.
What does your financial picture look like? If you’re not sure – or if the picture is clouded by high credit card debt or charge-offs – then your first step should be getting your financial house in order.
Keep in mind that potential lenders will scour every aspect of your finances before granting you a mortgage. Taking a proactive approach before you apply for one will minimize your risk of being rejected and give you the best possible chance of getting the house you want.
Here are some things you may want to consider:
Tackling these things now will make the process of buying a home less stressful than it would be otherwise.
Once your finances are in order, a good next step is to begin saving for a down payment on your new home. If you qualify for an FHA loan, you’ll need at least 3% of your new home’s purchase price as a down payment. If you plan to buy a more expensive house, then some experts recommend a down payment as high as 20%.
There are down payment assistance programs available for first-time homebuyers. Even if you think you won’t qualify, it’s a good idea to familiarize yourself with programs in your area.
The best way to save is to put a contribution to your down payment into your household budget. That way, you’ll know how much you want to save each month (or each pay period) and it will be easy to stay on track and reach your savings goal.
One of the most frequently misunderstood steps to buying a house is mortgage pre-approval. Pre-approval is sometimes mistaken for pre-qualification but they are not the same thing.
Pre-qualification is a shorter process than pre-approval. It may be a good first step but it doesn’t guarantee that you’ll be approved for a mortgage with the lender who pre-qualified you.
By contract, pre-approval gives you guaranteed approval up to a specified limit, and for a specified time frame. There are benefits to pre-approval, which include:
At Addition Financial, we strongly recommend pre-approval for our members because we know it gives them the best possible chance of achieving their dream of homeownership.
After you make an offer on a new house, the offer will be contingent on a home inspection. The inspection is designed to identify any potential structural or maintenance issues with the house. Serious problems such as faulty wiring or mildew can cost thousands of dollars to repair.
Don’t skimp on hiring a home inspector. You want someone who has years of experience and a great reputation. We suggest reading online reviews and asking for references before you decide who to hire.
If there are repairs to be made, you’ll need to negotiate with the current homeowner to resolve them. In some cases, the current homeowner may agree to undertake the repairs. If they are reluctant to do so, you may need to renegotiate your price accordingly – or withdraw your offer if you can’t come to an agreement.
The final step to buying a house is to close on the sale. The closing is a legal process where you’ll sign the paperwork associated with buying a home and the money that has been held in escrow will be transferred to the seller.
Sometimes, first-time homebuyers are surprised by the costs associated with the closing, which include lawyers’ fees, document preparation fees, mortgage insurance and taxes. You should be able to get an estimate of the total closing costs before you sign.
It’s a good rule of thumb to assume that your total closing costs will be in the vicinity of 3% of the home’s value. For a $300,000 home, the total closing costs will be about $9,000.
Moving into a new home is exciting, but it’s important to take a practical approach after you move. There are some tasks that should be completed as soon as possible after you arrive.
One of the first things you do should be to familiarize yourself with the location of home maintenance and security necessities. You should find the:
Make sure everyone in the house knows where these things are and how to work them. It will save you a lot of trouble – and could save lives – if you need to find them quickly.
Your home inspector will have checked to make sure your new home has smoke detectors and carbon monoxide detectors. However, some time will inevitably have passed since the inspection, and it’s imperative to check them again.
You should check to make sure all smoke and carbon monoxide detectors are working properly and that the batteries are good. You should also make sure you have enough detectors. The National Fire Association recommends one smoke detector in each bedroom, one outside each sleeping area and one for each level of your home, including the attic and basement. So, for a 3-bedroom home with an attic and no basement – and all bedrooms on the second floor – you would need 6 detectors.
The rules for carbon monoxide detectors are similar. You need one on each floor of your home, and one of them must be situated in or outside each sleeping area. You should create a schedule to replace batteries every six months at this time, too.
You probably drove around your new neighborhood before you made an offer on the house, but right after you move in, we recommend taking a drive or a walk to get to know the area.
This step is particularly important if you have children. Your kids will want to know where other children in the neighborhood live. You can also find the nearest park or playground.
A walk can allow you to get the lay of the land and potentially say hello to some of your new neighbors. Recognizing even a few friendly faces can help you feel more at home in your new place.
Moving is an adjustment even for adults, but for kids and children who have no agency in deciding where to move it’s a very big challenge. That’s why we suggest prioritizing their comfort immediately when you move in.
That means:
You should also be prepared to make time and space for your child’s feelings about the move. They may be missing their friends. Setting up a Zoom call or a Skype session can help them realize that they can still keep in touch with their friends.
Finally, when you move in, you should create a new household budget that incorporates the expenses that go with being a homeowner. That means building in your mortgage payments, insurance premiums, property taxes and utilities.
At Addition Financial, we have created a household budget calculator that you can use to make a budget that works for you. You can find it here.
Buying a house and moving into it are big life events that require extensive planning. Following the steps we have outlined here will help you have a smooth transition to life in your new home. If you’re a first-time homebuyer, we’d love to help you navigate this transition. Learn more about our first-time homebuyer mortgage here.