Buying a home is an exciting time but also a big undertaking. From the time you first think about buying a house until you have the keys in your hand, you will be dealing with lenders, inspectors, appraisers, closing agents, sellers, and more. Each one has a specific job and needs, making the process time consuming and, potentially, overwhelming. Following these outlined steps will make the process go more smoothly and help you make better decisions.
Step 1: Get Prequalified for a Loan
An important step in buying a home is getting the right financing. It is important to talk with a lender early in the process so that they can help you determine how much home you can afford. You will need to provide your lender with your income, your savings, and your investments. They will then give you a number stating how much they would be able to lend given these figures.
Even if a lender feels that you could afford a home, be sure to think all the costs involved with buying a home, such as a down payment and closing costs, as well as expenses after buying the home such as upkeep, insurance, and increased utilities. You will need to be prepared for these expenses before ever deciding on a specific home.
Step 2: Save For Down Payment and Closing Costs
Now that you know how much home you can afford, you will need to save for the down payment and closing costs. Most lenders will require that you have some amount for a down payment. Lenders expect homeowners using a conventional loan to have a downpayment between 10% and 20% of the sale price of a home. If you are looking at a $200,000 home, then your down payment would be between $20,000 and $40,000. You will also need the money for closing costs and other costs associated with getting a loan. A good rough estimate of these costs is 2 to 3% of the purchase price, or in this example, another $4,000 to $6,000.
However, there are many different loan programs available with many different down payment percentages. If you happen to be a Veteran, you may qualify for a 0% down loan through the Veteran’s Administration. Some property may also qualify for the USDA loan also requiring 0% down. Another popular low down payment program is an FHA loan. These usually require 3.5%. Be aware that loan programs requiring less than 20% down will also require mortgage insurance the ensures the bank will be paid if you were to default on your loan.
Step 3: Get Your Credit in Order
While you are saving money for your down payment and other costs, you will also want to get your credit in order. At this time, the minimum score you can have to get a traditional loan is 620 and to get an FHA ranges from 500 to 580. If it is necessary for you to increase your credit score, keep in mind that it takes time, and it is best to begin this process at least a year before trying to get a mortgage loan.
Step 4: Determine What You Are Looking For
It will be helpful to determine where you want to live and research key neighborhoods. You may eventually expand your search to other areas, but this will help you have a starting point. This is especially true if you have children and want to get into a specific school district.
You will also want to think about what you are looking for in a home. Are you looking for new or existing, single-family or condo, 3 bedroom or 4 bedroom, number of baths, garage, basement, or fireplace? It is a good idea to have a wish list so that your Recadia agent can help you find the perfect home. Be sure to prioritize your list so that the most important items are clearly understood by everyone involved.
Step 5: Get Pre-approved by a Lender
Once you have saved your money and are ready to begin looking, you can get preapproved for a home loan. Your lender will verify all of your finances and credit and determine exactly how much they can loan you. For this meeting, you will need to have your W-2 statements or self-employment records, paycheck stubs, bank account statements, and other financial documents showing investments and retirement funds.
Step 6: Hiring a Real Estate Agent
Although it is possible to buy a home without an agent, doing so isn’t typically a wise decision. Recadia can help you find the right home in the right neighborhood, give you information about areas you might not be able to find out on your own, help you negotiate good terms, and guide you through the entire process while saving you thousands of dollars with our flat-fee model. We will buffer you from the chaos and be your consultant.
Step 7: Find Your Dream Home
We will begin by showing you homes in your price range. Since you are likely to see a lot of different homes, it would be helpful to take notes and even snap pictures to help you remember what you liked and disliked about each piece of property. As you tour each home, look not just at the overall feel but also at specific details. Is the water pressure good? Do the light switches work? Are the hardwood floors in need of attention?
You’ll also want to look at the neighborhood. Are direct neighbor’s yards maintained? Is there street noise? Will there be adequate parking? Is the house convenient to the things you do daily like shop, go to the gym, or eat out?
Spend time in each home until you find the one that you feel is right for you. This may mean seeing a home a second or even third time, but that is perfectly acceptable. Remember, Recadia is there to help you.
Step 8: Make an Offer
Once you find the right home, it is time to make an offer. Recadia’s expertise will be critical in helping you negotiate a fair offer. We will look at how long the home has been on the market, it’s condition, the current market, other properties in the area that have sold, and whether there are other offers already on the table. Once you know the price you’d like to offer, we will prepare a contract to present to the seller’s agent.
Sometimes offers are not accepted. Instead, the buyer may come back with a counter-offer. If this happens, we will help you negotiate until the offer makes both parties satisfied or until you or the seller walks away from the offer.
Don’t panic if you can’t negotiate the right terms with the seller. Sometimes, a house sale just isn’t meant to be. There will be many more houses to look at and others come on the market every day. Finding the right home may take a bit of patience.
Step 9: Provide Earnest Money
Earnest money shows the seller that you are serious about your offer. It is a deposit that is typically 1 to 2% of the purchase price. This money is eventually applied to your purchase once the contract is finalized or forfeited by you if you back out of the contract without cause.
Step 10: Finalize Your Financing
Once the offer has been accepted, it is time to contact your lender to let them know you have a contract. If you chose not to be pre-approved, you will need to get your mortgage application into the lender as quickly as possible.
Step 11: Get an Inspection
Having an inspection will allow you to find out any issues with the home that may not be visible. This inspection must be done in a timely manner. If big issues are uncovered, you will be able to get out of the contract without any penalty if the contract was written with this contingency in mind. Recadia will help you with this when you make an offer on the home.
You may also ask the seller to repair any issues. Although they do not have to comply, you will have the right to walk away from the deal if they do not. Be sure that you don’t ignore a bad inspection report simply because you love the home or have come this far in the process.
Step 12: Get the Appraisal
Your lender will now order an appraisal on the property you wish to buy. The Appraiser will fill out a Uniform Residential Appraisal Report showing the fair market value of the home in two different ways. One is by comparing it to other recently sold homes in the area, and the other is to calculate the value of the land and the cost to build a house similar in size and quality.
If the appraiser finds the house to be worth what you are willing to pay, the loan can move forward. If the appraiser finds the home to be of less value, then the lender will not give you a loan without first changing the purchase price of the home or requiring a larger down payment from you.
Step 13: Close the Sale
The closing happens when the contractual obligations have been met. In other words, when the loan is fully approved, the title is clear, the insurance is in place, and the inspections have been done, it is time to sign the papers.
A few days before the closing, you will review all the fees you will be paying, review the terms and conditions of the loan, and be told how much money to bring to the closing. Recadia, along with your lender, will work with you during this process so that you understand everything you will be signing.
Your lender will arrange the closing and make sure that all the documents are ready. You will pay the money required and sign the paperwork. Then the title will be transferred from the seller’s name to your name, and you’ll be given the keys to your new home.