These tips for first-time homebuyers will help you navigate the home buying process and could help make your home-ownership dream come true.
Buying your first home is exciting—and a little scary. Millions of people have navigated the first-time home buying process successfully, and so can you. This buying-a-house checklist will guide you through the key steps to find, finance, and buy your first home.
Understand your financial situation
First, evaluate your budget. Add up all your regular monthly income and subtract from it your monthly expenses, as well as any monthly savings contributions.
If you’re renting, that’s money that you’ll be able to use for a monthly mortgage payment. This will help you understand how much you can afford for a monthly mortgage payment.
Tip: Use our mortgage payment calculator to figure out how much house you can afford.
This is also a good time to check your credit report at annualcreditreport.com to make sure it’s correct. Errors on your credit report can lead to a lower credit score, which can affect your mortgage application.
Explore your mortgage options
Every mortgage product consists of a few basic features:
- Term: the length of time it takes to fully repay the loan
- Interest Rate: the percent of the principal paid to the lender in exchange for taking out the loan
- Rate Type: fixed or adjustable; fixed rates stay the same while adjustable rates change throughout the life of the loan
Check out this article if you need help understanding your mortgage options. It highlights the differences between the most common mortgage types (conventional loans, FHA, USDA, and VA), as well as the differences in the features listed above.
You’ll also want to read this article to figure out how much house you can afford.
Then, once you have some basic information about the options that are out there—talk to a trusted mortgage loan officer (or MLO) to get expert advice on finding the right mortgage based on your personal financial situation and goals.
Save for a down payment
As a first-time home buyer, the down payment you need depends on the price of the home, what type of mortgage you apply for, and other factors. Even if you expect to receive money for a down payment from a relative as a gift, it’s still a good idea to put aside some extra savings.
Get preapproved for a mortgage
Your mortgage loan officer can help you get preapproved for a mortgage. Doing so shows a home seller that you’re serious when you make an offer and that you have the ability to complete the transaction. Preapproval also increases your chances of getting the home you want if you end up in a multi-offer situation, where others are also making offers on the house at the same time.
It’s important to understand the difference between preapproval and prequalification.
A prequalification is an estimate from a mortgage loan officer of how big of a mortgage you might qualify for. It is based on financial information—including your income, expenses, debts and assets—that you provide, however none of this information is verified and you will still have to apply for a mortgage when you’re ready to make an offer on a house.
In preapproval, however, the lender goes through extra steps to review and verify the information you provide. You’ll have to fill out a formal mortgage application and provide documents. Preapprovals typically last 60-90 days. With one in hand you’re ready to make and offer and buy a home.
Hire a real estate agent
A real estate agent can help you find a home that fits your budget and needs, and will help you navigate the home buying process.
Real estate agents are generally licensed by the state. Some real estate agents are also REALTORS, meaning they are members of the National Association of REALTORS and have agreed to follow that organization’s code of ethics.
When searching for a real estate agent, you may also want to ask friends and families for suggestions. Your credit union may also be able to refer you to local real estate agents.
Look at homes
Looking at houses is one of the most exciting parts of the home buying process.
You’ll want to consider several factors, including:
- The home’s location
- How big it is
- Whether it’s a single-family home, townhome, condo, or duplex
- The home’s age
- Other factors related to your needs
Your real estate agent can help guide you through many of these considerations. As you look at homes, imagine what it would be like to live in that house.
Make an offer
Once you’ve found a home, it’s time to make an offer.
Your real estate agent can help you understand the market, make a smart offer, and negotiate a final home purchase agreement.
Follow the advice of your agent or lawyer when deciding how best to make your offer. Here are examples of some things your offer should include:
- The price you’re willing to pay
- When you want to move in
- What kind of inspections you’d like to have (structural, electrical, plumbing, etc)
- If your ability to buy the house depends on your ability to get financing (which is taken care of if you get preapproved by us)
- The amount of time both you and the seller have to make all these things happen (usually 30 to 60 days)
The seller usually has 24 to 48 hours to consider your offer or make a counter offer, which means they want to sell you their house but they want a change in the terms you offered.
Home purchase agreements are usually contingent upon having financing, so a preapproval from your credit union can streamline the home-buying process. Remember, it’s important to tell your mortgage loan officer as soon as you sign a purchase agreement!
Get a home inspection
A home inspection can help you avoid unpleasant surprises after moving in.
If your offer is “contingent on inspection”, it won’t be valid until the home has been examined by a home inspector. In competitive markets you can delay the inspection until after purchase.
Home inspectors will look at various aspects of the home including:
- Foundation
- Plumbing
- Heating and cooling system
- Electrical system
- Roof
- Windows and doors
- Siding
- Exterior grading (to make sure water drains away from house)
Remember, there may be an additional fee to test for radon, mold, or wood-destroying organisms, or inspecting free-standing structures like sheds or an unattached garage.
Your lender will most likely order an appraisal whether you get an inspection or not. The appraisal is different from the inspection as it determines the home’s value and assures the lender there are no major issues.
Set-up insurance and utilities
As the closing day for your home purchase approaches, you’ll want to set-up utilities and homeowner’s insurance.
This usually requires contacting utility providers to make sure electrical power, gas, water and sewer, and the like will be switched over to your name once you’ve completed your purchase. You’ll want to do this before the seller cancels, so that you avoid reconnection fees.
Homeowner’s insurance is also important. Having insurance is usually required for your mortgage to be approved for the house purchase.
Complete the purchase
Completing a new home purchase is usually called “closing.” At closing you’ll sign various documents, provide any additional funds needed to finalize the transaction, and become a homeowner.
Congratulations!