Buying a home is a huge deal! It’s a big decision and requires hopeful homebuyers to navigate through a somewhat arduous process. Curiosity is often what starts the journey towards homeownership. Once you become curious about buying a home, what next? As a first time home buyer, you are going to have a lot of questions.
Should you hire a Realtor® and immediately go look at homes? What about financing? When should you talk to a lender? How much money do I need? These are just a few of the questions that an inexperienced home buyer may have. There are so many things to understand about the process and steps to buying a home. Fully understanding the phases and steps to homeownership will empower you greatly.
The Road to Homeownership.
The road to homeownership is not a short journey. From the moment that you first decide to buy a home to the moment you become a homeowner can sometimes take years. Everyone will have their own unique experience though. It depends on how prepared you are financially. Other lengthy aspects of the home buying process include researching homes and areas that you want to live in, finding experienced pros to help you, finding the right home, and closing escrow once you have found that perfect home. Now, let’s dive right into what the 8 steps to buying a house look like.
Homeownership is a great way to build wealth for your family.
The 8 Steps to Buying a Home:
- Initial research
- Financial preparation
- Get pre-approved for a mortgage
- Find a great local Realtor®
- Home search
- Submitting an offer
- Inspections/due diligence
- Closing escrow
As mentioned previously, the home-buying process is unique for everyone. Your unique journey and results will be a direct reflection of your financial preparation and the decisions you make along the way.
Step 1: Initial Research
Once you’ve decided that you are ready to pursue homeownership, your first step is to get yourself informed and develop a plan. Reading an article like this one is a very good start! As part of your research, you will want to educate yourself about how much you need to save for a downpayment, credit requirements, and the local housing market. You will also want to get an idea of what type of home you want and what location or neighborhood you want to live in.
Understanding the finances
Figuring out the financial aspects of purchasing a home is a great first step. Knowing how much you can afford to spend on a home and how much you need to save for the downpayment will be crucial. Consulting with an experienced lender/loan officer is going to get you informed about the financial requirements. To find a great lender, start by asking your family, friends, and co-workers to refer you to someone they have used in the past (with positive results of course). If you are unable to get a referral, use online resources such as FindaMortgageBroker.com or Yelp.com to find your lender.
Once you connect with a lender, they will request some basic info and financial documentation from you. This will help them understand the state of your current income, debt, and condition of your credit. Your lender will then be able to give you a very good idea as to what monthly mortgage payment you can afford. They will also advise you on how much money you will most likely be approved to borrow. This information will help you greatly as you continue forward on your journey to homeownership.
Figuring Out Where you Want to Live
Once you have an idea of how much you can spend on your home, it’s time to figure out homes and neighborhoods you can afford to live in. This research can be done by searching homes on sites like Zillow or MeritRealEstate.com. You can get an idea of what areas meet your requirements by visiting them in person or searching for info online. If you have school-age children, don’t forget to research the schools in the areas that interest you. Keep in mind that you are still very early in the home buying process at this point.
Step 2: Financial preparation
Getting Your Credit Right
If your credit is not good or if you have excessive debt, you will need to fix that! Put together a plan for improving your credit score, and paying down your debt. Your lender may give you some tips for this or they may even refer you to a credit repair specialist.
Saving for the Down Payment
This is often the toughest part of the whole process. Saving 10-20% of the home’s purchase price can be a daunting task for most homebuyers. In addition to the downpayment, you will want to save another 2-3% for closing costs and pre-paid insurance and taxes. There may be loan products that you qualify for that require a smaller downpayment. Be sure to ask your lender if you qualify.
Saving for Other Costs
Don’t forget that there will be costs incurred once you have purchased your home. Be sure to save for expenses related to moving, utility deposits, decorating, installing blinds, and buying new furniture. There always seems to be something that pops up once you move in, be sure to have enough cash on hand to handle it!
Staying the Course
Repairing your credit, paying down debt, and saving for the downpayment are huge steps to take. Once you have your financial plan in place, it will be important to keep everything else ‘status quo’. This period of time is not ideal for changing jobs or making major purchases. These types of decisions can derail your plan and set you back.
Step 3: Get Preapproved for a Mortgage
If you are like most people, you won’t be paying for your home with cash. That means that you will need to obtain a mortgage. The first step in the mortgage process is to get pre-approved. This should be done once you have saved for your down payment and feel that your credit is in good shape. Once you have your mortgage pre-approval, you will be ready to submit your offer on the home of your dreams.
Getting pre-approved is simple. Reach out to your preferred lender to let them know that you are now ready to move forward with the loan process. The lender will once again ask for your financial documentation. They will also pull your credit and do a thorough review of your finances and credit report. If you are pre-approved, you will receive a pre-approval letter that outlines how much you are approved for. It may also include general info about the loan you are approved for. This letter will be attached to any offer that you submit to a home seller.
Step 4: Find a Great Local Realtor®
A buyer’s agent will represent you in every facet of your home search, offer submission, negotiating, and inspections. Your agent will show you homes that meet your desired criteria. Once you find a home that you love, they will guide you on submitting an offer that gives you the best chance of getting accepted. They may even direct you to write a personal letter to the homeowner to tell them in order to give your offer an even better chance of being chosen.
Finding a great local agent is very important. The best way to find a great agent is to get a referral from family or friends. Ask them what they liked about their agent and don’t be afraid to ask about any negatives as well. Another way to find your agent is to search Zillow, Yelp, or Google for top agents in your area. Be sure to read their client reviews. That will tell you a lot about how they work for their buyers.
Don’t be afraid to interview more than one Realtor®. Ask them questions specific to your needs and situation. Find out how knowledgable they are about the specific communities that you want to live in. Once you’ve fully vetted them, choose the person that you feel lines up the best with your needs.
Step 5: Home Search
You are now pre-approved for your mortgage and have a great real estate agent. It is time to go house hunting!
Create a list of specs and features that you need. Put the most important items at the top of the list. Those may include things such as the minimum number of bedrooms, specific school districts, or style of home. Whatever your criteria are, be sure to clearly communicate your expectations to your Realtor®. Your agent will then generate a list of homes currently for sale that meet your criteria.
When you see a home that you like, have your agent set an appointment for you to see tour it. Another way that you may view homes is by touring open houses and visiting new home builder sites. The key is to be open to all options. Your agent may even inform you about homes that aren’t even on the market yet.
If you find a home that checks all the boxes, the next step is to make sure it makes sense financially. Ask your lender to give you a breakdown of what your monthly payments will be. Also, ask your Realtor® to review the listing price of the home compared to the market value. Next up…submitting your offer!
Step 6: Submitting an Offer
This is when your agent really earns their commission. Listen to their guidance and advice. At the end of the day, what you offer is your decision. If you really want the home, you should come with your very best offer straight away. Your real estate pro will help you put together a great offer that stands out over the others.
Terms to be negotiated?
Beyond all of the disclosures and legal jargon contained within the purchase offer, you will be offering several specific terms to the homeowner.
Here are the negotiable items of the purchase contract:
- Purchase price
- Estimated closing date
- Earnest money deposit
- Number of days for due diligence (inspections, appraisals, loan approval)
- Who pays fees such as city/county transfer tax, HOA transfer fees, title fees, escrow fees, etc.
- When possession of the home is given
- Special disclosures, reports, and inspections required.
The ease/difficulty of offer negotiations often depends on how strong the offer is. Negotiations can get even trickier if other offers are on the table at the same time. This situation could create a bidding war. In this scenario, the buyers may be asked if they want to resubmit their respective offers with better terms.
Step 7: Inspections/due diligence
If you have made it to step 7, your offer has been accepted! It is a moment to be excited, although there is still plenty of work to be done. Now it’s time to perform your due diligence in order to confirm that you are buying a home that is not defective and appropriately valued.
In your purchase offer, there are several contingencies that were negotiated between you and the seller. These negotiated contingencies allow you a specified amount of time to perform inspections, get the home appraised, and to secure your official loan approval. Contingencies to the purchase contract provide the buyer with a safety net in case these terms cannot be met. For example, if the home has major defects, the buyer can back out of the contract without penalty. The same goes for the home not appraising for the amount you are financing or if you are unable to get approved for your mortgage.
Once under contract, you have the right to perform various inspections of the home you are buying. Common inspections are the general home inspection and a termite inspection. Be sure to hire licensed professionals to perform your inspections. The general home inspection will cover the structure of the home and the systems within it. If major defects are uncovered by your home inspector, you can request repairs to be completed before you close escrow. Another remedy may be to request a credit from the seller so that you may perform the repairs yourself. If you and the seller cannot reach a sensible resolution, you also have the option of backing out of the deal.
Other inspections include radon testing, lead-based paint testing, roof certification, septic tank inspection, and mold inspection among others. Your agent should guide you as to any additional inspections that need to be performed.
If you are obtaining a mortgage, the lender will require an appraisal of the property. Your lender wants to be sure that the home is worth at least the amount they are lending you. This protects them by minimizing the risk of the investment. If the home does not appraise for the amount being mortgaged, the lender won’t approve the loan. In this situation, you have a few options. One is to bring more of your own money to the transaction so that you are borrowing less than the appraised value of the home. Another option is to renegotiate the selling price with the seller. The last option would be to cancel your contract and search for a different home to buy.
Your title insurance company with perform a thorough search of the property’s title. The homeowner must deliver the home to the buyer with a clear title. If the home’s title is encumbered by any liens, they must be removed before being transferred to a new owner. This could include mechanics liens, child support liens, mortgages, tax liens, and personal judgments. Most of the time, liens can be removed, however, there are instances where the lien affects the home’s value so great that the homeowner cannot remedy the lien. If a clear title cannot be delivered, you have the right to back out of the deal.
Final Mortgage Approval
If you are paying cash for your home, you do not have to worry about this one. For those getting a mortgage, this is the last step before you officially become the owner of your home! Obviously, if you are unable to get loan approval, you won’t be buying a home.
During the escrow period (usually about 30-45 days) your lender will thoroughly comb through your financial situation to see if you meet the requirements of the loan. They will examine your income, debt, credit scores, and more. The lender will also examine information about the home itself to make sure it also meets their minimum requirements. Once they determine that everything checks out, they will approve your loan and release the funds. You are now so close to owning a home!
Step 8: Closing Escrow
This means you are officially a homeowner. You have traveled down that long road to homeownership and survived!
After your loan is funded, you will have a few final documents to review and sign. Yes, more paperwork. These final documents may include the following:
- Transfer documents
- Title documents
- Tax declarations
- Loan documents
- Final closing statement
Once these final documents are signed and notarized, the title company will set to have the transfer recorded with the county. The closing process usually only takes about 24 hours. When the transfer has been officially recorded with the county, you own the home and it is time to get the keys and move in! Congratulations homeowner.
Ready to start your journey towards buying a home?
As you can see, the road to homeownership can be a long journey. The good news is that it is one hundred percent worth it. If you are interested in buying a home, feel free to reach out to us for more information.
Merit Real Estate helps buyers all over Southern California. We are located in the South Bay and have been here since 1989. We also have a vast network of Realtors® across that United States that can help you wherever you are located.
Contact us at 310-379-4444 or Info@meritrealestate.com