You’re approaching a major life milestone: You’re buying a home! And if this is your first time doing so, you’re probably wondering what surprises the homebuying process may hold. Buying a home is exciting but it does come with its own set of challenges. Before you sign the papers and are handed the key to your home, avoid unpleasant surprises by knowing what to expect throughout the homebuying process.
Have questions? Get answers from an expert.
Preparing to buy a home
As the biggest financial step you’ll make in your lifetime, you’ll need to be careful about how you approach your purchase. Thoroughly evaluate your financial situation and determine the following:
- How much you can afford in a down payment and a monthly mortgage payment. Ideally, you will have begun saving for a home well before you start shopping around.
- Whether your credit score is high enough to land you the best interest rates — or if you need to spend time improving your credit. Most lenders will consider a minimum score of 620, but the ideal score is in the mid-700s.
- Where you want to live, and whether you want to be surrounded by things like good schools or fun nightlife options
- The type of home you want, such as a condominium, single-family home, or townhouse
- The features you want in your new home, such as granite countertops, a certain number of bedrooms, and whether you have deal breakers
Shopping for your home
Once you’ve identified how much you can afford and what you want and need in a home, the moment has arrived: you’re ready to shop for your dream home. Below is the process you’ll go through when shopping for the home you want.
- You’ll begin with finding a real estate agent. This person will help you find homes that meet the standards you set while preparing to buy your home. They will also assist you through every step of the homebuying process, up until you finally get your keys.
- Search for homes in a variety of ways, including getting listings from your real estate agent, driving around your favorite neighborhoods, viewing online real estate listings, and even asking friends and family if they have any leads.
- Once you find a home you’re interested in, you can attend an open house or contact the seller for a tour. Your real estate agent can also assist you with this.
Obtaining a home loan
There are thousands of lenders out there who will gladly help you finance your home — but you should have a say in the terms of your home loan, too. When shopping for a home mortgage loan, consider the following:
- The type of home loan you want. Home buyers have many options, including conventional loans, FHA-backed loans, and special loan options for first-time buyers, low-income buyers, veterans, and public service employees.
- Your preferred mortgage term. This could be a traditional 30-year mortgage loan term or a shorter duration such as a 15-year term. The length of your mortgage loan will impact your monthly mortgage payment, your interest rate, and the amount of interest you pay over the life of your mortgage.
- Your interest rate options, which include adjustable-rate mortgages and fixed-rate mortgages
- Whether you need mortgage insurance. If you can’t afford a 20% down payment, you will most likely need mortgage insurance.
Making an offer on a house
The prospect of homeownership gets even closer with this step: making an offer. In this process, your realtor will discuss your financing options to help you determine how much to offer on the house. They can also help you know where to negotiate. Making an offer on a house typically involves the following:
- Submission of a written offer to the house seller. They can accept your offer, propose a counter offer, or decline your offer. If your offer is accepted, you can move forward with closing on this house. If the seller counter offers, you can choose to put up more funds for the home, or decline and move on with your home search.
- You may be expected to provide a cash deposit with your offer — also called earnest money. This can show the home seller that you’re serious about your offer. This could be 1% to 3% of the total house sale price.
- Your real estate agent will assist you with these aspects of the homebuying process.
Closing on your home
The seller has accepted your offer, and both parties have signed the offer agreement. Now comes the final step of the homebuying process: closing on the house. Closing on a home typically looks like the following:
- You submit a mortgage loan application to get approved by a lender or a bank. Getting approved can typically take up to 30 days.
- Once you are approved for the loan, you can move forward with signing all the necessary closing paperwork. This process takes about an hour or so, and involves signing the promissory note, deed of trust, escrow disclosure, a right-to-cancel form, and other documents.
- You will also be expected to pay closing costs such as lender fees, prorated property taxes, a title insurance premium, a portion of your homeowners insurance coverage, as well as other fees.
Once this process is completed, you’re ready for the best part: moving in!
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