So, you want to be a homeowner!
Buying a home is the most significant financial decision most Americans make.
Too often, it can feel like navigating a maze of documents and procedures. But with a bit of research, the steps to buying a home can be part of an exciting journey toward reaching an important life goal.
This guide to buying a home will give you all the information you’ll need about the steps in the purchase process, from understanding your budget to buying your home and getting a mortgage.
Determine how much you can afford
Before you start house hunting, reach out to a real estate agent, or attend open houses, you’ll need to understand how much you can afford to spend.
Calculate how much money you earn monthly and subtract the total amount of your monthly expenses. The amount you have leftover is a good indicator of how much you can afford to spend on monthly mortgage payment. This is a good method to calculate your mortgage refinance budget as well.
Mortgage preapproval can tell you how much home you can afford.
Mortgage pre-approval will give you a solid estimate of how much you would likely qualify for for a mortgage loan and give you a realistic price range of homes you can look at.
It’s a good idea to look at homes below the mortgage limit of pre-approval. You’ll want to ensure your mortgage payments aren’t the highest amount you can possibly afford.
Having a little wiggle room in your budget each month can come in handy for paying additional home buying costs such as down payment, closing costs, property taxes, homeowner association fees, or other fees associated with homeownership—like renovations or moving expenses.
A preapproval letter can also give you an edge with sellers in a competitive market.
Find a mortgage lender you want to work with
Finding a lender you want to work with is crucial to the home buying process.
The right lender will partner with you and offer assistance, from finding the lowest interest rates and answering your questions to helping you navigate the mortgage application process.
Look for mortgage lenders with a comprehensive understanding of different mortgage products, such as conventional home loans, to special government-backed loans like FHA home loans, USDA home loans, or VA loans for eligible military service members and their families.
Make a purchase offer
Because you’ve already received your mortgage pre-approval letter for a mortgage, when you see a home you like, you can move on it and have your real estate agent make an offer.
Mortgage pre-approval can also give you an edge in a competitive marketplace by letting sellers know you’re serious about buying and a qualified buyer.
Order a home Inspection
Once your offer on a home has been approved, it’s time to schedule a home inspection of the property you want to buy.
Depending on what your home inspector finds, you’ll either decide to go through with your purchase or start over.
If the home inspection report reveals issues like electrical, plumbing, or roofing that you can comfortably afford to take care of, a good real estate agent may be able to use that to negotiate a lower purchase price for your home.
Schedule a home appraisal
A home appraisal determines the fair market value of your home. Appraisal fees are often included in your closing costs.
In addition, some loan programs, like FHA home loans, require a home appraisal as part of the mortgage application process.
An appraisal also ensures you aren’t paying more for the house than it is actually worth.
Arrange for financing
One of the crucial steps to buying a home is arranging for financing. And when it comes to mortgages, there are three major types of home loans that most people think about.
Each of the three popular loan types below has different requirements—and benefits.
Discuss which is best suited to your needs with a licensed loan officer. Let’s look at conventional loans, FHA loans, and VA loans.
Conventional loans offer borrowers a minimum down payment often as low as 3% of the home’s purchase price.
Borrowers can opt for the “no out-of-pocket closing costs” option by rolling closing costs into the mortgage itself.
Both fixed-rate and adjustable-rate options are available and offer loan terms typically between 15 and 30 years.
FHA loans are popular options for first-time homebuyers because of their relaxed credit score or credit report requirements and low down payments (as low as 3.5%).
In addition, FHA loans offer a no-closing-cost option and allow gift down payments from family or other sources.
VA loans offer eligible military service members and surviving spouses a no-down-payment option, a no-closing-cost option, and no monthly mortgage insurance payments.
The VA loan program doesn’t have a preset credit score requirement, but some lenders will. So ask around.
Under the VA loan program, if the borrower doesn’t have a full VA entitlement or the loan amount exceeds the VA loan limits for the home’s county, the borrower will need to pay a down payment.
In addition, the VA home loan program has extra qualifying factors that must be met by the borrower, such as income and credit guidelines as well as property limits.
Get Homeowners insurance
Homeowners insurance works as a safety net, protecting your home and financial well-being; it’s also a requirement for most mortgage applications.
Homeowners insurance covers any damage to your home and any surrounding structures, like sheds or garages. It also typically covers damaged or stolen personal property. Coverage levels vary from basic—offering the least coverage—to comprehensive—offering the most extensive coverage.
Take some time to research home insurance providers before choosing an insurance provider for your new home.
Close on your home
Once your offer to purchase has been accepted on your dream home, it’s time to work toward closing.
Three days before your home closes, your loan officer will provide you with the “Closing Disclosure” documents, which detail the exact amount you will pay at closing and summarize the details of the loan.
At closing, bring ID, Closing Disclosure documents, and funding/proof of funding as outlined by the terms of your agreement.
Once you sign the necessary documents and pay closing costs, you’ll arrange for the final walk-through of the property.
After the walk-through, you’ll receive the keys to your new home. Congratulations, you’ve successfully completed the steps to buying a home.
Get in touch with Assist Home Loans for your next purchase
Now that you’ve gone through the seven steps to buying a home, you probably have a few additional questions.
Reach out to the professional loan officers at Assist Home Loan to discuss any of the details you’ve read about, and answer any questions you might have.
Our professional team of loan officers will go over your information in detail and give you recommendations best suited to your personal financial situation.