If you are considering purchasing a home, it is imperative to have a thorough understanding of the home buying process so you can make wise decisions that will best serve you and your family. This article will break down the entire home-buying process. You can also watch my First Time Homebuyers Guide on Youtube!
Here is a video of my homebuyers guide where I break down the entire home buying process from start to finish.
“75% of Americans consider homeownership to be the ultimate symbol of prosperity .”
Homeownership is the ultimate American Dream, and 75% of Americans view homeownership as the ultimate symbol of prosperity. For many, buying a home will be the single most expensive purchase of their life. If you are considering purchasing a home, it is imperative to educate yourself on the home buying process in order to make wise decisions that will best serve you and your family. I’m going to give you my first-time homebuyers guide to help you better understand the process of buying a home.
Knowing your Financial Health
The first step in the process of buying a home is knowing your financial health. Start by obtaining a free credit report by using one of the many free credit report sites available. Annualcreditreport.com is a great free site to check your credit. You should work on improving your credit score and reducing or paying off high-interest debt as much as possible before you apply for a mortgage. This is because the interest rate you’ll be given will have a lot to do with your credit score. When your credit isn’t good, the lender you want to borrow money from is going to view you as a high-risk borrower who may have trouble repaying the loan. A low credit score will result in a higher interest rate and a high credit score will result in a lower interest rate. So bottom line, you should know your financials and do what you can to improve your credit and reduce debt before applying for your mortgage.
Find an Agent
Next, you want to find yourself a good real estate agent. Be selective and trust your instincts. You’ll be spending a lot of time with this individual and you want to make sure you choose an agent with honesty and integrity. You also want to make sure your personalities mesh well together. A good agent is going to prove to be extremely helpful to you during the home buying process. They will be able to use their extensive market knowledge to find you great deals quickly, determine home valuation and negotiate on your behalf. They will also be able to help you navigate through the extensive paperwork involved in purchasing a home and answer any questions you may have during the process. A good agent will also have a network of professionals they can refer you to that will be helpful in the home buying process such as lenders, attorneys, inspectors, contractors, and so on. Bottom line—Hiring a real estate agent will make the home buying process much easier and will save you time, money, and headache. When buying a home, your real estate agent's commission fee is typically paid for by the seller.
Apply for a Mortgage
The next step is applying for a mortgage. I highly recommend shopping around and seeing what kinds of programs and incentives different mortgage lenders can offer you. You should also familiarize yourself with the different types of loans available to you.
Lenders typically request a plethora of documents from you to evaluate your creditworthiness, including personal identification, tax returns, bank statements, pay stubs, a list of monthly debts, and so on. The lender will also pull your credit report. The lender will review all of this information to determine whether or not you are eligible for a loan. If everything looks good on the surface, the lender will give you a pre-approval letter that states how much money you’re potentially approved to borrow based on your credit, assets debts, and income. It is important to know that your loan isn’t officially finalized at this point. Your loan will be secured during the escrow period once the underwriters go through your financials one last time with a fine-toothed comb to ensure everything is up to par. Once you obtain your pre-approval letter, you can present your pre-approval letter to your real estate agent so they can help you find a home within your budget. I highly recommend getting a pre-approval letter from a lender before you start your home search. You want to be able to jump on a good deal right away to increase your chances of getting the home you want, and this can only be done when you have your pre-approval letter ready to go.
Go House Shopping
Now it's time to go house shopping! You should think long and hard about what’s important to you in a home and create a list of wants and needs for your agent. Where do you want to live? How many beds and baths do you want? Do you want a yard? Think this through very thoroughly. You may not get everything on your list, but your agent will try their best to find you a home that fits most of your needs. You want to see as many houses that fit your criteria as possible so you can get an even better idea of what you want and don’t want in your home. Take the time to really explore the neighborhood you’re interested in by walking or driving through the neighborhood at different times of the day. Check out the shops, schools, restaurants, and other amenities in the area to make sure you’re choosing the neighborhood that best fits the needs of you and your family.
Submit an Offer
So you’ve found a home that you love. Your agent has advised you on a good offer price and has included any conditions you want to ask for and contingency clauses you want to put into place. A contingency is a condition that must be satisfied for a real estate contract to become final. Contingencies are typically included in the offer and are put in place to protect the parties involved in the transaction and to serve as a way to modify or back out of the contract under specific circumstances. Keep in mind that too many contingencies in an offer can make your offer less attractive to the seller. Some common contingencies in real estate are inspection contingency, appraisal contingency, sale contingency, and mortgage contingency. Once you and your agent have prepared a strong offer with contingencies to protect your interests, you should have your attorney look over the offer to purchase. Once the offer has been reviewed by the attorney, it's time for your agent to submit your offer. The seller will either accept, reject or counter your offer. You then have the option to accept or continue to go back and forth until you reach a deal or decide to walk away.
Escrow
The seller has accepted your offer. Now you’re in escrow! The escrow period begins when a buyer makes an offer on a property and the seller accepts that offer. During this period, a neutral third party temporarily holds the funds and property required for a real estate purchase in an escrow account until the agreed-upon conditions of the sale are met. The escrow account ensures that no funds or property titles are transferred until the terms of the sale are met.
There are many important steps that occur during the escrow period. During escrow, it is recommended to get a home inspection, which is an examination of the condition and safety of the property.
Your lender will also require a home appraisal, which estimates the value of the property you want to buy. The appraisal is a way for the lender to protect their investment.
You will also need to have a title search conducted, which will ensure that there are no encumbrances or issues with the property's title.
Another important step in the escrow period is securing the mortgage that you were pre-approved for. This is the part where your lender will go through your financials with a fine-toothed comb to ensure you are eligible for the loan you were pre-approved for.
You will need to obtain homeowners insurance, which is a form of property insurance that covers losses and damages to an individual's property as well as assets within the property. Lenders require home insurance to protect their investments.
You want to address any contingencies. For example, if your offer included an inspection contingency, and your inspector came across any major problems during the inspection, then this is the time to ask the seller for repairs and credits. If the seller agreed to fix anything or offered to issue you a credit, you want to ensure that those things are taken care of during the escrow period.
Now it's time for the final walkthrough with your real estate agent, which will allow the buyers to do a final inspection of the house before closing to make sure everything works as it should. During this walkthrough, be sure to check that the seller has made any repairs that were agreed upon, and cleared out the property.
Lastly, you will set a closing date with your attorney.
Closing
Lastly, we have the closing, which is the final step in a real estate transaction. Your lender is required to give you your closing disclosure at least 3 business days before closing and this disclosure summarizes the details of your loan and what you need to pay at closing. Now it's time to attend your closing meeting. You will need to bring a copy of your ID and proof of funds for your closing costs. You will sign a settlement statement that lists all the costs related to the home sale. You’ll pay your down payment, and closing costs as well as sign the mortgage note which states that you promise to repay the loan. After all these steps are done, the property title is transferred from the seller to the buyer and you are officially the homeowner!
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