Home Buying 101
You’ve done it. You weighed the options, juggled the pros and cons between renting and buying, and come to the decision to go after that good old American dream of home ownership. Maybe it’s a big life change that’s spurred this new choice like a marriage or new baby, or maybe it’s just time. Whatever the case, we’ve prepared a list of steps to take when starting the journey to first time home ownership.
▪ Check your credit report. First you’ll want to be sure it is all correct information. You won’t want any surprises coming your way. Some items may be simple fixes, but you want to go into the process with a good knowledge of how your credit looks. It goes without saying that during this period you should stay up to date on all bills and obligations.
▪ Sit down and put on paper an estimate of your financial picture including all income, debts, savings, investments, and anything else that adds to your financial life.
▪ Get prequalified. Put in simple terms this means getting a financial institution like a bank or credit union to agree to a loan amount for a period of time, giving a chance to look for a home after in that dollar range. Doing a preliminary search online will help new home buyers to know what competitive rates looks like. They can then use that information to shop around locally for the best rate offered to them. Most contemporary underwriting is automated in larger banks, so if you have irregular, seasonal, or unusual income or financial circumstances, you will want to look for smaller community banks or credit unions that offer manual underwriting to serve you most optimally.
▪ Begin the hunt! Now is the time to do the fun part, looking for your dream home. With the pre-approval amount as a guide, you can begin to narrow your search and view available properties in your area. A great real estate agent will be essential to knowing how to match your wants and needs with your budget and location specifications. Sites like Zillow are also available to get you started and help to narrow down the search in cases where the market is particularly saturated with available properties.
▪ Narrow it down. While it is fun to fantasize about top of the line and fancy-schmancy anything goes budget, that is not the case for most first time home buyers. Hidden costs of home ownership are very real and seemingly around every corner of the process, so it is essential that homeowners do not choose homes near the high end of what they have calculated as “what they can afford.” Leaving a financial buffer is not only prudent, but often proves necessary in the course of new home ownership. Choose your home from well within your comfort zone.
▪ Make an offer. With the help of your real estate agent, submit an offer on the property you choose. Real estate agents have access to a lot of information that will help you place offers more likely to be accepted. They know what prices homes are selling for in the area, how long the property has been on the market, and market conditions at the time you are making the offer. They are definitely an asset during this stage.
▪ Get a home inspection. Ideally you will want an inspection done by a professional who is independent of anyone who will make money on the home transaction. There are bound to be small problems with any older home, but it’s the big and costly ones you are looking for. Your real estate professional will know if any inspection findings give cause to adjust your offer
▪ Apply for a mortgage. You have the pre qualification, now its time to make it final. The lender has to sign off on the home as worthy of the amount being lent, so they will do an inspection of their own. They will ask for proof of homeowners insurance, so you will want to have gotten that beforehand. Also needed at this time will be your financial records since your pre qualification
▪ Closing time. This one is the doozy. Many papers will be signed to transfer the property to you. Don’t forget your photo ID! You will be signing your name many many times! Your real estate agent should prepare you for closing costs so you’ll know how much you will be paying on closing day. Average closing costs come in at around 2% of the home price
▪ Take those keys! After the loan closes and is fully funded (sadly not the same day as closing day, typically) You will be handed your shiny new keys! The long process over, you can now enjoy your new home!