The Home Buying Process

 

The 9 Steps to Buying a Home

Step 1: Order My Credit Report & Credit Score

By law, you are allowed to receive a free copy of your credit report annually (www.AnnualCreditReport.com). Be sure you check your report for any errors. If you identify any errors, be sure to dispute them as it will likely help raise your credit score. Please Note: By personal observation, using www.CreditKarma.com is not reliable as it seems the credit score is exaggerated (higher than reality).

Step 2: How Much Can I Afford?

A mortgage calculator (like the one on the Home Page of this website) can assist in your calculation of an affordable mortgage payment. Be sure you factor the money you will need for a down payment, closing costs and fees (appraisal, home inspection, etc.), and the cost of new furniture or home improvements.

Step 3: Should I Get Pre-Approved for a Mortgage Before My Home Search?

It is highly recommended to complete this step before searching for a home. There are several reasons:

  1. The lender will tell you how much you can borrow.
  2. The lender may see something you didn’t on your credit report
  3. It allows you to shop like a buyer with cash (an advantage when making an offer on a home).

Good news: Gone are the days where a 20 percent down payment was mandatory. Loans with lower or no down payments are available. Please seek the advice of an experienced home loan expert to see what your options are.

Step 4: Identify a Good Real Estate Professional

A quality real estate professional can make the difference between a smooth transaction and a nightmare for your home buying experience. Seek out a professional with a strong work ethic and one you can get along with and be comfortable.

Step 5: Find the Perfect Home

Identify all the amenities the home of your dreams should have:

  • How many bedrooms?
  • How many bathrooms?
  • How big should the kitchen be? Should it have an island? Does it have enough cabinet space?
  • Do I need a lot of closet space?
  • Should the yard be large for my kids and/or pets?

When your list is complete, the next step is to identify the neighborhood you want to live in, the school system in that area, your commute time to work, and local shopping convenience.

Step 6: Making an Offer to Purchase Your Dream Home

Woohoo! You found the home of your dreams! Now it’s time to make an offer. Many sellers list their homes a bit on the high side as they expect there will be a negotiation in the final sale price. In this case, a good rule of thumb would be to submit a purchase price of about five percent below the listing price. However, an experienced real estate professional will know for certain whether the list price is reasonable by providing a list of what comparable homes in the area had recently sold for. When you have made your offer, the seller will likely provide a counter-offer. You can either accept their counter-offer or you can submit a counter to their counter-offer. Be careful to not go back and forth too many times as the seller may just say “no” instead of keeping the negotiations going. When an agreement on a purchase price has been reached, you will provide a deposit (called an “earnest”) which will go into an escrow account. This will assure the seller you are serious about the purchase of the home.

Step 7: Choose the Right Type of Mortgage

There are several different mortgage programs from which to choose. The three basic types of mortgages are: fixed rate, adjustable rate, and interest-only:

  • Fixed Rate Mortgage – This is the more traditional mortgage and offers a fixed interest rate (and a fixed monthly payment) for the duration of the mortgage. The usual terms are either 15 or 30 years, but there are other terms available. This is good for borrowers who like to have the same payment every month and plan on remaining in their home for many years.
  • Adjustable Rate Mortgage (ARMs) – This type of mortgage is for the short-term. It offers an interest rate of which is fixed for a short period (between one to seven years). After that period, the interest rate will change every year (will either go up or down – this is dependent on the market). This is good for borrowers who will not be keeping their home for long. Also, some borrowers select this mortgage for a lower interest rate and monthly payment.
  • Interest-Only – This can be a little confusing, but both the fixed rate mortgage and adjustable rate mortgage can be written up as an interest-only monthly payment. The explanation: for a determined amount of time during the term of the loan, you will pay the interest portion of your monthly payment (and not the principal). However, you are permitted to pay the principal portion if desired, but not required if you have a tight budget. Be sure to ask as many questions as possible to the mortgage company or your bank to ascertain which mortgage would best suit your needs.

Step 8: The Closing on Your New Home

It is highly recommended to get a home inspection within 10 days of the signing of the home purchase contract. This will be money well-spent as it will give you piece of mind that your new home’s structure is sound and everything is in working order. It can be a bit difficult (but not impossible) to set a closing date that is convenient for all parties involved. Perhaps you’re waiting for your rental agreement to expire or the new home the seller purchased will not close on the day you want to close. Your mortgage company can break down all the costs associated with the closing. Some of the closing costs will include:

  • Down Payment
  • Points on Your Mortgage (if you elect to reduce your interest rate)
  • Title Fee
  • Appraisal Fee
  • Attorney Fee (if you elect to hire one)
  • Home Inspection Fee

Step 9: Time to Move In!

Whew! Everything went well at the closing. It is now time to move into your new home! Do you need a mover? Well, it depends on the amount of personal belongings you have or your financial situation. Or maybe you have a lot of friends that will help you move. Whatever your situation may be, the home buying process has come to an end. All you need to do now is unpack and enjoy your new home!