Home Buying Process Easily Explained In 8 Simple Steps

Buying a house is a major milestone for many people, but if you are a first-time homebuyer, the home buying process will be both exciting and intimidating. With the many available houses in the market and the ever-changing buying prices, you might find yourself overwhelmed.

Understanding all the processes, tasks, and requirements makes it easier to find the right house and close the best deals. This article breaks down the home buying process into easy steps that you can follow to get your dream home.

Check Your Credit Score

This is the most important step in the home buying process. It determines how much financing you will qualify for when buying the house, the terms, and interest rates. The higher the credit score, the more the loan amounts and the better the rates and terms.

There are many places you can look up your credit score, including online platforms for free. Checking your credit score before you start applying for the mortgage is essential to make the process easier.

What to Look For

You will also be able to spot any mistakes or outdated information that affect your credit score and have them corrected. You might also spot legitimate information you had forgotten about, which could either help you or damage your credit. The goal of checking this beforehand is to ensure that all the information is up to date and accurate.

It also gives you time to clear some of your debts and improve your score. You can also research different ways to improve your credit score on other platforms.

Understand Your Budget

Before applying for a mortgage, you need to understand how much you can afford for the house on your own. Look at your finances and consider your income, savings, spending, and debts to determine the right budget for you.

Your lender will tell you how much you qualify for, but you have to look at the payments and ensure you are not overstretching your finances. Experts recommend that you not spend more than 30% of your monthly gross income on paying for the house.

Major Costs to Keep in Mind

There are two major costs that you need to keep in mind most when calculating your budget; down payment and closing costs. These are upfront costs that you have to pay before you get your house.
With some loans, you can pay a down payment of 3% of the home’s buying price, and some accept a down payment of 3.5%. The more the down payment, the lesser the monthly payments, and you are likely to have lower interest rates. Therefore, you have to weigh your options and see what fits you best. However, do not empty your savings to pay a hefty down payment.

Closing Fees and Other Costs

Closing fees are the costs associated with securing and closing your loan. Closing costs differ depending on the lender and your location. However, the average closing costs range between 3 and 6% of the house purchasing price. Other costs you will have to incur within the home buying process include taxes, interest, association dues, and insurance.

When creating your budget, you need to include all these costs and other personal expenditures, like college funds and house maintenance and utility costs. You also need to budget for savings in case of emergencies.

Get a Lender and Get Pre-approved

The next major step in the home buying process is finding the best mortgage lender in the market. For that, research and compare the requirements, terms, and rates of different lenders.

Get loan estimates from different mortgage lenders. That helps you see the amount you qualify for, the loan terms, interest rates, closing costs, and projected payments. All mortgage lenders give you the loan estimate in a universal format, which makes it easier for you to compare.

Consider the Down Payment

You should also consider the down payment each lender requires you to pay. Customer service is also an important factor to consider. Getting a lender with good terms and rates but with a bad attitude and customer care services will not be worth it in the long run.

Pre-approval is Important

After finding the best mortgage lender, the next step in the home buying process is getting pre-approved. Before the lenders pre-approve you, they thoroughly g through your finances, assets, and credit score.

While it does not mean that you will automatically get the loan, it helps you know how much the lender is willing to give. It also raises your chances of getting the loan if your finances remain as they are. Getting pre-approved before you start looking for a house makes it easier because you will know the house’s price range.

Get a Real Estate Agent

The home buying process is tedious and time-consuming. It is also hectic if you do not know a lot about real estate and the changes that happen in the market. Finding an experienced and trustworthy real estate agent will make the home buying process easier and faster for you.

They will represent you in every step of the home buying process and help you find the perfect house. They also have the knowledge and skills to ask the right questions, negotiate, and make reasonable offers.

Questions to Ask Your Realtor

It is also more likely for the sellers to disclose more information to the real estate agent than you. Before settling on a real estate agent, some of the questions you should ask include:

  • How long have you done this job, and when was your last contract?
  • Have you helped clients find homes in my price range or with similar requirements as mine?
  • How much knowledge, skills, and training do you have, and where did you get it?
  • Are you licensed to operate as a real estate agent?
  • What makes you different?
  • How available will you be?
  • Can you provide me with some references?

You also have to meet the real estate agent face to face to get to know more about their traits like patience and communication skills. Once you have found the best one, discuss what you want, and tell them about your budget.

Begin the Home Searching Process

This step of the home buying process is the most important one because it determines if you will find your dream home. Understand the type and size of the house that will suit your needs and meet all the requirements. You also need to know whether you want a newly built home or a home that people have lived in before.

Know the things you are willing to compromise and those you are not. Some of the things you need to consider include:

  • The type of the house, whether a townhouse, multifamily unit, duplex, single-family home, or a condominium
  • The location and neighborhood of the house
  • Amenities around the house like schools, hospitals, and public transport
  • The style and condition of the home
  • The features in the interior and exterior of the home like lawns, landscaping, and rooms

Do not be tempted to buy a house in poor conditions because of a low price. You are the one who will make the repairs. It would help if you visited each of the homes you found and inspected them.

Make an Offer

Once you find a house you like, the next step in the home buying process is to make an offer. Ask the real estate agent to conduct a comparative market analysis to determine the best price for the house depending on recent sales made on similar homes around the neighborhood.

If the house has been in the market for a long time and there is little interest in it, you will have more power to bargain with the seller.

Contingencies in the Home Buying Process

You should also ask your agent if including contingencies in the offer is a good idea. A contingency states that you can break the contract without any consequences if certain conditions are not met.

Some of the most important contingencies are mortgage and inspection contingencies. A mortgage contingency states that you can break off the contract if you can’t receive the funding. An inspection contingency states that if there are repairs that you can handle, you can back out of the contract. It also enables you to negotiate the house prices based on the house’s condition.

Earnest Deposit

Alongside the offer, you should also provide an earnest deposit to show the seller that you are serious. The money remains in an escrow account and is included in your closing costs and down payment. However, if you back out, the seller keeps the money.

Home Inspection and Appraisal

A home inspection is an important part of the home buying process because you understand the condition of the home and the repairs needed. For this, you need a third-party home inspector. If there are any major repairs, you can ask the seller to do them before closing the deal.

A home appraisal is also an important part of the home buying process because you understand the house’s worth before buying.

Buy Homeowners Insurance and Close

Homeowner’s insurance helps protect you and your property against damages, which is why it’s important in the home buying process.

After completing all the home buying process steps, it’s time to close the deal. Review the closing disclosure, which outlines the final closing costs, terms, and outstanding costs. You have to pay the closing costs and sign all legal documents for the loan and the house during the closure.