There aren’t many accomplishments more satisfying than buying your first house. You’ve likely spent years planning, preparing, and saving for your big move.
But there are things you should be aware of before you dip your toes into the waters of real estate.
Here are six steps to buying your first home.
Step One: Understand the Process of Buying a Home
Hire a buyers’ real estate agent who can help you, from start to finish, with the entire process of buying your first home – from applying for your home mortgage loan to getting your keys.
Your agent can connect you with the right lender, polish your wish list to fit your budget, and will show you homes that match your criteria.
He or she will also submit and negotiate offers on your behalf and connect you with service providers like appraisers and inspectors.
Many house-hunters hit the internet searching for their dream home, but they do it before they’ve hired a real estate agent or applied for their home mortgage loan.
This misstep can be damaging because if you fall in love with a specific house, you’re not sure if you can get financed. And, you won’t know your home-buying budget until a lender accepts your application.
Step Two: Get Financially Prepared to Buy a House
The standard down payment on a conventional home mortgage loan is twenty percent, but you may be able to obtain an FHA loan, a VA loan, or a loan from the USDA. Any of those three loan types can reduce or eliminate your closing costs. There are also special first-time buyer programs that can help you get your foot in the door.
In addition to your down payment, you’ll pay closing costs. Closing costs is a term that encompasses all of the fees associated with your transaction, such as lender fees, appraisals, inspections, attorneys, property taxes, homeowners’ insurance, and more.
Closing costs can range between two and eight percent of your loan amount, but the average is around five percent. That five percent can exceed $10,000 or more, depending on the price of the home you buy.
You’ll also need to submit an earnest money deposit when you make an offer on a home. That money doesn’t go to the seller. Instead, it’s held in an escrow account until the end of the sale. An earnest money deposit is usually between one and three percent of the property’s sales price.
Step Three: Focus on your DTI and Credit Score
For a lender to approve your loan application, you should have a credit score of at least 620. A score of 740 or higher will earn you lower interest rates and help you get approved faster. If your credit score is below 620, resolve any derogatory accounts and pay off credit cards or loans.
Your debt-to-income ratio, or DTI, is the amount of money you have going out each month compared to what you have coming in. To figure out your DTI, add together your debt and divide it by your gross income.
To be approved for a home mortgage loan, your DTI should be no higher than 43 percent, and ideally will be 36 percent or lower. As with your credit score, you can improve your DTI by paying down your debts.
Step Four: Get Pre-Approved for Your Home Mortgage Loan
Pre-qualification and pre-approval are not the same things in home mortgage loans.
To get pre-qualified is an informal process where you supply a lender with some basic information to see if you’re likely to be approved. But it doesn’t mean you’re approved – just that you might be if you formally applied.
When you are pre-approved, it means the bank has already moved through the lengthy process of processing your application, running your credit score, reviewing your documents, verifying employment, and all the other steps involved.
Pre-approval also means you’re empowered when you submit your offer. A buyer who is pre-approved always has the edge over those who haven’t yet applied. Sellers feel there’s more risk (and there is!) in accepting an offer from someone who might not have the money to back it up.
Step Four: Offers and Negotiations
Your agent will take you on tours of several potential homes. When you find one you love, you’ve got to strike while the iron is hot. Your agent will help you weigh your options and submit a compelling offer.
You may face competing offers, which could drive the price of the home out of reach, so don’t get excited just yet. You may have to engage in a bit of negotiating to win the deal.
Step Five: Appraisals, Inspections, and Title Check
You don’t want to buy a house that’s in poor condition, and your lender doesn’t want you to either. For this reason, the house you’re buying has to be appraised and inspected.
An appraisal determines the property’s current market value and how well the house has aged.
An inspection verifies that the foundation and structure are in sound condition, as well as checking systems like HVAC, electrical, plumbing, and more.
The title is also checked to ensure that it’s free of any holds, liens, or past due taxes.
Step Six: The Closing Process
The closing process can take as little as 30 days or as many as 90, depending on the status of your loan, so patience is key. At the end of escrow, there’s a meeting referred to as “the closing table.”
Before the closing date of your transaction, the seller will have already vacated the property so that you’re ready to take ownership and move in as soon as possible.
Today, many closing meetings and the signing of documents can be done virtually, so you may not have to attend a physical meeting as long as you make arrangements with your real estate agent to obtain the keys to your new home.
Ask your real estate agent more about what you need to know about buying your first house.
Have Questions? Ask Puder Real Estate Team!
Your real estate agent is the best source of information about the local community and real estate topics. Give Puder Real Estate Team a call today at (805) 710-2415 or (805) 219-9559. to learn more about local areas, discuss selling a house, or tour available homes for sale.