78% of non-owners believe home ownership is a smart financial decision. However, buying a home isn’t an easy feat. There are complicated steps that may leave you feeling overwhelmed. The good news is that millions of others have been down this road before and made it. By conducting extensive research, preparing yourself adequately, and partnering with the right people, there is no doubt that you will find a home that suits your needs and budget. Here are some steps for first-time homebuyers.
Review Your Financial Health
Your financial health is what will determine whether you are ready to own a home. Homeownership comes with extra costs in almost every department, from maintenance, energy bills to water. Before actively entering the search for a perfect home, make sure your finances are in order. Ideally, you should clear all debts and build an emergency kitty that can support you for up to six months.
Save the Down Payment
Buying a home requires a mortgage. Here, you borrow money from a lender and then pay the remaining amount over a given period. However, you also need to save money in order to make a down payment. A downpayment of at least 20% of the home’s sale price will increase your chances of getting a mortgage loan approval, and it will also trim the overall cost of the loan. To save the down payment, you can:
- Lower your expenses
- Pause your retirement savings
- Borrow from a relative or your retirement plan
- Sell some of your investments
- Skip vacationing for a year
Meet with Lenders
If you don’t have the entire amount to buy a home in cash, which few ever have, you need to find a suitable lender. The lender will determine whether you meet the criteria to get a loan and how much you qualify to borrow. This process is referred to as prequalification. They will review your financial situation and determine how much you can spend and what amount you can realistically afford per month.
This procedure ensures you don’t take out an amount that is too expensive to repay, as such a figure can force you to default. They check your credit, debt, income, and assets. Pre-approval is a more complicated process compared to getting pre-qualified. For a pre-approval, the lender requests substantial paperwork. Before giving you the nod, they verify your financial documents and history to ensure you are creditworthy.
Find the Best Loan Type
There are many loan types available today. Even if you have been pre-approved by one lender, it doesn’t mean your hands are tied. Shop around and look at what other lenders are offering. Through research, you will be surprised to find companies that offer better repayment options. Just be careful to read through the lines of the terms to avoid hurting yourself financially in the long term. A qualified mortgage broker can help you through these processes, and they can help you identify companies or banks that offer competitive rates and terms.
Find a Real Estate Agent
Once the lender tells you how much you can borrow, it’s time to scout for a home that matches that amount. No one does this job better than a real estate agent. These professionals have access to information that isn’t readily available to the public, making them an invaluable asset when it comes to a home search.
They do all the research, find the homes that meet your description, negotiate on your behalf, and make a deal that you will be happy with. Even if you have partnered with an experienced agent, make sure to discuss your expectations with them. Some of the things you should talk about include:
- The type of neighborhood you want
- The facilities and amenities you are looking for e.g., schools, healthcare centers, public transport, and recreational centers
- The distance from your workplace
- The size and design of the home you want
Get a Home Inspection
To learn whether the home you want to buy is worth the price tag, get a home inspector. These are specialists who examine the condition of your home and provide a report. They inspect structural components and systems such as foundation, plumbing, roofing, HVAC, and electrical. They uncover hidden problems and determine the extent of the damage. If the house needs repairs, you can negotiate a lower price or look for another option.
Make The Offer and Secure the Mortgage
Your real estate agent will be instrumental in this phase. They will help you come up with an offer that is based on recent home sales in the area. Once the owner accepts, your agent will then draft a document that includes the offer and any other agreed terms. You will then need to apply for a mortgage. The lender will arrange an independent inspection of the home to determine if the price is fair. They will also verify if the seller is the real owner.
Close and Move In
The closing process brings together all parties involved, including the seller, buyer, and mortgage lenders. You pay the down payment and closing fees to process your loan. There is a lot of paperwork that you need to sign, and it can take a few days to be processed. Once the seller receives the amount from your lender, you are free to move into your new house.