Buying a home for the first time can be overwhelming. I’ve heard so often “I don’t even know where to begin with buying a home” so many times! So here it is… here’s where to begin and an overview of the process. You might be further along in your home buying journey than you think! It’s a lot, but my motive here isn’t to overload you. Let me simply help you understand the process at a high level and then encourage you to connect with professionals (like me!) that can take on the management of the process and guide you through each step.
Here’s the home buying journey
- Understand the $
- Get pre-approval
- Decide what you want to buy
- Get a REALTOR
- Visit Homes
- Fall in love with a home
- Make an Offer
- Home inspections
- Final Walk through
Whoa wait you mean there are 5 steps before I get to even step foot in a home? YEP! This is a big purchase and it’s important to walk into this journey prepared. But those first 6 steps don’t have to take long or be daunting. You’ve probably already checked at least one or two of them off the list.
Yep, can’t miss this step. I see far too many prospective first-time home buyers who undervalue the importance of saving cash for their first home. I’m not a financial coach, and how you budget your income is up to you, but if a home purchase is something you may undertake in the near future, you most likely will need to save for at least two years, depending on your situation. The more cash you have available for the home buying process will lead to a higher budget range, better lending options and overall less risk for you. But read the next step to better understand the importance and impact of saving.
Understand the $
For some – it’s really interesting and motivating to understand the financials of a home purchase, for others, it’s completely overwhelming. This is why it’s important to surround yourself with people you trust who can guide you through the process. I recommend finding a trusted lender (banker, mortgage company) that explains the process in clear steps, and who communicates the upcoming work in a simple and straightforward way.
There are seven important areas to understanding the financials of home purchasing. A basic understanding of these areas will pay off in the long run, so take the 30 minutes and Google a few resources on each of these. It will pay!
- Get a copy of your credit report
- Improve your credit score, if necessary
- Understand the loan products and options for you
- Know your down payment options (this is where Step 1 above comes in!)
- Understand your debt to income ratio
- Budget for all home costs (Insurance, taxes, utilities, etc.)
- Check first time home buyer programs & grants
There is a lot to consider in this phase of the home buying process. How much of a down payment will you have and how will that impact what you can buy? Which loan product is best for your unique situation? Is a 15-year or 30-year mortgage the best option for you? Are there first time home buyer grants or programs you can/should take advantage of?
Your realtor can help with some of these and can guide you in the right direction, but ultimately a bank or mortgage company will help answer these questions for you. It’s also good to shop around for mortgage options. I’d suggest speaking with at least 3 different lenders. Ask your real estate agent for recommendations. They should have a good idea of local lenders and their processes.
Once you’ve shopped around for lenders and understand the options, you probably have an idea of which lender you want to work with. Now it’s time to get pre-approved. Pre-approval helps your agent understand what you can afford and if the time comes for you to make an offer, it shows the seller that you’re serious and can afford to buy that home. In some cases, pre-approval is required to accompany an offer, in other cases, pre-approval will need to be shown within 3-5 days of an accepted offer. While pre-approval might not be required to see a home, there are cases where sellers require it before stepping foot in their home. If you’re really serious about buying in the next 6 months, just go ahead and check it off the list.
Decide what you want to buy
You’ve made some great steps, and now it’s time to narrow down your home wishlist and need list. Be realistic and practical. Think about what you might need today, but also what might you need 3 years from now, 5 years from now, 10 years from now. Is this a first home or a forever home that you’re buying? How many bedrooms, bathrooms do you need? Is acreage important? Is there a particular neighborhood that you’re drawn to? Are you willing to do any work or renovations to the home and to what extent? These are all things to consider and communicate with your real estate agent.
Get a Realtor
If you’re a first-time homebuyer, I can’t recommend working with an agent enough. This is the FIRST time you’re doing this, leverage someone who knows the market, the process and who has gone through this time and time again. There’s a lot of money at stake and a lot of legal “stuff” (official term there) involved, don’t try to do it alone. A good real estate agent is invaluable. They can help you understand the real value of homes, guide you through the process, connect you with recommended local experts to make sure you’re protected. When it comes to picking an agent – find an agent that represents you and understands you. You want someone that you connect with and feel comfortable with and can trust. I can’t tell you how many people I meet who think they have to work with the agent who is listing the house they want to buy – you absolutely can (at least here in Ohio), but you absolutely don’t have to! Share your wants and needs with your REALTOR. Help your REALTOR understand your financial picture – share the pre-approval with him/her/ME (like what I did there?). If you’ve been eyeing a few houses that you like, share those with your agent and ask him/her to schedule showings. Your agent should also provide you with a list of homes that meet your needs that are on the market.
Now to the fun part (for a lot of us), visiting homes! Your agent can arrange appointments for you to visit homes that meet your needs, both ones that you’ve identified that you’d like to see and ones that they have identified that might meet your needs/wants. Also- visit Open Houses! It’s a great way to understand what’s on the market and how homes are being priced. There’s no rules with the number of homes you should see per say. Some clients see one house and know it ticks all the boxes and gives them all the feels and they are done! While other buyers need to see lots of homes to find the right one. While visiting homes is fun, it can get overwhelming if you see too many. So be mindful of this. See houses that are within that needs/wants list. Define a location and try to stick to it. If you’ve seen the houses that meet those criteria and you still haven’t found “the one” talk to your Realtor about other options and where you might need to be flexible to find the right home.
Fall in Love with a home
Ok you’ve visited homes and one of them is calling you! Or maybe it’s not love at first sight, but over time you find yourself thinking about that home more and more and wondering if it’s the right one for you. See it again if you need to. Take a friend or family member with you if it helps. Ask your agent to help you understand the potential, the value, etc. Reference your needs/wants list, is it ticking the boxes? Is it in a price range that’s comfortable for you? It’s important to balance the feeling with the reality of the situation.
Make an Offer
You’ve decided which home you want – it’s time to make an offer. There are a few things to consider with an offer and a few different things that make an offer more or less enticing to a seller. Your agent will explain all of the sections of the offer contract and/or answer any questions you might have, but let’s talk about the main points in the offer.
- Concessions – Closing costs, special requests for furniture
- Timing – when can you close?
- Inspections you want
- Financing/Pre-approval proof
Once you’ve submitted your offer the seller has 3 options – 1) accept it, 2) counter it, 3) reject it. There might be some back and forth with negotiations, but your agent will guide you through this and explain your options at each step until you have an accepted offer and the house is “under contract”.
Once you’ve got an accepted offer, it’s time to get to work on upholding your end of the agreement. One of the first things that needs to be done is scheduling inspections. There are many different types of inspections – general home inspections, gas line inspections, wood destroying insect, radon, septic, structural, etc. This is your time to get a better understanding of the condition of the home. Along with the inspector and his/her report, your real estate agent can help you understand the implications of the findings and how best to proceed (do you need to ask for fixes?, are you comfortable with the inspection and want to move ahead?, do you want to ask for money off?, do you want to walk away? etc.).
What’s an appraisal anyway? Chances are if you’re a first time home buyer you aren’t buying your home with cash. If that’s the case, you’re financing your purchase via a mortgage with a bank or mortgage company. Those companies want to make sure that you aren’t SO in love with the home that you do something crazy like pay over it’s value for it. So they order an appraisal to be done on the home to understand its current value. You’ll want that appraisal value to be at or above the contracted price on the home. If it’s not, you might need to renegotiate with the seller to agree on the appraised price or pay out of pocket for the difference between the appraised value and the sale price.
Final Walk Through
It’s always a good idea to walk through the home before you buy it to make sure it’s not been damaged in some way. Once you sign the papers at closing – that house is yours, flaws and all. So work with your agent to schedule a final walk through the day of or before closing to make sure that everything is as it should be. Check things like lights switches, wall conditions, water, exterior, etc. Just a quick check to see that things are as you expected is all that’s really needed at this point.
In the weeks leading up to the closing, I’d suggest doing some hand exercises. Joking – but you will sign your name A LOT! Prior to closing you’ll need to make sure you’ve got home insurance in place and you’ll want to have the utilities switched into your name, so that’s all ready to go on closing day. At the closing table, here is a lot of paperwork to review – both about the house and your mortgage. If it’s a round table closing, the seller will also be present and will have paperwork to sign as well. You’ll likely have the chance to ask the seller any questions you might have directly, “what day is trash day?” etc. You’ll leave closing with the folder full of paperwork and the keys to your new home!
What can I say but WELCOME HOME! Whether you want to do your own deep clean or just move right in, that house is YOURS! There’s still some work to be done to unpack and set up house, but you’re officially a homeowner! Enjoy!