A Step by Step Guide to Buying Your First Home
It’s nearly impossible to think of buying your first home without getting at least a little emotional. But starting from the beginning is hard because it’s hard to really know what to expect. Most people stay in their first home from five to seven years, and the real estate industry changes rapidly within that time.
It’s time to go back to basics, especially with real estate experiencing higher demand than ever before. Let’s take the stress, worry, and uncertainty out of the first-time home buyer process.
The First Step: What House Can You Afford?
So, how do you know how much house can you afford? You go to get a pre-qualification letter. Make sure that you avoid the type of places that seem popular, like Rocket Mortgage, Chase, Bank of America, Quicken, Wells Fargo, or any of the other big companies.
What’s the problem? They’re going to rush through the pre-qualification process and not get a full picture of your finances. So your pre-qualification letter turns out to be too weak to actually get you into the house of your dreams or even into a property you’ll later turn into a rental.
The better solution is to find a trusted lender that will take the time to fully analyze your finances, credit, and the house you want. You don’t have to spend the maximum amount on your pre-qualification letter.
A mortgage lender can hear what you want to spend every month in terms of mortgage payment and reverse engineer the numbers for you.
For real estate investing, you want to have as much money as possible to get the best house possible that will allow for as much rental income as you can get.
Second Step: Get a Real Estate Agent
Buying your first property is stressful enough, but going it alone is an absolute nightmare. There are so many quality real estate agents available to you that it just doesn’t make sense to try to fly solo.
A real estate agent is able to guide you through the process based on your local area, unique market trends, and help you conduct true due diligence.
Third Step: Make an Offer On a Home
The full power of a great real estate agent is when it’s time to make an offer on a home. Since they know the market, they can help you put in an offer that is competitive without paying more than what you bargained for.
Speaking of the offer, it’s important to remember that you’ll still need to account for a down payment as well as closing costs. It is not guaranteed that the seller will pay for your closing costs. Prepare to set aside at least 3% for the down payment and another 3 to 3.5% for closing costs.
Fourth Step: Understand What Happens After the Offer is Made
The negotiation phase is one of the toughest aspects of buying your first home. Maybe you have to give extended notice for the rental that you’re already in. Or you need to wait for the inspection to come back in.
The offer is only the beginning.
Your loan officer will need to make sure that they have the most updated information about your finances. This would be your paystubs, bank statements, and even tax information. In some cases, you’ll need to submit a statement to explain unique circumstances, such as a gift or unusual transfers of money.
Coordinating the move is already stressful, but you will still have to keep in touch with the loan officer.
Fifth Step: The Closing Table
Closing is something that has some variances between deals, but there are some key points. You will be signing a lot of paperwork; in some cases all of the signatures are digital. But either way, you’ll sign paperwork, the seller signs paperwork, and the keys are handed over. Getting that set of house keys after so much work feels not just rewarding, but you might find yourself breathing a deep sigh of relief.
Generally speaking, sometimes closing is done over one day, but it can be split into two days.
The closing attorney will step in to ensure everything is in compliance and everyone has all of the paperwork handled appropriately.
Congratulations! You’re a homeowner!
Key Takeaways for Your First Home
Don’t hit up a dozen mortgage lenders that will pull your credit at the same time. Work with one person that has the expertise to get you to the closing table.
A low credit score isn’t the end of the world; credit scores move up all the time.
Debt to income ratios are key; let your mortgage lender tell you what to pay off.
Don’t buy new things during the mortgage process. Celebrate later after the deal is fully complete.
20% down on your first house isn’t necessarily the best strategy; that money can be used more effectively elsewhere. Run the numbers.