Buying your first house is a huge step. You will have to mow your lawn and rake your leaves, replace your oven if it breaks and, most importantly, have a plan for any unexpected expenses. There are many things to consider when buying your first house, and it can be overwhelming. Taking it one step at a time will make it seem a lot more attainable.
Step 1: Check Your Credit Score
Credit reports are one of the most important factors in being approved for a mortgage and receiving a low interest rate. You should check your credit report at least once a year using a number of free websites, even when you’re not buying a house. Checking your credit report regularly will help you catch mistakes and keep track of any negative activity. If you have less-than-perfect credit, you should work on improving it for at least six months before buying a house. Hold off on any large purchases, closing or opening any new lines of credit six months before, or during, the process of buying a house.
Step 2: Decide How Much You Want to Put Down
When buying a home, you’ll need to put some money towards a down payment. Don’t use your entire savings as your down payment; keep some as an emergency fund. Remember, if your furnace breaks down a month after you move in, you’ll have to pay for the repair.
Now you’re probably asking yourself, how much should I put down? For a conventional mortgage, 20% is standard. If you put down less than 20% of the purchase price, you may be required to pay private mortgage insurance (PMI). PMI protects your lender if you are unable to pay the mortgage. Once you have paid 20% of the purchase price through your mortgage payments (not including interest), you can request to have the PMI discontinued. As not all mortgages require 20% down, talking to your lender about your options is the best way to choose a mortgage that is right for you.
Step 3: Research Your Mortgage Options
Now that you’ve checked your credit history and saved up for a down payment, you’re ready to look into mortgage lenders. Do you want to get your mortgage through an independent lender, a bank or a credit union? Talk to friends and family members about their experiences and to receive feedback about different options. You can also use websites like Zillow.com and Trulia.com to find online reviews of lenders. If you contact a lender, make a note of how they respond to you. Are they prompt in returning your calls or emails? Do they answer your questions in a way you can understand?
There are a variety of mortgage types with different interest rates, terms and payment options. You should feel comfortable talking with your lender about all your questions and concerns regarding your mortgage. Once you’ve chosen the mortgage that is right for you, your lender will guide you through the entire process.
Step 4: Choose a Real Estate Agent and a Real Estate Attorney
A real estate agent will provide you with housing options that best meet your needs such as number of bedrooms, style, location, etc. You want someone who you feel comfortable with, and can be honest with regarding your likes and dislikes. Don’t be afraid to interview several agents before deciding to hire someone.
In addition to a realtor, you will need a real estate attorney to legally arrange the purchase of your home. Again, people you know will be the best resource for references. You want an attorney who has significant experience in residential real estate transactions. Just as you did when selecting your realtor, interview a few before making your final selection. You want someone who can explain all the legalese to you in a way you fully understand.
Step 5: Start the House Hunt
Before looking at houses, talk with your real estate agent and make a wish list. The best way to do this is to make three separate sections: things you must have, things you do not want and things that you would like, but can live without. This will not only give your agent a better idea of what you’re looking for, but also help you focus when actually looking at houses. It’s easy to get swept up in the excitement and forget about the practical details that you were looking for. Try to look past cosmetics when house hunting. Painting a wall or laying down new carpet are easy, fairly inexpensive, fixes to that truly make a house your home. Location, overall style, size and condition are far more difficult and expensive to change.
Step 6: Make Your Offer
You’ve done it! You’ve found the house you want. Your realtor can give you advice about your initial offer. It should reflect the condition of the entire house, including appliances and heating and cooling systems. Are you going to need to replace the windows within a year? These elements will factor into your offer. Looking at comparable houses that have recently sold in the neighborhood will give you a good idea of how much your offer should be. The seller can refuse your offer or counter it with one of their own. In turn, you can counter as well until you both have reached an agreement.
Step 7: Arrange a Home Inspection
Now that you’ve picked a house and your offer has been accepted, you will need to complete a home inspection. Your realtor can recommend inspectors, or utilize your personal references! A home inspection is incredibly important. A good inspection may find problems with the house that you may not have noticed in your walk-through. Some problems may be big, such as termite or water damage, while others may be small, like a loose floor board or cracked light switch cover. The inspector should be able to give you an idea of the cost for most fixes. If your home inspection turned up some unexpected issues, you can renegotiate your offer or walk away. Again, your realtor will be the best person to give you advice for your individual situation.
Step 8: Close on the House
The last step in buying a house is the closing. This is where all of the official documents are signed, lawyers and realtors are paid and the down payment and mortgage are finalized. Your lawyer will help you with this step and answer any questions you may have.
Once you have the paperwork signed, and the keys in hand, you can start making your new house a home!
Written By: Sarah Way