It’s often said that buying a house is one of the most complicated financial transactions that the average American is likely to undertake in their life, and that’s not an exaggeration. The process is complicated from beginning to end, but it’s something that is within reach for many people who may not realize it. This step-by-step guide about how to buy a home details the critical actions you will need to take to buy your first home.
Start the Search – Finding an Agent and Your Financial Groundwork
When you’re looking for a home, one of the most important things you’ll do is to locate a real estate agent who suits your personality and knows what they’re talking about. This person or team will help you sort through the hundreds or thousands of potential homes in the areas that you’re searching. They’ll help you find better options and house listings if you openly communicate with them and they understand the market.
A good real estate broker can also help you locate the financial resources you’ll need to secure a favorable mortgage. They can let you know about any incentives that may be available for buying a home in Dallas, or other cities. Additionally, many brokers have contacts in the mortgage industry, so they can recommend agents to you. Speak with a few potential agents to help you determine your home loan eligibility.
Mortgage agents tend to be tied to their financial institutions, but having a conversation early on with a mortgage broker can help you understand where you are financially and how much you can afford to spend. This conversation is useful, even if you wind up selecting a different company to finance the mortgage.
Putting in an Offer
Next in the steps to buy a house is settling on a home. After you’ve walked through a few dozen homes with your buyer’s agent, you’ve hopefully found the home for you. Before someone else buys it out from under you, you want to put an offer in and get the house on contract pending the sale. To make an offer, speak with your agent to determine what a good offer price is. Generally, you’ll want to offer 5-10% less than the list price, if there are no major visible issues in the home.
Once you’ve determined an offer price, contact your mortgage agent and have them run a preapproval for the amount of the offer, potentially with a little more. Avoid pre-approving much more than your offer, as that can make negotiations with the seller more difficult. If the seller agrees to your offer or you come to a compromise, then you can start the process of inspecting the home and having it appraised. Ideally, the inspections and appraisal will reveal if you should revise your bid based on similar homes on the market, or if you must request that the seller conducts essential repairs prior to the sale.
Shopping for the Best Rates and Securing Financing
Once your offer has been accepted, it’s time to firmly secure financing from a mortgage company. Generally, you’ll have to decide between credit unions, local banks, and third parties, to see who has the best offer. Each has its advantages, so we’ll outline those here:
- Credit Unions – These organizations are connected to your local community, and if you already bank there, it’s easy to handle your finances under one roof. You can simplify the process and ensure that your mortgage company has easy access to your financial standing and knows you personally.
- Local Banks – Similar to credit unions, local banks are also tied to your community and may handle your finances already. However, banks need to turn a profit, so they may not be able to offer loans on as good terms as the credit unions. Much of that is dependent on market conditions, however, so their rates will vary somewhat.
- Third-Party Lenders – As an alternative to local firms, there are also national organizations that provide financing for mortgages. You may be able to find good rates with them, depending on whether they’re a large bank or if they specialize in mortgages. Be aware that one reason many people turn to them is that they can be looser in terms of their requirements, often at the cost of increased fees or rates. These factors will vary, so be careful to review all the relevant details before agreeing to any institution’s mortgage offer.
Regardless of the financial organization that you work with, you’ll need to know how to calculate home loan interest. On the final documents, the institution should provide you with a breakdown of your proposed monthly payment and how much of that is in interest. There is a relatively small leeway for interest rates due to the way that the market works, but remember that any interest you pay on the mortgage is money that is gone forever without adding equity.
Signing the Mortgage Agreement
After you’ve gone through the hard work of finding the right agent, the right home, and the right lender, you’re ready to sign the papers. Usually, your agents will help you find a title company to process the transaction and record it for the city. You’ll have to sign many papers, so your hand may be cramping by the time you get the keys to your new home. Nevertheless, if your agents have been diligent throughout the process, there won’t be any last-minute surprises.
At the signing, you’ll need to handle closing costs with either a wire transfer or a certified check. Contact your primary financial institution well before this time to ensure that you don’t get caught off-guard. The last thing you want to happen is for your closing to be delayed because the title company and seller are waiting on you to arrange certified payment for your closing costs.
While this kind of search may take months, it is well worth it to buy a home and start building equity. The standard down payment to secure the best terms is 20% of the home’s valuation, as that ensures the lender has significant collateral for your loan. However, those who have a stable income but lack a large down payment may be able to take advantage of FHA loans and seller assist to close the deal.