You’re ready to buy your first home—congratulations! You’re tired of paying rent and building your landlord’s wealth and you’re ready to invest in your own future. Buying your first home is both exciting and overwhelming. In this post, we’ll give you some things to consider as you work through the homebuying process.
Check Your Credit Report
First step, get your free credit report. You can get a free credit report every year from annualcreditreport.com. It pulls info from the three major credit bureaus and provides your credit score (the higher the score, the lower your mortgage loan rate). Even if you’re not buying a home, it’s good to check your credit report annually. That way you can monitor items on your report and dispute any errors before they hurt your credit score.
Research First-time Home Buyer Programs
Some cities and states offer first-time home buyer programs that can provide incentives like down-payment assistance, closing cost support and low interest rate mortgages. Some programs provide tax incentives as well.
Determine How Much You Can Afford
Use an online mortgage calculator to determine what you can afford. In general, lenders recommend that people look for homes that cost no more than three to five times their annual household income. This amount assumes that home buyers have a 20% down payment and a moderate amount of other debt. Keep in mind that just because you can afford a certain amount doesn’t mean you have to borrow that amount. You’ll also want to look at mortgage payment amounts depending on your home loan.
You’ll also want to research different types of mortgages and rates to find the one that fits. You can compare mortgages from different lenders to see how rates, fees, etc. match up.
Find a Realtor
Realtors are valuable resources—they’re full of knowledge, know the area well, have superior negotiating skills and can answer all of your questions. Plus they don’t cost you anything! Your Realtor is compensated by the commission from the seller of the house.
Getting prequalified allows you to know how much a lender will give you for a home. This info allows you to look for homes in your budget. If you can, obtain a pre-approval prior to looking for houses. Pre-approval takes prequalification one step further because the lender verifies your financial documents in advance (W2s, paystubs, bank statements, tax documents, debt to income ratio, etc.). Depending on the market, a prequalification or pre-approval might be good to do before you browse potential homes.
Find a Home and Make an Offer
Browse homes online to locate what types of homes and areas you like. Start looking at homes with your agent and find one that you like. Work with your real estate agent to negotiate an offer. Once you and the seller have reached an agreement on price, the house goes under contract. This is the period when you and your agent will complete all of the remaining steps in the home buying process (home inspection, loan approval, appraisal).
Time for a Home Inspection
Part of the home-buying process is a home inspection. You’ll arrange a home inspection to look for potential home issues so you’re not surprised after purchasing. Don’t worry, your real estate agent has home inspector recommendations. Most home purchases are contingent on the home inspection so that buyers can renegotiate or back out if there are any major issues. As the buyer, you can ask the seller to fix items that the home inspector found. Your Realtor can help guide you through the home inspection process, so don’t stress!
Get Home Insurance and Set Up Utilities
Your lender requires homeowner’s insurance. Contact your current insurance agent for an estimate and then shop around at other insurance companies for quotes. That way you can ensure you have the best insurance price. Once you have a closing date, contact utility companies to set up your services (gas, electric, water, trash, Internet, etc.). You don’t want to get the keys to your home and have to move in the dark!
Close on Your Home
Your agent arranges a title company to prepare all the closing paperwork. You’ll sign the closing paperwork including the loan documents. Once the closing is complete and the home loan is funded, it’s time to get the keys to your first home. Then it’s time to move into your first home!
If you have any questions about buying your first home, we can help! Your first home is out there waiting for you, and we can help you get it.