The Home Buying Process


Steps to Buying a Home

Step 1: Check Your Credit Report & Score

Before getting a mortgage or any kind of loan, check your credit. Scores range from approximately 300 to 850; generally, the higher your score, the better loan you'll qualify for. 

Step 2: Figure out How Much You Can Afford

You can try mortgage calculators available online to get an idea of how much loan you can afford.  Remember you will need to have money for down payment and closing costs (including fees to title company, appraisal, inspection, etc.). Most typical down payment is 20 percent, although there are loans available with little to no down payment. Talk to an experienced home loan expert to help you understand your loan options, closing costs and other fees.

Step 3: Find the Right Lender and Real Estate Agent

Get recommendations from your friends and family and check with the Better Business Bureau. Talk to at least three or four mortgage lenders. Ask lots of questions and make sure they have answers that satisfy you. Make sure to find someone that you are comfortable with and who makes you feel at ease.

Once you have the right mortgage lender, get a pre-approval letter. Qualifications are only a guess based on what you tell the lender, whereas a pre-approval will give you a better idea of how much loan you can be approved for. The lender will pull your credit and get more information about you. You could even take it one step further by getting an actual approval before you find the home to buy. That way, when you're ready to make an offer, it will make the sale go much quicker and your offer will look more appealing to the sellers since your financing is now guaranteed.

Step 4: Look for the Right Home

Make a list of the things you'll need to have in the house: how many bedrooms and bathrooms you'll need and get an idea of how much space you desire. Do you need lots of closets and cabinet space? Do you need a big yard for your kids and/or pets to play in? 

Once you've made a list of your must-have's, decide about the kind of neighborhood you want, types of schools in the area, the length of your commute to and from work, the convenience of local shopping, and other location relevant considerations that matter to you.

Step 5: Make an Offer on the Home

When you've found the home you want, now is the time to make an offer. Work with your real estate agent to help you make your offer attractive enough for the seller to respond. The seller may make a counter-offer. Once you've agreed on a price, you'll pay earnest money that goes in escrow to give the seller a sign of good faith.

Step 6: Get the Right Mortgage for Your Situation

There are many different types of mortgage programs out there. The three basic types are: adjustable rate, fixed rate and interest-only.

Adjustable rate mortgages (ARMs) are short-term mortgages that offer an interest rate that is fixed for a short period of time, usually between one to seven years. After that, the interest rate can adjust every year up or down, depending on the market. These are good for people who don't plan on living in their home very long and/or are looking for a lower interest rate and payment.

Fixed-rate mortgages are more traditional and offer a fixed interest rate (with a fixed monthly payment) for a longer period of time, usually 15 or 30 years. 10, 20, 25 year terms also being used. These are good for people who like a predictable payment and plan on living in their home for a long time.

Both fixed and adjustable rate mortgages can have an interest-only payment. What this means is that for a certain amount of time during the loan term, you're allowed to pay just enough to cover the interest portion of your payment. You can still pay principal when you wish, but don't have to if your budget is tight. There is a myth that with interest-only mortgages, you don't build equity. This is not necessarily true, since you can build equity through home appreciation. This type of mortgage is usually selected by those who need to increase their cash flow by not paying principal.

Ask your mortgage professional questions about which mortgage is right for you and your situation.

Step 7: Close on Your Home

Get a home inspection before you close to ensure the property is structurally sound and in acceptable to you condition.

Set the closing date with respect to both parties. 

Talk to your lender to understand all the costs involved with the closing so there are no surprises. Closing costs will likely include your down payment, title fees, appraisal fees, attorney fees, inspection fees, points if you choose to buy down your interest rate and other fees.

Step 8: Move In!

You've got your mortgage, closed the deal and now it's time to move in! Buying a home for the first time doesn't have to be a hassle if you're prepared, know what to do and when to do it.