The Home Buying Process

Steps to Buying a Home

Step 1: Check Your Credit Report & Score

Before getting a mortgage or any loan, always check your credit. By law, you're entitled to one free copy of your credit report each year. You can do this by visiting AnnualCreditReport.com. Scores range from approximately 300 to 850; generally, the higher your score, the better loan you'll qualify for. Don't forget to check your report for errors. If there are any, dispute them. It may help your credit score. You can also check your credit score for free at www.creditkarma.com.

Step 2: Figure out How Much You Can Afford

You can calculate how much you can afford by starting online. Several online mortgage calculators can help you calculate an affordable monthly mortgage payment. Don't forget to factor in money you'll need for a down payment, closing costs, fees (such as fees for an attorney, appraisal, inspection, etc.), and the costs of remodeling or furniture. Remember, you don't always have to put down 20 percent like your parents once did. There are loans available with little to no down payment. An experienced home loan expert can help you understand all your loan options, closing costs, and other fees.

Step 3: Find the Right Lender and Real Estate Agent

To find the right mortgage lender, shop around. Ask friends and family for recommendations, and check 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. Find someone you are comfortable with and who makes you feel at ease.

Once you have the right mortgage lender, make sure you at least get a pre-approval. Qualifications are only a guess based on what you tell the lender and aren't a guarantee, whereas a pre-approval gives you a better idea of how big a loan you qualify for. The lender will actually pull your credit and get more information about you. You can also take it a step further by getting an actual approval before you start home shopping. That way, when you're ready to make an offer, the sale will move much faster. 

Step 4: Look for the Right Home

Make a list of what you need in the house. Ask yourself how many bedrooms and bathrooms you'll need, and get a sense of how much space you want. How big do you want the kitchen? 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-haves, don't forget to consider the kind of neighborhood you want, the types of schools in the area, your commute time to and from work, and the convenience of local shopping. Consider your safety concerns, as well as the home's appreciation rate in the area.

Step 5: Make an Offer on the Home

Now that you've found the home you want, you have to make an offer. Most sellers price their homes a bit high, expecting some haggling. You can also ask your real estate agent for a list of comparable sales to see what similar homes have sold for. Once you've made your offer, don't think it's final. The seller may make a counteroffer, and you can counteroffer, too. But you don't want to go back and forth too much. Somewhere, you have to meet in the middle. Once you've agreed on a price, you'll make an earnest deposit, which is money that goes in escrow to give the seller a sign of good faith.

Step 6: Get the Right Mortgage for Your Situation

Many mortgage programs exist, but as a first-time homebuyer, you should know the three basics: adjustable rate, fixed rate, and interest-only.

Adjustable-rate mortgages (ARMs) are short-term mortgages with an interest rate fixed for a short period, usually 1 to 7 years. After that, the interest rate can adjust up or down each year, depending on the market. These are good for people who don't plan to live in their home very long and/or want a lower interest rate and payment.

Fixed-rate mortgages are more traditional and offer a fixed interest rate (and thus a fixed monthly payment) for a longer period, usually 15 or 30 years, though they're available in 20- or 25-year terms. These are good for people who want a predictable payment and plan to live in their home for a long time.

Both fixed- and adjustable-rate mortgages can have an interest-only payment. This means that for a certain period during the loan term, you can pay only the interest portion of your payment. You can still pay principal when you wish, but don't have to if your budget is tight. A myth is that with interest-only mortgages, you don't build equity. This is not necessarily true, since you can build equity through home appreciation. The benefit to interest-only mortgages is that you increase your cash flow by not paying principal.

Remember to ask your mortgage lender or mortgage banker lots of questions about which mortgage is right for you and your situation.

Step 7: Close on Your Home

Make sure you get a home inspection before you close. It's well worth the money because it ensures the property is structurally sound and in good condition.

Setting a closing date that works for both parties can be tricky, but it's doable. Remember that you may have to wait until your rental agreement runs out, and the seller may have to wait until they close on their new house.

Talk to your mortgage banker to understand all the costs involved in closing so there are no surprises. Closing costs will likely include (but are not limited to) your down payment, title fees, appraisal fees, attorney fees, inspection fees, and points you may have bought to buy down your interest rate.

Step 8: Move In!

You've got your mortgage, closed the deal, and now it's time to move in! Whether you hire a mover depends on your financial situation and how much stuff you have to move; it may also depend on whether you have a lot of friends willing to help. Either way, you're done with the home buying process! Just start unpacking and start enjoying your first home! Buying a home for the first time doesn't have to be a hassle if you're prepared and you know what to do and when to do it. Choose an experienced home loan lender and a friendly, knowledgeable real estate agent-they are the key to helping you have a smooth home-buying experience!