10 Steps to Buying Your First Home
1.Start Your Research Early!
Look at magazines, websites, and listings to get an idea of what type of homes you are drawn to and which areas would work best for you and your family. Some things to keep in mind are:
How far are you (and your spouse, if applicable) willing to commute to work?
What type of lifestyle do you prefer? Do you want to be close to restaurants and cultural attractions, do you want the easy sense of community of the suburbs, or do you like being close to nature?
Which architectural styles do you like? Colonial, Modern, Split Level? Is appearance or functionality more important to you?
What are your space needs? How many bedrooms and bathrooms would you like, what type of leisure space do you need in addition (play rooms, man caves, dining rooms, offices, etc.)?
How big of a yard do you want and what time and expense are you willing to put in towards maintenance and landscaping?
What are your "must haves" and what are your "wants"? Most people will have to compromise on SOME things, so it is a good idea to know in advance which things those are.
2. Determine Your Price Range
Speak to a lender about how much you would be approved for, and start thinking about what you feel comfortable spending. A general rule of thumb is 3-5 times your annual household income if you are putting a 20% down payment, but of course, every case is individual.
Also determine if you would be ok with taking a cut in your lifestyle in order to buy "more" house and build equity, or if you want to leave some room in your budget for things such as eating out, travel, and entertainment. In that case, you might want to be more conservative about your price range, even if you are approved for more from your lender. Remember that some lenders will encourage you to get the largest mortgage you can be approved for, or to put less money down, since their commission is based on how much you borrow and many banks will not end up keeping your mortgage on their books in any case. Knowing your limits beforehand will help you set firm limits with your mortgage broker AND your real estate agent, if necessary.
3. Get a Pre-Approval Letter from a Lender
This is based on your financial information, and lets your Realtor and Sellers know that you are serious about buying a home. It is good to have not only to know what you are able to afford, but also so that any offers you make will be taken more seriously. Some Sellers require a Pre-Approval to be attached to your offer. Generally, whenever you submit an offer, your lender will give you a new pre-approval in the exact amount of your offer, so that even if your offer is below the maximum you could be approved for, it won't impact your negotiations.
4. Find the Right Real Estate Agent!
And this is where I come in! Find someone you are comfortable with, who knows the area, is knowledgeable about the home buying process, and will work hard on your behalf. The most important aspect of this relationship is really trust, so trust your gut instinct and find someone that will be honest and ethical with you at all times. Don't just go with the person who tells you what you want to hear. Sometimes it is beneficial to have someone who is willing to give you the big picture, even when they think it might displease you in the moment.
If you are looking at properties such as a foreclosure, short sale, or multi-family, make sure they have experience in this area, as valuation and paperwork processes can differ in each area.
5.Find Your Dream Home and Make an Offer!
Now the fun part begins- looking at potential homes! Once you find the home that feels right and meets all your “must have” criteria, you can make an offer. Usually you will go through a few counter offers between yourself and the seller before getting an accepted offer. Try not to get too attached to any one home, as this is probably the number one thing that can hurt you in negotiations! Once your offer is accepted, the Real Estate Agent will send you and your lawyer’s info to the Seller's lawyer to draw up the contracts.
6.Get a Home Inspection
As soon as you have an accepted offer, schedule the inspection with an engineer. This should be someone who has experience in building homes, so they know which deficiencies to look for and can identify any potential problematic areas. If your home is in an area with well and septic systems, you will want to run separate tests for these as well.
7. Sign the Contracts
Once you have fully executed, or in other words, both parties have signed the contracts, your lender can officially start the loan underwriting process, and you will usually have an idea of your approximate closing date. At the time of your signing as the buyer, you will bring your initial “Good Faith” deposit for the lawyer to place in an escrow account. You may think you've reached the end, but you still have some work left before you reach the Home Stretch. Be prepared for negotiations to continue in this stage, as you work out an acceptable closing date, decide if you would like the seller to make any additional repairs to the house, and in general, finalize all the terms of your purchase.
8.Get an Appraisal
If you are getting a mortgage, the lender will usually require this in order to approve the loan, but even if you are not obtaining financing, it is a good idea to make sure you are not overpaying. This is a complete process in itself, and is worth an entire blog post of its own.
9. Title Search and Final Paperwork
You made it to the final stages before closing! Now you are just tying up loose ends, sending any additional paperwork your lender requests and waiting for the Title Search to be conducted to ensure that there are no legal issues associated with the transfer of the property.
10. Close the Sale
Yay! You are officially a homeowner! At the closing, lawyers, lender, title agent, and sometimes the seller and your Real Estate agent will come together, have you sign about a million forms, and tie up any loose ends regarding taxes, fees, etc. During this time you and the mortgage company will also take care of the final settlement of funds for the purchase price. But most importantly, they will hand over the keys to your new house, and you have just purchased your first home!
