Homebuyers' Walkthrough: Buying a First Home
Buying a home can be a long, emotionally and financially draining process. Knowing what to expect helps ensure the process goes as smoothly as possible.
Get Your Finances in Order
As mentioned in the Obtaining a Mortgage section of this tutorial, the first step in home buying is to get your finances in order. Take a close and realistic look at your expenses and income to decide how much house you can afford. It's important to actually make calculations and not just guesses. Also, order a copy of your credit reports and find ways to improve the score, if necessary. Doing so can lead to more favorable mortgage terms – which can save you lots of money over the course of the loan.
Learn About Mortgage Lenders and the Mortgage Process
Familiarizing yourself with the mortgage process and the various types of mortgage lenders can help you become a confident and knowledgeable borrower. You’ll be able to make more well-informed decisions if you understand the language and the process. (For more, see Mortgage Basics: A Tutorial.)
Get Pre-Approved for a Mortgage
The pre-approval process helps determine how much you can afford to borrow. To do so, lenders evaluate your financial information such as credit score, debt-to-income ratio and income. Being pre-approved for a mortgage also legitimizes your offer to purchase a home. A seller is more likely to consider an offer from a pre-approved buyer than one who simply says he or she will be able to secure the necessary mortgage. (See also Understanding Pre-Qualification vs. Pre-Approval.)
Investigate Special First-Time Buyer's Programs
The federal government and some state governments have special programs for some categories of first-time homebuyers. As you decide how you will be able to finance your home, don't forget to see if you qualify for any of them. Read up on the details in Investopedia's First-Time Homebuyer's Guide.
Narrow Down Wants and Needs
It’s a good idea to write down a list of your needs – the things you absolutely must have, and your wants – the features you would love but could do without, if necessary. Making the distinction between needs and wants can help you find the best home for your money. Needs might include things like close to the city, good school district and three bedrooms. Wants might include a two-car garage, fenced-in yard and a cul-de-sac.
Find a Real Estate Agent
You can find a real estate agent by word of mouth (a friend, family member or coworker might be able to make a recommendation), visiting an open house or looking online. An in-person meeting with an agent can help you decide if they’re a good fit, and allow you to ask any questions about the potential agent's duties and responsibilities. You may be asked to sign certain agreements such as an exclusivity agreement. Be sure to understand the terms of any agreements or contracts before signing. (For related reading, see How to Find the Best Real Estate Agent.)
Start the Search
Share your wish list with the agent so he or she can find potential homes in the multiple listing service (MLS) – a listing of all homes listed by participating brokers and agents. The agent can narrow down the search by specifying the property type, location/neighborhood, price range, minimum number of bedrooms and bathrooms, minimum square footage, property age and type of sale (including foreclosures and short sales).
Additionally, the agent can filter for features such as waterfront location, screened-in porch, wraparound deck or other desired elements. Note that you can do these same types of searches on your own by visiting any of the real estate aggregator websites – but your agent may have seen some of the homes and neighborhoods in person, which can prove very valuable. Or the agent may know of properties that haven't officially gone on the market yet. (For more, see The 5 Best Alternatives to Zillow and Trulia.)
Before making an offer, consider the home's resale potential, contract contingencies (such as appraisals to substantiate the purchase price, home inspections, pest inspections and a preliminary title report), and any deed restrictions or easements on the property. Your agent should be able to provide some valuable guidance during this stage. (See also: Contingency Clauses in Home Purchase Contracts.)
Make an Offer
Few buyers find the perfect house immediately, and most visit many homes before making any decisions. Once you’ve found an ideal home within your price range, it’s time to make an offer to purchase the property. If you’re working with a real estate agent, he or she is required to bring all offers to the seller, who will either accept the offer or make a counteroffer. This process can involve going back and forth several times before you and the seller agree on a price. Or you could find yourself in a bidding war with other buyers. (For related reading, see: Buying a Home: Write an Offer.)
Home Inspections and Other Tests
Contingency clauses allow potential buyers to cancel a contract without penalty under certain circumstances. For example, federal laws give buyers 10 days to inspect for lead-based paint (many homes built prior to 1978 contain lead-based paint). In this example, if you determine the home has lead-based paint, you can back out of the contract without penalty. Contingency clauses can be written for nearly any need or concern – based on the results of appraisals, financing and inspections, and even the sale of your home (called a home sale contingency). (For more, see: Home Sale Contingencies: What Buyers and Sellers Need to Know.)
Closing, or settlement, is the event that transfers ownership of property between two parties – in this case, from the seller to you, the buyer. The property will be recorded in your name, and the city or county will be notified of the transaction and record you as the new owner of the property. (See also 13 Steps to Closing a Real Estate Deal.)Homebuyers' Walkthrough: When to Sell and Buy a Move-Up Home