Reading Time: 5 minutes – Posted: 2019
The home buying process can seem a little overwhelming – but not when you wield the tools of a smart house hunter. Purchasing your first home is a major life milestone, and everyone’s experience differs from person to person. Understanding the basics of how this process works will make the process go a lot smoother.
Pre-Qualify/Pre-Approve for a Mortgage
The first step is starting the pre-qualification and/or pre-approval process so you can get an idea of how much house you can afford. When getting pre-qualified, you’re given a rough estimate of the mortgage options available to you. You’ll share your debts, income, assets and cash available to obtain a pre-qualification, which can easily be done online or over the phone.
Taking this a step further, you may choose to become pre-approved to get a more specific estimate of how much a mortgage lender may loan you, what your interest rate may be and the price range you’re able to afford. Becoming pre-approved requires a credit report and paperwork to confirm what your financial situation looks like.
Hire a Real Estate Agent
After you’ve been pre-qualified and/or pre-approved, start your search for a real estate agent. Shop around and talk to friends and family members, in addition to doing online research, to find an agent with whom you feel comfortable. Local Realtors Associations can also be a valuable resource.
Prioritize What’s Important and Find Your Dream Home
Once you have an agent by your side, prioritize what’s important to you and start the search to find your dream home. Begin your house hunt with properties in your price range, narrowing down your selection by making a list of things you want in your home. Think about the number of bedrooms and bathrooms, living space, kitchen size and lot size you want.
Additionally, make a list of priorities for the area around your future home including the state of the neighborhood and home appreciation rate, the quality of schools in the area, commute distance and the availability of grocery stores.
Don’t forget to take thorough notes and pictures at each home you see! It’s hard to remember each house you’ve visited, so keeping track can make it easier.
Make an Offer
That real estate agent you selected will certainly come in handy in this leg of your journey: negotiating an offer. After you find the right home, meet with your agent and discuss an offer you’re willing to make on the property. Use your realtor’s knowledge and negotiating skills to your advantage and offer a price that is comparable to homes in the area.
The seller may make a counter-offer, which you can respond with another counter, but going back and forth too much can harm your chances of getting the house. Once this stage is completed and both you and the seller have reached an agreement on a set price, the process will go into escrow. Escrow is when your earnest money deposit is held by a third party until the negotiation process and final closing paperwork are finished.
Officially Apply for a Mortgage
Once you and the seller have reached an agreed upon price tag for the home, you’ll officially apply for a loan. In addition to your loan application, an appraisal of your desired home will be conducted by a professional appraiser to make sure you’re on track – a necessity of the mortgage process. This ensures that the borrower’s loan request reflects the home’s market value. To make sure there’s no mold, asbestos and other harmful byproducts lurking in your home, you’ll also need the property inspected.
Loan applications usually include:
- Home address
- Social Security Number
- Estimate of home’s value
- The amount you want to borrow
- Authorization to check your credit
- Current assets to apply towards a down payment and closing costs
Something to think about when you are applying for a mortgage is how you want your monthly payments structured. Two basic structures in mortgages are adjustable rate mortgages (ARMs) and fixed-rate mortgages.
ARMs offer a lower fixed interest rate for a short amount of time, followed by monthly payments that have annually fluctuating interest. ARMs are good for those who know they won’t be staying in their home for long. When mortgage rates are on the rise, it’s not recommended to go with this option because the adjusted rate in the latter portion of your payments will be significantly higher. Fixed-rate mortgages are more traditional loans that offer a fixed interest rate for a longer period of time, giving you a normal, consistent payment each month. This is good for those who plan on staying in their home for a long time.
After the loan application process is complete, you’re ready to transition into home ownership! You sign the paperwork required to finalize your purchase, which are the agreements between you and the mortgage lender, and between you and the seller. These agreements usually include the real estate transfer documents, home loan documents and real estate title documents. Once all of this is complete, carefully sift through the final paperwork and get one step closer to closing.
Closing is the final part of the process. Make sure to ask plenty of questions if you need verification. Read over your Closing Disclosure carefully, as this clearly states the details of your mortgage payments and any other additional costs and fees. Recently, legislation has been passed to assist you in understanding the Closing Disclosure by requiring buyers to receive their Closing Disclosure three days before closing.
At closing, make sure you bring a government-issue photo id and a cashier’s check with your down payment and closing costs.
You or your real estate agent should also have the following:
- Home inspection reports
- Loan approval documents
- Proof of homeowners insurance
- A copy of your contract with the seller
If there’s anything you’re unsure about, make sure you check with your title officer or real estate agent to confirm that you’ll be prepared at closing. Finally, move into your home and make it yours. Start unpacking and get used to the new home you purchased! The home buying process is exciting and this part of the journey finally allows you to turn your dreams into reality.