As the soon-to-be owner of a new home, no doubt you’re already imagining what living in your home will be like. You’re so close, you can practically smell the new paint! Each item you check off on the journey means you’re one step closer to feeling those new keys in the palm of your hand. So let’s get started! Here are some of the major milestones you can expect and resources to help every step of the way:
1. Consider your budget.
First things first: how much can you afford to spend? Home buying is much more than just a mortgage payment, so you’ll want to consider all the potential costs and crunch the numbers to determine what’s affordable for you.
2. Find the right lender.
Shop around for a lender that offers a loan to meet your needs and can help you through the buying process. Even before house hunting, you’ll want to get pre-approved by a lender. A pre-approval means a lender has approved you for a loan at a specified amount based on your income, assets, debt and credit.
Your lender will provide a pre-approval letter, verifying the loan amount you’ve been approved to borrow. You’ll need to provide financial information, such as your annual income and monthly obligations, to secure a pre-approval. Your lender will work with you to determine the loan product that’s best for you based on information you provide.
Look for a local real estate buyer’s agent who knows the area well to represent you and your interests. Put together a list of your needs and wants, such as home type (condo or single family home?), proximity to schools and work (what does your ideal commute look like?) and layout (how many bedrooms? ranch or colonial?).
4. Make an offer.
When you’ve found a home that meets your criteria, you’ll make an offer to the seller, who can accept it, reject it or counter. Negotiations are often market-specific: in a hot market, you may need to act quickly and offer asking price (or even higher!), while some price haggling is typically involved in slower-moving markets. Your real estate agent can help you look at comparable homes to determine an appropriate offer.
5. Sign the contract.
Once you’ve agreed on a price, the seller will accept the offer by signing it. You’ll then make an earnest money deposit as a sign of good faith that you intend to purchase the property. The amount varies by state and real estate market, but averages around 1 to 2 percent of the purchase price, according realtor.com.
6. Apply for your mortgage.
If you haven’t already, now’s the time to fill out the official loan application and decide on the type of loan that’s best for you. Your lender will ask for documentation about your income, employment and assets. It will take some time for your lender to review this information as part of the underwriting process. Your lender will typically require an appraisal to determine how much the home is worth and will agree to lend you an amount up to a certain percentage of the appraised value.
Because interest rates change daily, you may elect to lock in your interest rate. If you see rates decrease after you lock but before your settlement date, you may be able to pay a fee to lower your rate. After you receive your initial disclosures, you can confirm with your lender your intent to go forward with the application.
7. Get inspections completed.
While not every buyer obtains an inspection—which typically evaluates the home’s electrical and plumbing systems, appliances and structure—it’s generally a good idea. You’ll be responsible for hiring an inspector and asking the seller for any necessary repairs. If the inspection turns up unexpected problems, your contract may allow you to walk away from the deal.
8. Obtain title and homeowners insurance.
A title insurance company will verify that the property is free from legal claims and liens against it. You’ll be required to purchase the lender’s title insurance to protect the lender and you can and should purchase owner’s title insurance to protect you from any future claims. Your lender will also require you to purchase homeowners insurance to protect you and the lender from loss in the event your home is damaged or destroyed.
9. Perform the final walk-through.
Typically performed a few days to a few hours before closing, the final walk-through enables you to make certain the property is in the condition in which you agreed to buy it—any negotiated repairs have been made, and nothing has happened to the house since you last saw it.
10. Close on your home.
You’ve made it! Closing on a home completes the sale. (Learn about what to bring and expect on closing day.) Your lender will disburse the funds to the seller, and you’ll sign a variety of documents to execute the loan and take ownership of the home. Congratulations and welcome home!