Buying a House: What First-Time Buyers Need to Know

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Owning a home comes with responsibility, but also countless benefits. You no longer have to deal with a landlord, noisy roommates, or shared walls. You can enjoy your private space and what would have been your rent money goes back into your pockets. When you have a home, you build your financial resources and own a real estate investment.

No matter what you have in mind, buying a house can seem complicated at first. That’s why we’ve broken the process down into nine easy steps. From start to finish, we cover everything about finding and buying a home you love.

What Credit Score Do You Need to Buy a House?

The credit score needed to buy a house varies based on the financial institution where you get a loan. Some lenders will approve a credit score in the 500 to 600 range, but many are looking for a score of 600 or higher.

If your credit score is below 600, you may want to raise your credit score before applying for a loan. You can boost your credit score in many ways, such as lowering your credit utilization and paying off a smaller loan like an auto loan. These actions show that you’re a responsible borrower.

What are the Upfront Costs of Buying a Home?

The biggest upfront cost of buying a home is the down payment. Your down payment will vary based on your financial institution and personal situation. You may get a discount with a special program or if you’re a part of the armed services. No matter what, you’ll have to put down some money on your mortgage, whether that’s 10, 20, or 30 percent of the home’s price. For a $150,000 house, a 20 percent down payment would be $30,000.

There are several other costs to consider when buying a house — some of which may be unknown to first-time homebuyers. You’ll have to pay a mortgage origination fee, which may or may not include the cost of a home appraisal. There’s also a fee for transferring the title and for a home inspection. Usually, there’s a realtor fee if you’re using one, although the seller almost always pays for this.

Some of these costs can be negotiable. For instance, you may ask the seller to pay for your mortgage fee or title fee. If the market is hot for sellers, it can be difficult to negotiate with the seller to cover certain fees. When the market is slower, you might be able to get them to cover some costs.

How to Buy a House in 9 Simple Steps

The process for buying a house may seem complex. Luckily, you can break it down into manageable action items.

Follow these steps to be well on your way to becoming a homeowner. You’ll reap the worthwhile, long-term reward of owning your own home.

Step 1: Organize Your Budget

The best way to figure out the type of house you can afford is to look at your budget. The goal is to come up with an affordable monthly payment.

Besides your mortgage, consider expenses like homeowners insurance, property taxes, and utilities. Try to get estimates about what these expenses cost in your area. You’ll also want to talk with your financial institution to understand what their mortgage interest rates are.

Once you’ve figured out typical costs and interest rates, go to an online mortgage calculator. Enter in your loan term, home insurance costs, and other details. The calculator will help determine how much you’ll be paying per month for a certain priced house.

Remember that your monthly payment will be a commitment you’ll have for the next 15 to 30 years. You don’t want to overextend yourself financially. You can always upgrade and purchase a larger home in the future.

Step 2: Get Prequalified for a Mortgage

Shop around for the best mortgage interest rate. Look at banks, credit unions, and companies that specialize in mortgage loans. Consider contacting a mortgage loan officer to get more information and to start the pre-approval process.

The financial institution will ask for required documents such as your W2, tax returns, and recent pay stubs. Once you’ve turned in all the required documents, it might take a couple weeks to find out if you’re pre-approved and for how much.

Remember to look at your budget and determine how much you want to spend per month on a house. Keep in might that you don’t have to use the entire loan amount you’re approved for. For example, being pre-approved for $250,000 doesn’t mean you should buy a house for that much. A house worth $175,000 might be a better fit for your budget.

Step 3: Hire a Real Estate Agent

Some people decide to buy a home without a realtor, but most people, especially first-time home buyers, seek their help. An experienced realtor has detailed information on the area and knows the current market.

When considering a realtor, meet with them and ask the following questions:

  • Do they have experience as a realtor?
  • Do they have any clients who can give them a good reference?
  • What are their fees?
  • Are they knowledgeable about the neighborhoods and current homes?
  • Do they have a specialty area or a unique skill set?
  • Does their personality mesh with yours?

You may have to sign a contract saying that you’re exclusive with a certain realtor. Other times, you can agree to a trial period of a few weeks to see if you actually want to work with them.

You shouldn’t ever feel pressured to buy a home through a realtor. They get paid based on buying or selling a home, but they have many clients, including those who don’t buy anything. If an arrangement isn’t working for you, don’t feel obligated to stick with your realtor and buy a home through them. You can always find another realtor who is a better fit.

Step 4: List Your Needs and Wants

Before you begin your search, it’s important to know what you want in a home. Do you want to have a garage or live near a park? Knowing the answers to these types of questions will help you make better decisions when you’re house shopping.

Talk through what you want and loop in your realtor. He or she should know what types of homes to show you, so you don’t waste time. List out everything you want, but remember that you’ll probably have to compromise. Divide your list into must-haves and nice-to-haves, so you can more easily evaluate each home.

Here’s what to look for when buying a house:

Design elements

  • Square footage
  • Floor plan
  • Move-in ready vs. fixer upper
  • Number of stories
  • Flooring (hardwood, carpet, tile)
  • Basement (finished vs. unfinished)

Rooms

  • Number of bedrooms
  • Number of bathrooms
  • Family, living, and dining rooms

Outside features

  • Garage
  • Porch
  • Patio
  • Backyard
  • Space for home additions
  • Space for garden or playground

Location

  • Neighborhood
  • School district
  • Walkability
  • Property taxes
  • Near public transportation
  • Near a park or trail
  • Distance to the city
  • Distance from work

Structure

  • Type of heating and cooling system
  • Year home was built
  • Outside appearance (brick, siding, stones)

Step 5: Begin House Hunting

Many homeowners host open houses — a set time that the house is open to the public for viewing. You may or may not go with your realtor. Open houses are a low-pressure, fun way to look at homes. You might even get to speak with the seller or the seller’s realtor.

Regardless of whether you attend open houses, you’ll want separate appointments to see potential houses. Your realtor should set up these appointments for you. It usually works best to have several visits in one day to maximize your time. Be clear about the houses you want to see, but know that you might tweak your list of must-haves and nice-to-haves after seeing a few homes.

Step 6: Make an Offer

Once you find the home you want, you’re ready to make an offer. Your realtor can help you figure out an appropriate offer and help you prepare all the documents. Your initial offer might be accepted, rejected, or the seller could send a counter-offer back to you.

Offers include more than just a selling price, too. They can include who will pay closing costs, what the closing date is, and which appliances will stay in the house. Each time you send an offer or counter-offer, you’ll be signing a contract. When the seller counters, you’ll need to sign their terms to make it official.

Step 7: Get Approved for Your Loan

Getting approved for your loan should be seamless, especially if you’ve been pre-approved and it’s within the pre-approval amount. Be sure to contact your mortgage officer to tell them you put in an offer on a home. They’ll need the address, the amount of your down payment, and how big your loan will be. Your officer will then verify that everything is approved for your mortgage.

Your mortgage officer will also set up a time for an appraiser to appraise the home. Your financial institution wants to make sure the home is valued at what you’re paying or more.  For example, they want to verify that a house you’re buying for $180,000 is worth at least $180,000.

Step 8: Hire a Home Inspector

After your offer has been accepted, you’ll want to schedule a home inspection. This step is crucial to ensuring there are no substantial issues with the home.

Hire a professional to go through the home with you. They’ll be able to spot things you may not be aware of, such as cracks in the foundation, a leaky roof, or old appliances. Most importantly, you want to know about any major costs that you might incur in the near future.

Once you have the details from the home inspection, examine the report carefully. Even if your offer is already accepted, you can renegotiate or rescind your offer altogether. For example, maybe the inspector found a foundation issue in the house. If it’s going to cost $10,000 to fix, you can try to negotiate your offer for $10,000 less. The selling homeowner has the right to accept, reject, or negotiate whatever you propose. Be aware that you do run the risk of losing the home in a re-negotiation process. However, purchasing a home with major problems could end up being more costly and frustrating.

Step 9: Close On Your Home

Your house has been appraised and inspected. All negotiations have settled and you’re ready to sign the dotted line.

When you meet for the closing, your mortgage officer might join. Sometimes the selling homeowner will be there too. Your mortgage officer will help you prepare the paperwork and go through all the fees. You might have to bring additional items like certain identification or a cashier’s check.

The closing date is mainly about paperwork and official ownership. Depending on the agreement, you could get your keys that day or a later date that both parties have agreed to.

Buying a home — especially your first one — is an exciting financial milestone. While there are many steps to home ownership, there are resources and professionals to help you along the way. Most importantly, having a home you love is priceless. You’ll understand the feeling when you finally hold those keys in your hand.

Comments (1) Leave your comment

  1. I used to LOVE to do Open Houses. It was a great way to get out, meet people, even if it was the noisy neighbors and it did make the sellers feel that you were doing something. I even sold one of my own listings during an open house…YEARS ago!

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