572 viewsBy Isaiah Ajala, Licensed Real Estate Salesperson
Being a first-time home buyer can be daunting, confusing, and expensive. However, purchasing a home is a significant milestone and a major financial decision. Particularly for first-time home buyers, real estate could be the first step to financial freedom and a private sanctuary. Either way, its extremely important for buyers to know exactly what to expect during the transaction process. Here is a step-by-step guide of things to consider along the way.
1. Assess Your Finances
Even before the you begin to pound the pavement and look for a property, it's important to first take a close look at your financial situation to determine how much you are spending and saving each month. Consider your income, expenses, debts, and credit score. Ideally, your monthly mortgage payment should not exceed 25-30% of your monthly income. At this point in the process, it will be good for you to gather your last two years of taxes, bank statements, paystubs, and any verification of alternative income you receive.
2. Get Pre-Approved for a Mortgage
Contact a few lenders to get pre-approved for a mortgage and weigh out your options. Pre-approval will give you an idea of how much you can borrow/afford and strengthen your position when making an offer on a home. While some loans may require a smaller down payment, putting down 20% or more can help you avoid private mortgage insurance (PMI) and secure better loan terms. First-time homebuyers could qualify for FHA loans, which require a smaller down payment of 3%-5%. Remember, your down payment will also have a major impact on what you can buy. While your pre-approval will inform you of what you can afford to spend on your mortgage each month, your down payment is equally as important.
3. Create a Wishlist
Now that you know how much you can afford, make a list of your preferred home features, such as location, size, number of bedrooms and bathrooms, yard space, and any other amenities you desire. It's important to be realistic and flexible with your wish list,( champagne, beer, budget) don’t be that person! Honestly, after seeing a few properties you will be in a better position to determine what is unrealistic or achievable.
4. Work with a Qualified Real Estate Agent
Enlist the help of a reputable real estate agent who specializes in in the neighborhoods your desire. They will guide you through the process, show you properties that match your criteria, and negotiate on your behalf. Agents can also be excellent resources for insights on communities and what they offer.
5. Start House Hunting
Visit different properties to get a sense of what's available in your budget and preferred location. Take notes and pictures to help you remember the details of each house.
6. Make an Offer
When you find a home you love, work with your real estate agent to make a competitive offer based on market conditions and comparable home sales in the area. When making an offer, the terms of your offer will be just as important as the price.
7. Conduct a Home Inspection
Once your offer is accepted, schedule a professional home inspection. This will help you identify any potential issues with the property before finalizing the purchase.
8. Sign the Contract
If there are no issues with the home inspection, you should be set to sign. If issues are identified by the inspector, negotiate with the seller on these issues before signing the contract. Before freaking out about the report, it's best to consult your real estate agent to determine what issues are critical and negotiate on those items only. You don’t want to negotiate on every item, because the sellers could walk away from the deal if they feel you are to picky. Once the buyer and seller have come to an agreement on the issues identified on the home inspection, the buyer will sign the contract and leave a contract deposit before the seller signs the contract.
9. Secure Financing
Work with your chosen lender to complete the mortgage application and finalize your financing. Your lender will need a copy of the executed contract in order to apply for your mortgage. Your lender will also likely need updated documents, like paystubs and bank statements. During this stage, your lender will schedule an appraisal in order to determine the property is worth the purchase price. A survey will also take place.
10. Review Closing Costs
Be prepared for closing costs, which include various fees like appraisal costs, title insurance, attorney fees, and more. Your lender should provide a Closing Disclosure Form that outlines these costs. Closing costs usually run 5%-8% of the purchase price. Provided there is equity in the property, you could request a seller's concession, which will allow you to keep cash in your pocket.
11. Close on the Property
Before heading to your attorney's office for the closing, you must do a final walkthrough of the property. The final walkthrough should be done along with both your agent and the seller's. The purpose of the final walkthrough is to ensure the property is in the same condition as it was when you last saw it, and any items negotiated from the home inspection have been fixed. On the closing day, sign all necessary paperwork, pay the closing costs and the down payment, and receive the keys to your new home!
12. Move in and Settle
Congratulations, you're now a homeowner! Take some time to settle into and familiarize yourself with your new home. Know where meters and valves are located, make any necessary improvements or repairs, and enjoy this exciting new chapter in your life.
Remember, buying a home is a complex process, so it's essential to do your research, seek advice from professionals, and take your time to make informed decisions. Best of luck!
