The first time you buy a home can feel overwhelming. There are so many moving parts that it can feel like you might not be able to get through it. But understand that it’s not necessary to do everything at once. Start with step one, and when that’s done, do step two, and so on.
And fortunately, it’s one major life milestone you don’t have to do alone. Real estate agents are wonderful resources. They can guide you through the process, answer questions, and help you find the resources you need.
Keep reading to learn about the five steps of the home-buying process. Then, check out the ultimate first time home buyer’s guide.
Five Steps Every First Time Home Buyer Should Take
Step One: Get Pre-Approved
According to Credit Karma, getting pre-approved for a loan is a crucial part of the process. Pre-approval gives you an idea of how much money you can spend on your home and what kind of mortgage you could qualify for.
Just note getting pre-approved does not mean that you are 100% approved. It just means that you have been evaluated and are qualified for a home loan.
Step Two: Choose Where to Look
Once you’ve been pre-approved, you’ll have a better idea of what you’re likely to qualify for with a mortgage. By finding the area you want to search in first, you can match the available homes to your budget.
Suppose you want to stay in a certain area because of schools, the proximity to work or to be near family. In that case, you might have to decide if you can afford a single-family home, a townhome, or a condo.
It’s possible to buy a home as-is, too. An as-is home may need some upgrades or repairs that the seller is unwilling or unable to do. If you don’t mind investing time and sweat into renovations, you may be able to afford the type of home you want in the area where you’d like to live. Always get an inspection to ensure the home has no major structural damage.
Step Three: Get the Mortgage
Mortgage loans come in many different shapes, sizes, and interest rates. A fixed-rate mortgage keeps the loan’s interest rate fixed so that you know how much your monthly payments will be through the life of your loan.
Take note that certain loans are best suited for specific types of home purchases. FHA loans, for example, are a great option for first-time homeowners with less money to put down on a new house. They’re also great for anyone who lacks the credit history to qualify for a conventional loan.
Lastly, closing costs typically range from two percent to five percent of the home’s purchase price. If you need help calculating your closing costs check out this closing cost calculator after you know the final sales price.
Check out this book, The First Time Home Buyer’s Guide
Step Four: Purchase Insurance for Your New Home
All lenders will require you to purchase homeowner’s insurance. Two major components of homeowners insurance are property coverage and liability coverage. Homeowners insurance protects the building and its structural parts against covered perils. Liability coverage protects you if someone gets hurt on the premises and decides to sue you for negligence.
If you want coverage in case home systems or appliances break down, then a home warranty can be beneficial. First, understand the difference between a home warranty and a manufacturer’s warranty. Check the home inspection report for any red flags. Then, ask if there are any existing appliance warranties and what they cover.
Step Five: The Closing
A deal should be considered complete at the closing, and everyone involved should have everything they need to move on. A closing typically involves a final walk-through of the property by the purchaser. You’ll also assign possession of the property to the purchaser and sign the mortgage notes and deed.
That’s all there is. Follow these five steps, from securing a mortgage to closing and knowing the difference between a home warranty, homeowner’s insurance, and a manufacturer’s warranty. Congratulations, you’re now a homeowner!
Need to know more? Check out this book, The First Time Home Buyer’s Guide.
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Acquania Escarne of The Purpose of Money is a wealth strategist. She helps clients across the country build and maintain generational wealth through saving and investing. Reach out to Acquania for more info!