The steps to buying a home can make the overall process long. First, you'll need to be prepared to own a home and set a budget. Next, you'll work with a lender to get pre-approved for a mortgage. Then, you'll start buying properties, ideally with a trusted real estate agent by your side.
To demystify the process and get the most out of your purchase, here's a summary of what you need to consider before you buy and what you can expect from the buying process itself, plus tips to make life easier after buying your first home. Sure, you're financially ready to buy a home (see Step 2 for that). But are you emotionally ready? Even if it's just going to be your starting home, you're making a big financial commitment and putting down roots. Once you've determined what you can afford, you can calculate how much you want to save for the down payment.
Although the 20% down payment used to be the norm, many homeowners choose to put less. A smaller down payment requires less money up front, but it means you'll have to pay for mortgage insurance. The type of mortgage loan you use also affects the required minimum down payment. You'll want to set aside money for more than just the down payment.
Closing costs generally range from 2% to 5% of the total cost of the loan. It's also a good idea to have some emergency funding in case the house needs unexpected repairs. With each of these types of loans, you may have the opportunity to choose between a fixed-rate mortgage or an adjustable-rate mortgage (also called an ARM). As you've probably guessed from the names, fixed rates are static; adjustable rates can go up or down.
You'll also need to choose the term of the mortgage. Thirty-year mortgages are the most common, but terms of 10, 15, or 20 years may be available. Forms W-2 from the past two years (possibly longer, if you have changed employers). Paid receipts for the last 30 to 60 days.
The subscription includes going deep into your finances, so you may need to prepare even more documents. The lender will also review your chosen home through an appraisal (see Step 13 below) and request a title search. You choose the home inspector and pay for the home inspection. If you discover issues that weren't included in the seller's disclosures, you may be able to negotiate with the seller (see Step 1).
You can find homes for sale on your own, but a good agent can help you make sound decisions and guide you through the homebuying process. A broker can also help you gain access to homes as soon as they hit the market, before they can list online. While getting pre-approved for a mortgage is an important step for a first-time buyer, it's possible to look for the best deal. You'll likely pay off the mortgage for a while, so getting the lowest mortgage rate should be one of your main considerations.