FEATURED_The-Home-Buying-Process--A-Beginner's-Guide-on-What-to-Expect

Are you new to the home buying process? If so, you may not know what to expect.

Are you new to the home buying process and not sure what to expect? The entire process can feel intimidating. In fact, finding the right home may be the least of your worries. You may be worried about:

  • Finding the right real estate agent
  • Getting approved for the home of your dreams
  • Negotiating a comfortable deal

But, if you’ve never bought a home before, the entire process may overwhelm you. You’ll enter the process confused, and leave feeling dissatisfied with your choices.

[Tweet “If you’ve never bought a home before, the entire process may overwhelm you. Here are a few tips:”]

I don’t want that to happen to you. That’s why I’ve created this mini guide. Below, we’ll discuss what you should expect when hunting for and eventually buying a home. Let’s get started:

[content_upgrade cu_id=”3906″]Grab this list of home buying questions to ask your real estate agent![content_upgrade_button]Click Here[/content_upgrade_button][/content_upgrade]

Check Your Credit Report First

Before you start the home buying process, it’s a good idea to find out your credit score. Unless you’re paying cash for your home, your credit score plays an important part in the process. Your credit score will determine your ability to qualify for a certain mortgage. Banks use credit scores (and credit history) to decide how much they will lend you in the purchase of your home. It’s also used to determine your interest rates.

Generally speaking, the higher your credit score, the lower your interest rate.

Credit scores range from 300 to 850. Here’s how it breaks down:

credit.org

Image Courtesy of Credit.org

  • 300 to 550 is poor. Expect a mortgage rate around 9.5% or higher, if you’re even approved at all. It’s very hard to get a bank to trust you with a poor credit score.
  • 550 to 620 is subprime. Some banks take a chance on those within this category, but you can expect a hefty 8.6% mortgage rate at this credit score.
  • 620 to 680 is acceptable. You’ll find mortgage rates around 4.9% or higher. You can secure loans much easier with a score in this range, but you won’t get the best interest rates.
  • 680 to 740 is good. Your mortgage rate will be a manageable 4.2%. Because you’re less likely to default on a loan (only 5% of those in this credit score range are delinquent), you’re almost guaranteed to get approved.
  • 740 to 850 is excellent. At this credit score range, you won’t have any problem finding a lender willing to take a chance on you. Your high credit score rating earns you the best mortgage rates, often hovering around 3.9%.

My advice is to boost your credit score as high as possible. Shoot for 680 and above. Otherwise, you’ll end up paying so much more in interest. Depending on the home and interest rate, you could spend over $100,000 in interest alone.

However, if you take a year to repair your credit, you could see a dramatic boost. According to Credit Sesame, you can improve your credit score by 100 points in just six months. It starts with paying close attention to your credit, eliminating debt, and paying bills on time—no exception.

Decide How Much You Can Comfortably Afford

coins-912720_640

The operative word here is “comfortably”. It’s not a question of how much the bank will approve. With an impeccable credit score, the bank may approve more than you’d like to reasonably spend on a home. You must factor in other elements that are important to you:

  • Are you saving for your children’s college fund?
  • Do you want to be able to save money for vacations?
  • Do you have other hobbies that demand your financial attention?

While you may be approved for a home up to $250,000, your max “comfortable” budget may be $200,000.

You’ll also need money for closing, appraisal, earnest money, down payment, furniture, remodeling, and so on. Remember to keep that in mind as you house hunt.

Find a Buyer’s Agent

While you can search for a home on your own, I strongly recommend that you find an experienced agent to do it for you. A buyer’s agent will do all of the hard work for you. He or she will take your wish list and find homes that fit within your criteria.

Because this agent has access to a network of real estate colleagues—and not just computer listings—he or she may have insider knowledge of homes that haven’t even hit the market yet.

Without a buyer’s agent, you run the risk of buying too high for the area because you may not know what prices are considered good, bad, or average. Plus, it’s in your agent’s favor to work hard to find you a home that you want.

Get Pre-Approved

There’s a difference between being pre-qualified for a home and getting pre-approved. A big difference. Pre-qualified means that a lender has taken a brief look at your debt-to-income ratio, employment history, and other financials, and then determined how much you’re likely to qualify for. It’s not guaranteed, and it’s often a waste of time.

Pre-approval, on the other hand, means that the bank has combed through your entire financial story and has determined whether to lend to you. If the answer is yes, you’ll receive pre-approval papers that you can then take to the home seller.

Pre-approval is much preferred, and will assist you in securing the home you want.

Find the Perfect Home and Neighborhood

homes-1282101_640

Your perfect match will depend on various factors including:

  • How much you’re willing to pay
  • What you need in a home
  • What you’d like in a home
  • What location works best for your family
  • Whether or not you’re open to fixer uppers

You’ll need to determine your deal breakers. Sometimes, that happens as you get out there and start house hunting. I’ll share a few resources for finding the perfect home and neighborhood at the end of this post.

Negotiate

Here’s where you roll up your sleeves, dig in your heels, and prepare for battle. This is Sparta!

Well, maybe it’s not that serious—but negotiating the price of your home does require nerves of steel. Everyone wants a bargain, but no one wants to get outbid on their dream home.

The right real estate agent will advise you on whether your offer is too low or just right. Often times, you will make an offer and then the seller will counter-offer. You may go back and forth, negotiating on other costs (such as closing or paying for repairs uncovered during the inspection process).

Sign the Contact and Secure Your Mortgage

Once you’ve decided on a price, you’ll sign the sales contract and then begin the lengthy process of securing your finances. This depends heavily on the bank. It can last anywhere from three weeks to over thirty days.

During this time, the bank may reject the price of the home due to a low appraisal, or other reasons.

Face Closing

Closing is the final step in the process. This is when the seller transfers ownership to you. Happy times. During closing, you’ll pay closing costs, including your down payment, inspection fees, appraisal fees, and attorney fees.

It’s an exciting time, but it can be nerve racking because you’re still not “home free”. For example, a lender may decide at the last minute not to finance the home.

But, for most home buyers, closing is only a matter of signing a seemingly endless mountain of papers. Patience will help you out a lot during this stage. Just remember it will be worth it in the end. Good luck!

Extra Resources

Check out these helpful articles to aid in your home buying process:

6 Tips for Finding Your Perfect Neighborhood
House Hunting: What to Look For and What to Ignore
How To Make an Offer They Can’t Refuse: The Art of Negotiating Your Dream Home’s Price

[content_upgrade cu_id=”3906″]Grab this list of home buying questions to ask your real estate agent![content_upgrade_button]Click Here[/content_upgrade_button][/content_upgrade]