Purchasing a home as a first time home buyer can seem like a monumental task.
There are quite a few steps to make it through the entire process and you will likely learn a lot of new terms that are specific to the real estate and mortgage industries.
Not to mention the fact that your financial life will be scrutinized with a large microscope.
Presented below is an outline of a typical purchase process.
Advantages for a First Time Home Buyer
There are several state and federal operated programs available to assist people with buying their first homes. The majority of these programs assist with the down payment so that buyers are not using so much of their own money.
As definitions go, a first time home buyer is someone that meets at least one of the following scenarios:
- A single parent that only owned a home in the past 3 years while married.
- A person or married couple that did not own a residence over the last 3 calendar years.
- A person that is a displaced homemaker and previously, in the past 3 years, only owned a home with their spouse
These people are highly encouraged to seek out assistance from the previously mentioned local, state, and federal organizations and apply for a home loan.
Items to Consider Before Buying
Here are some things to ponder and decide if you are truly ready to purchase a home.
What is the current state of your financial affairs?
In order to buy a home, you will need a solid credit history and at least some money in savings. The money in savings will be used for earnest money, possible moving expenses, pre-purchase items like a home inspection, and there will likely be some closing costs that you need to cover.
You will need to have a track record of making timely payments for at least 12 months on all your bills. Ideally, you will have at least 2 years of good payment history. Items like automobile payments, credit cards, and rent will all be reviewed carefully to determine if you are a good financial risk for the loan.
What home features are most important to you?
This is something that you will need to analyze and determine on your own.
For example, if you have a large dog that needs plenty of space to move and exercise, a small condo with very little green space will likely be a bad choice.
Or, if you are a married couple with 2 young children and a 3rd child on the way, it would seem that you need a home with at least 3 bedrooms and 2 baths, plus lots of closet space.
Take some time to review your current needs for your style of living as well as how those needs may evolve over the next few years.
How much are you comfortable spending on a home payment each month?
Many people speak to a mortgage lender to get pre-approved for a home loan. Often they learn that they can afford, on paper, more than they anticipated.
This does not mean you have to buy a home at the maximum level of your income.
Consider other things like vacations, hobbies, and personal interests when looking at the housing
payment. The home should not be a drain on your entire finances.
Will you use the services of a real estate agent?
For a first time home buyer, it can be a good idea to work with an experienced real estate agent. The agent can easily help you find homes based on your criteria and avoid homes that do not fit with your budget or your needs.
Additionally, they can help negotiate the contract for you so that a seller does not take advantage of you.
Basic Steps of Buying the Home
Now that you have an idea of your current situation and what you are searching for in a home, it is time to start the process. Here is the order of the steps that should help you maximize your time and help you with the purchase.
First, get Pre-Approved
The smartest thing you can do at the beginning of the home buying process is to talk to a mortgage lender and get pre-approved for the home loan.
The lender will request a copy of your financial documents such as recent pay stubs, W-2 forms, personal tax returns, account statements from saving, checking and investment accounts, and possibly a few other items.
The lender will analyze this info, along with a recent credit report, and determine how much home you may purchase.
The lender will then provide you with a pre-approval letter that you may provide to your real estate agent.
Choose a Real Estate Agent
With your pre-approval letter in hand, find an experienced real estate agent to work with. Discuss with them what you need in a home now, as well as in the near future.
Look over different areas of town and make a choice that fits with your needs for work, hobbies, and any other important interests.
The agent will then look for homes that meet your needs and schedule in-person visits to the homes.
Review Multiple Homes
Too many first time home buyers make the mistake of simply buying the first home they find that falls below their budget. This is not the wisest move.
Most homes will have one or two features that are not ideal for you and your needs. Visiting several homes will provide you with items to compare.
One home may have a great big yard that you love, but the closets are too few or too tiny.
Another home may have the right size square footage, but the location will make commuting to work a nightmare.
Look over a few homes and always keep in mind that you will be here for many years. It needs to be a place that makes you happy.
Submit an Offer to buy
After reviewing a few homes with your agent, choose one, and make an offer. Your agent should be able to help you complete the contract with the proper contingencies.
Unless you are looking at a brand-new home, it is wise to consider a home inspection contingency. In general terms, this clause in the offer contract states that you have the option to walk away from the contract if the home inspection uncovers a major issue to the home.
The agent will request an earnest money deposit with the contract to offer. This will be some amount, typically between $500 and $2,000 that shows the sellers you are serious about buying the home. The money is deposited with your agent and held until the loan closes.
With the offer in place, your mortgage lender will get to work on approving your loan.
Along with the previously mentioned financial documents, your lender will request an appraisal of the home.
The appraisal and financial documents will be sent to the underwriter for the lender.
The underwriter will compare your financial documents to the guidelines of the particular type of loan used for your purchase. The underwriter is verifying that you and the home qualify for the rules of the particular loan.
Once the underwriter has approved the loan, your file is sent to a closing attorney.
This is the exciting part of the process, but also a bit tedious.
You, along with your real estate agent and the seller, will meet at the closing attorney’s location. The attorney will present several documents to you. The attorney will explain the nature of each document and ask you to sign the forms.
There will be several forms for you to review and sign. These forms detail the responsibility of the lender during the course of your loan as well as your responsibilities as the borrower. The forms will explain your interest rate, the term of the loan, frequency of payments, and many other items.
Once the documents are all signed, the seller or the seller’s real estate agent should provide you with a key to your new home!
As you can see, there are quite a few steps involved in purchasing a home. The two things that will help you move through the process as easily as possible is
- Work with experienced real estate agent & mortgage lender
- Respond timely to any questions or requests made by either your agent or lender.
Final Thoughts on How To Buy A Home As A First Time Home Buyer
By following the information above, you should be on your way to buying your first home.
Additional First Time Home Buyer Resources:
Understanding how you can fail at buying your first home will put you in a better position not to make those mistakes. With the amount of money on the line and the complexity of buying a home, learning what mistakes to avoid as a first time home buyer is a must.
Knowing how much house you can afford is the very first step of buying your first home. It’s part of the pre-approval process and should not be taken lightly. As a reminder, buying a home at your absolute maximum amount is not always recommended. Keep in mind there are other expenses of owning a home. Being house poor is something no one wants to experience.
After you get pre-approved for a mortgage, the next step in the process is typically looking at houses. This can be an exciting part of the process, especially for a first time home buyer but it can also have its downside. Knowing what the current market conditions are and doing a little research on schools, pricing trends and other things will prove to be helpful in your quest to find a home.
Knowing what your loan options are, what mortgage programs are available, what your credit score is and understanding down payment requirements will help make the home buying process easier to navigate. These things along with a few others will help first time home buyers learn how to get a loan and everything that’s involved in that process.
About the author: This article on the “How to Buy a Home as a First Time Home Buyer” was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of his social media profiles as well as generating new leads from his website.
MadisonMortgageGuys.com and team provide award-winning customer service to clients who need to purchase a home or refinance an existing mortgage. Our company currently serves 47 states and you can find specific First Time Home Buyer program information on our website.
Check out this article on RealtyTimes for even more great first time home buyer information!
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