For many people, homeownership is an ultimate financial and life goal. While it’s a worthy aspiration, it’s easy to underestimate how complex and costly the home buying process can be. Fortunately, there are many resources to help you with the process. Here are some reliable tools to help you navigate each step of buying a home.
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Even before you begin your home search, it’s important to prepare your finances, understand what’s within your budget and hire a professional who can guide you through this journey.
Understand what you can afford. You can’t really start shopping for homes until you know your price range, so first learn how much home you can afford. Zillow’s affordability calculator takes into account your income, debt and down payment to figure out roughly what home price is within your reach.
Prepare your budget. You may need to pause and save for a down payment before moving forward. Learn about budgeting applications, such as Need a Budget or Personal Capital, that can help you evaluate how to increase your down payment. Creating a budget will also help you plan and manage your new home payment, home maintenance and other homeownership costs.
Find a real estate agent. Once your finances are in place, it’s time to find a savvy real estate professional to be your partner in the home buying process. A great way to find someone is to ask for recommendations from friends who have purchased homes in that area. If you don’t have any leads, Realtor.com’s online agent connection tool can match you with a qualified local real estate agent.
Preparing for a mortgage
Unless you can pay for a home with cash, you will need to obtain a mortgage to finance the property. To get the best rate and terms, take some time to research and compare your options, and make sure your credit is in the best shape possible.
Check your credit. Your credit is an important factor that lenders use to evaluate whether you qualify for a mortgage and at what rate and terms. While you can check your basic credit score, some mortgage lenders use other scores. If you want to preview from their perspective, consider signing up for Experian CreditWorksSM Premium, which shows you the FICO® score used☉ by mortgage lenders. Seeing your credit from a lender’s perspective could reveal whether you should take any steps to prepare your credit mortgage and improve your credit. It’s best to do this at least three to six months before you apply for your loan so you have time for positive changes to take effect.
Consider loan options. Mortgages come in a variety of forms, with different requirements and fees. Before taking out a conventional loan, it’s wise to first check to see if you qualify for federal loan programs such as FHA, USDA or VA. Try Experian’s mortgage calculator to help determine which mortgage loan offers the best deal. The Consumer Financial Protection Bureau (CFPB) also has a helpful mortgage loan toolkit that walks you through the different types of loans.
Get pre-approved. Once you know what type of mortgage to apply for and are ready to take the next step, it’s ideal to get pre-approved by a lender. A lender will review your credit, employment and income, and if you’re pre-approved, provide you with a document outlining how much you can borrow. You are not locked in, so you can get pre-approved at multiple lenders to compare loan offers. Having a pre-approval letter makes you a more competitive buyer, as it shows you are serious and have the funds. It can also speed up the process later on.
Finding your dream home
Now that you’re pre-approved and have a real estate professional in your corner, the real fun begins! It’s time to start researching properties, viewing homes and bidding on the ones you love.
Research properties. While your agent should help you find homes that meet your criteria, you can also do your own research. You can use the Multiple Listing Service (MLS) database or search sites like Realtor.com, Zillow and Redfin.
Start viewing and comparing homes. Now is the time to start touring homes with your real estate agent. If you’re not in a hurry, it’s wise to look at many different homes, even if they don’t perfectly meet your criteria. You may find some pleasant surprises, or get a better idea of your preferences and whether something is a good value or not. Your agent can also give you a comparative market analysis (“comps”) to help determine if a price is too high or too low. There are also many free online home comparison worksheets that can help you compare home features and costs as you view them.
Make an offer. Once you’ve found the right property, your agent will guide you through the process of submitting a compelling offer. The seller will accept, counteroffer or reject your offer. Depending on how hot the market is, you may have to go through this exercise several times or negotiate with the seller.
Closing the deal
Once you’ve found the right home and your offer is accepted, there are still a few more important steps.Submit your completed mortgage application. Once your offer is accepted, you’ll complete your full mortgage application. If you’ve been pre-approved, this process may be shorter, but you’ll still need to submit additional documentation. You will then receive a loan quote. For clarity, use the CFPB’s Loan Estimate Browser to better understand the details of your loan.
Have the home inspected and appraised. Once the home goes under contract, it’s time for a home inspection. You pay for it, although you are not obligated to make the necessary repairs, and you can use the findings to potentially negotiate with the seller or even void the sale. You can and should choose your own inspector to get the most objective evaluation. Learn what to expect on the day of the inspection. If you are financing the home, you will also need to have it appraised, although the lender generally selects the professional. Depending on your state and lender, you may also need to purchase homeowner’s insurance and title insurance and hire a real estate attorney.
Close to the home. Once your lender has underwritten your loan and all other steps have been completed, you will be responsible for paying your down payment and closing costs. Typically, you’ll meet in person to read and sign your final documents, then you’ll receive the keys and it’s all yours! To stay organized, try using the CFPB’s Mortgage Closing Checklist before closing day.
Homeownership can help build financial stability and wealth, but it can be a lengthy process that comes with many rules, expenses and potential headaches. The right tools and equipment can make the experience much easier.
