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Buying A Home
A Step-by-Step Guide
Buying a home is one of the most exciting and rewarding decisions you can make in your life. It can also be one of the most complex, especially if you are a first-time homebuyer. That’s why we’ve created this step-by-step guide to help you navigate the home-buying process with confidence and ease. Whether you are looking for your dream home, a starter home or an investment property, this guide will walk you through the essential steps to buying a home, from getting your finances ready to closing on the purchase. - No worries though, you don't have to know it all or memorize anything. Cass Real Estate will help you along the way. Just give us a call or drop us an email anytime.
Step 1: Assess your finances
Before you start looking for homes, you need to have a clear idea of how much you can afford to spend on a home. This will help you narrow down your choices and avoid falling in love with a home that is out of your budget. To assess your finances, you need to consider:
- Your income: How much do you earn each month from your job, business or other sources?
- Your debts: How much do you owe each month on credit cards, student loans, car loans or other obligations?
- Your savings: How much do you have saved for a down payment, closing costs and other expenses?
- Your credit score: How good is your credit history and how does it affect your ability to qualify for a mortgage and get a low interest rate?
A good rule of thumb is to spend no more than 28% of your gross monthly income on housing costs, which include your mortgage payment, property taxes, homeowners insurance and homeowners association fees. You also want to keep your total debt-to-income ratio (the percentage of your income that goes toward paying all your debts) below 36%. These ratios may vary depending on the type of mortgage you choose and the lender’s requirements.
You can use a home affordability calculator to estimate how much house you can afford based on your income, debts, location and down payment amount.
Step 2: Find a mortgage that’s right for you
A mortgage is a loan that you use to buy a home and pay back over time with interest. There are many types of mortgages available, each with different features, benefits and drawbacks. Some of the most common types of mortgages are:
- Conventional mortgages: These are loans that are not insured or guaranteed by the federal government. They typically require a higher credit score and a larger down payment than government-backed loans. However, they may offer lower interest rates and more flexibility in terms of loan terms and fees.
- FHA loans: These are loans that are insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). They are designed for low-to-moderate income borrowers who have lower credit scores and smaller down payments than conventional loans. They require a minimum down payment of 3.5% and a minimum credit score of 580. They also charge an upfront mortgage insurance premium (MIP) and an annual MIP that are added to your monthly payment.
- VA loans: These are loans that are guaranteed by the Department of Veterans Affairs (VA). They are available for eligible veterans, active-duty service members, reservists, National Guard members and surviving spouses. They offer 100% financing with no down payment or mortgage insurance required. They also have lower interest rates and more lenient credit requirements than conventional loans.
- USDA loans: These are loans that are guaranteed by the U.S. Department of Agriculture (USDA). They are available for rural and suburban homebuyers who meet certain income and property eligibility criteria. They offer 100% financing with no down payment or mortgage insurance required. They also have lower interest rates and more flexible credit requirements than conventional loans.
To find the best mortgage for your situation, you need to compare different lenders, loan types, interest rates, fees and terms. You can use online tools such as mortgage calculators and comparison websites to get an idea of what’s available and what suits your needs.
Step 3: Get pre-qualified and pre-approved for a mortgage
Once you have an idea of how much you can afford and what type of mortgage you want, you need to get pre-qualified and pre-approved for a mortgage. These are two steps that show sellers and real estate agents that you are serious about buying a home and that you have the financial means to do so.
Pre-qualification is a quick and easy process that involves providing some basic information about your income, assets, debts and credit score to a lender. The lender will then give you an estimate of how much they are willing to lend you based on this information. Pre-qualification does not guarantee that you will get approved for a mortgage or that you will get the quoted interest rate. It is simply a way to get an idea of your borrowing power.
Pre-approval is a more formal and detailed process that involves submitting an application and providing documentation such as pay stubs, bank statements, tax returns and credit reports to a lender. The lender will then verify your information and check your credit history. If everything checks out, they will issue you a pre-approval letter that states how much they are willing to lend you, at what interest rate and under what conditions. Pre-approval does not guarantee that you will get the loan either, but it does show sellers and agents that you have passed the lender’s initial screening and that you are likely to get approved.
Getting pre-qualified and pre-approved can help you save time and avoid disappointment when shopping for homes. It can also give you an edge over other buyers who may not have done their homework.
Step 4: Start the home search
Now comes the fun part: searching for homes that match your criteria and budget. You can start by browsing our website. We have 100's of homes that can be your first or your next forever home.
Sometimes though, online listings may not always be accurate or up-to-date, so it’s important to work with a real estate agent who can help you find homes that meet your needs and preferences. A real estate agent can also provide you with valuable information about the neighborhood, the market conditions, the seller’s motivation and the potential pitfalls or opportunities of each property. Just give us a call or drop us an email and we will introduce to one of our great local agents.
All of our agents have experience in the area where you want to buy, communicate well with you, listen to your wants and needs, negotiate effectively on your behalf and has your best interests at heart.
When searching for homes, keep an open mind but also be realistic about what you can afford and what compromises you are willing to make. Make a list of must-haves (features that are essential for your lifestyle) and nice-to-haves (features that would be nice but not deal-breakers) for your ideal home. Use this list as a guide when viewing homes online or in person.
Step 5: Make an offer
Once you find a home that meets your criteria and budget, it’s time to make an offer. An offer is a formal proposal that outlines how much you are willing to pay for the property, when you want to close on the purchase, what contingencies (conditions) you want to include in the contract and what items (such as appliances or furniture) you want to be included or excluded from the sale.
To make an offer, you need to fill out an official purchase agreement form with the help of your real estate agent. The form may vary depending on the state where you are buying, but it typically includes:
- The address and legal description of the property
- The purchase price
- The earnest money deposit (a sum of money that shows your good faith in buying the property)
- The financing terms (how much cash or loan amount you will use to pay for the property)
- The closing date (when the title transfer will take place)
- The inspection contingency (a clause that allows you to back out of the deal if there are serious defects in the property)
- The appraisal contingency (a clause that allows you to back out of the deal if the property appraises below the purchase price)
- The title contingency (a clause that allows you to back out of the deal if there are any liens or encumbrances on the property)
- The sale contingency (a clause that allows you to back out of the deal if you need to sell your current home first)
- The personal property items (what items will stay or go with the property)
- The closing costs (who will pay for what fees associated with closing on the purchase)
- The expiration date (when your offer will expire if not accepted by the seller)
Your real estate agent will submit your offer along with your pre-approval letter and proof of funds (if paying cash) to the seller’s agent. The seller can then accept your offer as is, reject it outright or make a counteroffer with different terms.
You can then accept their counteroffer as is, reject it outright or make another counteroffer until both parties agree on all terms.
The negotiation process can take anywhere from hours to days depending on how motivated each party is and how many offers there are on the table.
Once both parties agree on all terms in writing, they sign the purchase agreement form which becomes legally binding.
Step 6: Schedule the inspection
After your offer is accepted, you need to schedule a home inspection as soon as possible. A home inspection is a thorough examination of the physical condition and structure of the property by a licensed professional. The inspector will check for any defects, damages or safety issues that may affect the value or livability of the property. The inspector will also provide you with a written report that details their findings and recommendations.
A home inspection typically costs between $300 and $500 depending on the size and location of the property. You are responsible for paying for the inspection fee, unless you negotiate otherwise with the seller. You can also attend the inspection and ask questions to the inspector.
The inspection contingency in your purchase agreement gives you the right to back out of the deal or request repairs or credits from the seller if you are not satisfied with the results of the inspection. You have a limited time frame (usually 10 to 15 days) to review the inspection report and decide whether to proceed with the purchase or not.
If you decide to proceed, you may need to sign an inspection contingency release form that waives your right to back out of the deal based on the inspection. If you decide to back out, you may need to provide a copy of the inspection report and a written notice of termination to the seller. If you decide to request repairs or credits, you may need to provide a list of items that need to be fixed or compensated along with supporting evidence such as photos or estimates.
The seller can then accept your request as is, reject it outright or make a counteroffer with different terms. You can then accept their counteroffer as is, reject it outright or make another counteroffer until both parties agree on all terms.
Once both parties agree on all terms in writing, they sign an addendum to the purchase agreement that reflects the agreed-upon repairs or credits.
Step 7: Secure your financing
After your offer is accepted and your inspection contingency is resolved, you need to secure your financing for the purchase. This means finalizing your mortgage loan with your lender and getting ready for closing.
To secure your financing, you need to:
- Provide any additional documentation that your lender requests, such as updated pay stubs, bank statements, tax returns or gift letters.
- Lock in your interest rate with your lender. This means agreeing on a specific interest rate and loan term that will apply to your mortgage loan. You can lock in your rate anytime between pre-approval and closing, but keep in mind that rates may change daily depending on market conditions. Locking in your rate can protect you from rate fluctuations and give you peace of mind.
- Order an appraisal of the property. An appraisal is an estimate of the market value of the property by a licensed appraiser. Your lender will order an appraisal to verify that the property is worth at least as much as the purchase price. The appraisal typically costs between $400 and $600 depending on the size and location of the property. You are responsible for paying for the appraisal fee, unless you negotiate otherwise with the seller.
- Review your loan estimate and closing disclosure forms. A loan estimate is a document that outlines the key terms and costs of your mortgage loan. A closing disclosure is a document that summarizes the final terms and costs of your mortgage loan. Your lender is required to provide you with these forms within three business days of your loan application and at least three business days before closing, respectively. You should review these forms carefully and compare them with your initial quote and pre-approval letter. If you notice any errors or discrepancies, contact your lender immediately.
- Clear any conditions or contingencies that your lender requires before closing. These may include paying off any outstanding debts, resolving any title issues or obtaining any additional insurance policies.
The financing contingency in your purchase agreement gives you the right to back out of the deal or renegotiate with the seller if you are unable to secure your financing within a specified time frame (usually 30 to 45 days). If you are able to secure your financing within this time frame, you may need to sign a financing contingency release form that waives your right to back out of the deal based on financing.
Step 8: Purchase a homeowners insurance policy
Before you close on your purchase, you need to purchase a homeowners insurance policy that covers your property and personal belongings against damage or loss from fire, theft, vandalism, natural disasters and other perils. Homeowners insurance also provides liability coverage in case someone gets injured on your property or sues you for damages.
Your lender will require you to have homeowners insurance as a condition of your mortgage loan. They will also require you to name them as a loss payee or mortgagee on your policy. This means that they have a right to receive any insurance proceeds in case of a claim.
To purchase homeowners insurance, you need to:
- Shop around for quotes from different insurance companies or agents. You can compare rates, coverage options and customer reviews online or by phone.
- Choose a policy that meets your needs and budget. You should consider factors such as coverage limits, deductibles, exclusions, endorsements and discounts when choosing a policy.
- Pay for your first year’s premium upfront or arrange for monthly payments through escrow. Escrow is an account that holds funds for certain expenses related to your property, such as taxes, insurance and mortgage payments. Your lender will set up an escrow account for you and collect funds from each monthly payment to pay for these expenses on your behalf.
- Provide proof of insurance to your lender and title company before closing. This may include a copy of your policy declaration page or binder.
Step 9: Close on the purchase
Closing is the final step in buying a home. It is when you sign all the legal documents that transfer ownership of the property from the seller to you and finalize your mortgage loan with your lender.
Closing typically takes place at a title company’s office or an attorney’s office within 30 to 60 days after your offer is accepted. You will need to bring:
- A valid photo ID
- A cashier’s check or wire transfer for your down payment and closing costs
- Your homeowners insurance policy or proof of insurance
- Any other documents required by your lender or title company
At closing, you will need to:
- Review and sign all the closing documents, such as:
- The deed: This transfers ownership of the property from the seller to you.
- The promissory note: This outlines the terms and conditions of your mortgage loan.
- The mortgage: This secures your loan with a lien on the property.
- The settlement statement: This itemizes all the fees and charges involved in closing.
- The escrow statement: This shows how much money is held in escrow for taxes, insurance and other expenses.
- Pay any remaining down payment and closing costs
- Receive copies of all signed documents
- Receive keys and access codes from seller
Congratulations! You are now officially a Homeowner!
Step 10: Move into your new home
The last step in buying a home is moving into it! This can be both exciting and exhausting, but there are some things you can do to make it easier:
- Plan ahead: Start packing early, label boxes clearly, hire movers or recruit friends/family for help
- Change address: Notify utility companies, banks, credit cards, employers, schools etc., forward mail
- Clean up: Clean both old and new homes before/after moving
- Inspect: Check new home for any damages or defects
- Settle in: Unpack essentials first, arrange furniture/appliances/electronics etc., decorate/personalize
- Enjoy: Celebrate with family/friends/neighbors etc., explore neighborhood/community etc., relax!
We hope this guide has helped you understand how to buy a home step by step. If you have any questions or need any assistance along the way, feel free to Contact Us anytime!