Buying a home can be both exciting and a little scary, and you will most likely have a lot of questions about how to buy your first home. While the various steps involved may seem daunting at first, adding structure to your process can help you avoid feeling overwhelmed. Plus, learning about financing options like a first time home buyer loan might help you with your purchase.
If you take it one step at a time, finding and buying your first home can be a smooth, even enjoyable, process. Follow these five steps to avoid unnecessary hassles as you look to purchase your ideal home.
1. Get Prepared
Before you start looking at houses or talking to real estate professionals, prepare yourself financially for the home-buying process. Figure out how much house you can realistically afford so you only consider homes within your budget. Many financial planners recommend paying no more than 30 percent of your monthly income for housing. Using a mortgage calculator can help.
You'll also need to work out how much of a down payment you'll have. It can seem daunting to save enough, but there are lots of great ways to save up. With enough of a down payment and your credit score in hand (lenders use your credit score to determine their level of risk) you can work toward being prequalified. Once prequalified, you’ll receive a letter that verifies your “ready-to-buy” status, putting you in a position of power to negotiate the purchase of your home.
2. Shop for a Home
When you have a price range in mind, make a list of “must-have” and “nice-to-have” features and amenities for your home. You may not find a place with everything you want, but hopefully you can find one that meets all your requirements and some of the items on your “nice-to-have” list.
Narrow down your home choices by viewing photos and home information online. When you have a list of homes that fit the bill, visit them in person—and be sure to take notes and photos so you’ll remember what you’ve seen. When you think you’ve found the home you want, check out the neighborhood at various times of day and night to make sure it’s an area where you want to live.
3. Make an Offer
If you’ve decided on a home, determine how much you’re willing to pay for it. Some questions to consider regarding price: How long has the home been on the market (and how motivated might the owners be to accept a lower offer)? Will you be competing with other bidders? Will your initial offer leave you room to negotiate?
When you’re ready to make an offer, put it in writing. If you’re working with a realtor, he or she can help you do this. Most sellers will expect you to present an "earnest money" deposit when you make an offer, which shows you’re serious. Typically, this deposit is equal to about 1 percent of the price of the home.
In many cases, the seller will not accept your first offer. They may make a counteroffer, and you can choose to accept it or make another offer. Your real estate agent can help you with the negotiation process. Once you’ve come to an agreed-upon price with the seller, you will both sign a contract and you’ll be well one step closer to becoming a homeowner.
4. Apply for a Mortgage
Not all mortgages are the same. For example:
- Fixed rate mortgages offer predictable payments
- Adjustable rate mortgages offer lower introductory payments
- FHA loans are helpful for people who want to purchase with a low down payment
- Home possible mortgages provide more flexible funding options
If you’re not sure which mortgage type is the best fit for your lifestyle and long-term goals, a loan specialist can help identify the right fit. If you need down payment assistance, Fifth Third also offers help for those who qualify. When you decide the best mortgage type for you, start the application process. Those who pre-qualify will simply continue the process at this step.
5. Close on the Loan
At closing, you’ll make your down payment and sign documents. Your lender will pay the seller and any real estate brokers included in the transaction, and the home will be yours.
When the closing process is over, you’ll officially become a homeowner. Moving forward, make sure to submit your monthly mortgage payment on time and start working to make the home your own. Happy homeownership!