Buying a home is one of the most significant financial decisions you'll ever make. But with recent changes to the home buying process, it can be confusing to know the next step to take.
To assist you close on your dream home, we created a guide to help you navigate the process of purchasing a home.
Set a Realistic Budget
Before you start house hunting, it's crucial to determine how much home you can afford. Consider your income, expenses, and future financial goals. Also, remember to factor in not just the mortgage payments, but also other closing costs such as property taxes, insurance, maintenance, and potential homeowners association fees.
Save for a Down Payment
While down payment requirements vary, aim to save at least 20% of the home's purchase price to avoid private mortgage insurance (PMI). If you can't manage 20%, explore government-backed loans or first-time homebuyer programs that may offer lower down payment options. VA loans, for instance, provide veterans with housing loans without requiring down payments. Other loans require down payments ranging from 3.5% to 10%.
Check (And Improve) Your Credit Score
Your credit score plays a significant role in determining your mortgage interest rate. While it is possible to purchase a home with a bad credit score, you'll likely qualify for more loan options with a higher credit rating.
Before hiring a real estate agent, we recommend checking your credit report for errors and working on improving your score if necessary. If your credit score is low, pay down any debts and make all payments on time to boost your creditworthiness.
Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage gives you a clear idea of how much you can borrow. This document strengthens your offer and shows sellers that you are a serious buyer, significantly improving your likelihood of closing the sale.
Partner With a Real Estate Agent
With the initial preparations done, it is time for you to search for a real estate agent you can trust. While having an agent is not required, hiring one can help you determine whether a home is listed at a fair price and choose which neighborhood best fits your needs. Furthermore, a real estate agent can help you understand the results of your home inspection and assist in the negotiation process.
Negotiate the Compensation
Before starting your house-hunting process, you must first negotiate the commission fee with your agent. Under the new rules, commission fees are no longer advertised on multiple listing services. This means you have the opportunity to negotiate your agent's compensation directly. Be prepared to discuss payment options with your agent upfront.
READ MORE: 5 Things Every Home Buyer and Seller Needs to Know About Negotiating Real Estate Commissions
Sign a Buyer-Agent Agreement
When you and the agent have agreed on compensation, you must put that in writing. The new changes now require buyers to sign a legally binding representation agreement with their agent before touring homes together. This agreement outlines how your agent will be compensated and informs you that commissions are negotiable. Read this agreement carefully and don't hesitate to ask questions.
Attend Open Houses
With your budget set and agent secured, start attending open houses and home tours. Open houses give you an idea of what is on the market that is within your price range. Keep a list of your must-haves and nice-to-haves to help narrow down your options.
Make an Offer
When you find the right home during one of your home tours, it is time to work with your agent to make a competitive offer to the seller. The offer letter must include all the important details, including timing, exclusions, contingencies, etc. In many cases, the buyer would also be required to include an earnest money deposit worth 1% to 3% of the purchase price. This money will be applied to the mortgage closing costs and down payment if the seller accepts your offer.
Schedule a Home Inspection and Appraisal
Once your offer is accepted, schedule a professional home inspection to uncover any potential issues concerning the home's plumbing and electrical systems as well as the fixtures. Your lender will also require an appraisal to ensure the home's value matches the loan amount.
Hire a Real Estate Attorney
Consider hiring a real estate attorney to review all contracts and legal documents. It is important to note that some states require the presence of a real estate attorney in a transaction.
Real estate attorneys can help you navigate complex legal issues that may arise during the buying process. They can also review all related documents such as inspection and appraisal reports and ensure that all agreements between you and the seller are fulfilled.
Close on Your New Home
With the purchase agreement signed, inspections completed, and funding approved, you are ready to close on your new home. On the closing day, you'll sign all necessary documents, pay closing costs, and receive the keys to your new home. The deed also gets recorded at the county courthouse, making you the official owner of the property.
READ NEXT: Should You Wait for Mortgage Rates To Fall Before Buying a Home? Here's What Experts Say
