Purchasing a house or condo can be pretty complicated, but having a blueprint of the normal process can steady your nerves.
The journey can seem especially mystifying if you’re a first-time buyer, since everything is likely to be new to you. First-time buyers made up 31% of all recent homebuyers, according to the 2021 generational trends report from the National Association of Realtors® (NAR).
The report also found that what it defines as millennials, buyers ages 22 to 40, continue to make up the largest share of homebuyers, 37%.
From Crunching to Closing
First, you’ll want to keep it real in your real estate search. To that end, here’s a home affordability calculator.
Then here are the steps you can expect in the home-buying process.
1. Doing Your Homework
Before you start the search, consider the type of home you’d like to buy and what neighborhoods you’d want to live in. Then do some research to see what similar homes have sold for in the recent past. That should give you an idea of whether your resources align with your dream house or whether you need to reevaluate.
It’s good to know how much of a down payment you’ll need, and what it will take to qualify for a home loan.
Lenders typically give great weight to your credit score and debt-to-income ratio. Most will also be looking to verify your income and at least two years’ worth of steady employment or consistent and ongoing income.
Most conventional mortgages—those originated by private lenders—require a down payment of at least 3%. An FHA loan requires as little as 3.5% down, and a VA loan, usually nothing down.
Putting less than 20% down on almost any purchase will mean ongoing fees or, in the case of a VA loan, a one-time fee.
2. Getting Prequalified for a Home Loan
Next, you’ll need to figure out what kind of home you can afford. One way to do this is by getting prequalified with a mortgage lender. Using self-reported information, the lender reviews the basics of your financial situation and provides an estimate of how much you may be able to borrow and at what rates.
Getting prequalified with several lenders can help you get a sense of what kind of home you can afford and allow you to compare monthly payments and interest rates.
3. Finding a Real Estate Agent
It’s not required, but the vast majority of house hunters purchase a home through a real estate agent or broker.
You can hire either a Realtor® or a real estate agent to assist you in your search. Both are licensed professionals. The main difference is that a NAR member is required to stick to a code of ethics that includes putting a client’s interests before their own.
Agents only get paid when you close on a home. The seller typically pays the real estate commission for both the listing agent and buyer’s agent.
A real estate agent will help you find property listings that fit your preferences, visit them to make sure they’re up to snuff, write offers and counteroffers, attend inspections, help you negotiate, and work with you to deal with any obstacles that emerge.
When looking for an agent, you can ask people you know for recommendations, note the names on signs in your area, and read reviews online. You may want to speak to several agents until you find one who feels right and may be considered an expert in the area where you want to buy.
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4. Getting Preapproved for a Mortgage
Once you’re ready to start seriously looking for a home, unless you’re a cash buyer you’ll need to lock down funding. You can do this by getting preapproved with a mortgage lender. This is a more involved process than prequalification.
You’ll fill out a detailed application and allow the lender to do a hard credit check and verify your finances.
When you’re preapproved for a mortgage, you will know exactly how much you can most likely borrow and at what terms. That’s because the entire credit portion of the loan has been verified.
Remember that you don’t have to take out the highest amount you qualify for if you find a more affordable home. In that scenario, you’d just ask your lender to adjust the preapproval letter based on the actual bid you’re making on a home.
Showing a seller the lender’s preapproval letter (typically valid for 90 days) can help you rise above the pack if multiple offers are in play.
5. Shopping for a Home
Next, it’s time to start shopping for a house or condo or buying into a co-op. If you have an agent, you’ll probably sit down and outline the parameters of what you’re looking for.
Then the agent will start bringing to your attention properties that might fit the bill, and you’ll attend viewings and open houses.
But these days, there’s also a lot more you can do to jumpstart your home search on your own. Websites like Zillow, Trulia, Redfin, and others can help you find out about properties as soon as they’re on the market.
If you’re moving forward without an agent, you can consider exploring platforms that have cropped up to help buyers who don’t have agents.
6. Making an Offer
Once you find the perfect home, you’re ready to make a formal purchase offer. This involves not only letting the seller know how much you’re willing to pay but providing evidence that you’ll be able to afford those costs and when you expect to close on the house. The offer also details what you expect the seller to do before closing.
At this stage, many buyers also provide earnest money, a deposit that can be up to 10% of the negotiated price. The offer might also include contingencies, which are conditions that need to be met in order for you to proceed with the transaction.
Some contingencies, like a home or roof inspection, are usually at the buyer’s discretion. Others, like a home appraisal, can be tied to the loan approval.
7. Closing on the Home and Moving In
Once you and the seller are on the same page about a price, the house goes into escrow. That involves a third party, namely an escrow officer, making sure that both of you meet the conditions you’ve agreed to.
Your real estate agent will help make sure any home inspection you ordered takes place. If there are unwelcome surprises, the agent might need to help you renegotiate the selling price. Depending on the severity of the surprise—if a significant home repair is needed, for example—the lender might require a complete fix before escrow closes.
Once that’s all set, and all income, assets, and property conditions are signed off on by the underwriter, you will be issued final loan approval.
Next, you’ll sign the needed paperwork to take out the mortgage and finalize the home purchase. It can take a few days for the purchase money to reach the seller and for the county records to reflect the transfer of the sale.
And then the house is all yours! Move in and enjoy.
Buying a home isn’t a cakewalk, but the path is much smoother when you know the steps involved.
One of the first things to think about doing is to get prequalified for a mortgage. SoFi, which offers fixed-rate mortgages with competitive rates, makes that quick and easy.
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