Your home-buying experience should be an exciting time, yet the process ahead is not without its drawbacks and potential problems. For many homebuyers, failing to do enough research at the beginning of the process can lead to problems down the road, and in real estate, those problems can be costly.
Take a closer look at all aspects involved in buying a home for the first time, including the good, the bad, and the ugly.
Step 1: Choosing an Agent
The first step in buying a home is choosing a real estate agent. This can be good, or it can be ugly, so do your homework. Choose an agent who will actively work for your best interests, an agent who will take the time to get to know you and your goals for your home. You want an agent that is a person you are comfortable interacting with regularly.
Conflict of interest can cause severe problems for homebuyers. Some buyers choose to work with a buyer's agent only, an individual that does not list properties for sale but only works with homebuyers. Working with a buyer's agent prevents a conflict that could happen when an agent steers a buyer towards listings that they manage, earning them a higher overall commission. That said, using an agent who only works with buyers is not necessary, as the right real estate agent will keep your best interests in mind at all times, regardless of their interests.
Step 2: Mortgage Financing & Pre-Approval
Financing is not the most glamorous part of the home buying process, but it is essential. You need to know how much you can spend on your home, which only comes through getting actual approval from the lender. A pre-approval or pre-qualification letter will also give you better negotiating opportunities when you find a home you love. It also lets the seller see you as a serious buyer who is ready to go.
Step 3: Finding the Right Home
When you're buying a home, one of the most exciting parts of the process is shopping around. You will get the chance to visit homes, scour neighborhoods, and find the one that is the perfect fit. As you enter this process, have a list of things you do and do not want in a home, but remember that you may not find a home with everything on your "want" list. Prioritize your needs to be sure you find the features you must have and be flexible on the other items.
As you shop, make sure you pay attention to the home and the neighborhood. Choose a home that is in an area that meets your needs for location and amenities.
Step 4: Making an Offer
You've found a home you love! Now it's time to make an offer. One of the more difficult parts of this step is this – there is no guarantee that your offer will be accepted. Often, offers generate negotiations back and forth between the buyer and seller until a mutually beneficial decision is reached. Be careful that you don't get emotionally invested in the home, which is not easy to do! Continue maintaining emotional distance from the house while you negotiate your offer.
When making an offer on a new home, make sure you consider adding any needed home buying contingencies. These are circumstances that have to be fulfilled for the offer to be binding.
For example, you may make your offer contingent on the results of the inspection. An inspection contingency protects you because it gives you a way out of the offer if serious problems are discovered. Anything you want the seller to do can be a contingency, but remember, the fewer contingencies you have, the more attractive your offer will be.
Step 5: Inspection and Appraisal
After your offer has been accepted, you need to have the home inspected and appraised. An inspection allows your chosen home inspector to check the house from top to bottom for signs of hidden problems or building code violations that you may need to address before buying it. An appraisal, required by most lenders, checks the house to ensure it is worth what you agree to pay. While you select your home inspector and schedule the inspection, your lender will take care of the property appraisal. These are both areas where the home buying process can turn sour.
If the inspection finds an issue or the appraisal reveals that the home is not worth the agreed-upon sales price, you will need to go back to the drawing board to either renegotiate the price or start the home shopping process over from scratch.
Step 6: The Final Paperwork for Buying a Home
At this point, you need to finalize your financing and obtain homeowner's insurance for the property. If you already selected a mortgage lender, they'll walk you through the steps to take to finish your application. Homeowners' insurance is one item that your lender will require you have in place before the closing to avoid unwanted delays.
Step 7: The Closing
Closings get a bad reputation in real estate, but Closing Day can be pretty exciting for the homeowner-to-be! Closing Day, the day when you get to sign the paperwork for your home loan, and the house becomes your home. It will also be the day you pay your down payment and any closing costs that are your responsibility.
You'll need to budget 2 to 7 percent of the home's price for closing costs in most areas. While paying that large amount isn't always fun, at the end of the process, you get the keys to your new home and are ready to move in!
Watch out for These Ugly Mistakes
Along the way, no matter how careful you are, you face the potential of making serious mistakes that could put your financial future in jeopardy. Make sure you are as diligent as possible to avoid them.
One mistake often made by first-time homebuyers is skimping on the inspection. Do not hire the cheapest inspector to get this process out of the way affordably. You will want an inspector that will go over the home with a fine-toothed comb. Any problems overlooked in the process will become your problems as soon as you sign on the dotted line.
Another common mistake is failing to shop around for a home loan. Look at every option available to make sure you make the right choice for your mortgage. Remember, the rate is not the only deciding factor. Experience, knowledge of the area, loan program offerings, and support and availability after your loan closes are also important items you need to consider. A home loan is a long-term financial commitment; it is critical that you know you have the best one for you. Buying a home is a process with many potential pitfalls. Use this guide to help you prepare for the home buying process with confidence.