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A 6-Step Guide to Purchasing a Home

So you’re interested in purchasing a home, but you are not sure where to start. No worries. You are not alone! In fact, every month we teach free classes on Home Buying 101 because there are so many people out there like yourself. If you are more of a presentation learner, hop on our website or Facebook page to sign up for one of our classes. If reading does the trick, you are in the right place! Here are the basic steps of purchasing your first home.

1. Get pre-approved

If you are not going to be purchasing a home with cash, you will need to get a loan to purchase the property. Don’t worry – this is the route most people take. The loan you are able to qualify for will mostly depend on your income, debt, credit score/history and down payment size. In order to get pre-approved, you need to find a lender. If you are in need of a great lender, reach out to us. We have several awesome lenders we work with and we would love to refer them to you!

Once you make contact with a lender, they will have you fill out a mortgage application. This is typically done online and should only take 15-20 minutes. From here, the lender will request any additional mortgage documents or verification they need from you. After receiving this information and your application, the lender will perform a mortgage analysis. A mortgage analysis is simply looking at your particular financial situation and recommending a loan program and maximum purchase price that best fits your needs and goals. For example, even if you can qualify for a $500,000 home, you may not like the monthly payment associated with that purchase price so they will recommend a lower maximum purchase price. Or perhaps putting 10% down will wipe out your savings so they may recommend only putting down 5%. Once you and the lender have identified your maximum purchase price with your desired loan program, they will write a letter of pre-approval. Pre-approval is a pre-qualification for a mortgage through a lender for a particular loan amount.

2. Find an agent

While all commissions are negotiable, traditionally the Seller pays the commission of both the Listing Agent and the Buyer’s Agent. What does that mean for you? You can have a licensed, professional Realtor guide you through the entire home purchase process and not spend a dollar paying them. With that being said, I recommend always using a Realtor when purchasing a home, especially if it is your first time buying.

Choose an agent whose schedule lines up with when you will want to see properties, has a proven track record for the type of home/area/purchase price you are looking for, and who you trust. Agents vary greatly in experience, expertise, and business practices. Make sure you decide to work with someone who is knowledgeable, responsive, and ethical. Choosing anyone who does not possess these characteristics could leave you with a much more stressful process and potentially negative financial situation.

Once you have identified the agent you want to work with, they will have you sign a Buyer Agency agreement. This agreement outlines the terms of your agreement in working together and describes the way in which your Agent will be compensated.

Shameless plug: if you have made it this far into this post, we would love to work with you. You are clearly interested in educating yourself and doing things the right way. So are we. We are confident we will be a great fit for you. If you are out of state, you can still reach out to us. We have a very wide referral network across the United States. We can refer you to an out of state agent and keep an eye on the deal for you as you purchase a home.

3. Look at houses

Your agent will set up a search through the MLS that fits your criteria for purchasing a home. For example, you may want 2+ bedrooms, 1+ bathrooms, 1,500+ sq ft, an attached garage, and only interested in detached single-family residences within a particular geographic area under $400k. This search will then email you with results that match your criteria. From these search results, you and your agent will select properties that best fit your needs. You will then finally go see some properties in person! Depending on your needs and the market you are in, you may only need to go see houses one time or you may spend a year looking in person at houses! Ultimately, you will find a home that you are ready to buy!

4. Submit an offer (+Negotiations)

Now that you’ve found the home you want to purchase, you will need to submit an offer on the property. Your agent will guide you through this process and make recommendations to you. Typically, an offer contains a purchase price, dates/deadlines for the deal, and other specifics such as including all appliances, excluding the hot tub, etc. Upon submitting an offer, the Seller can accept your offer, counter-offer, or reject your offer completely. A counter-offer means the Seller sends back a document outlining proposed changes to your offer. These proposed changes are typically around terms, price and dates. You can then sign the counter offer showing acceptance, counter again, or walk away. Ultimately, on the home you end up purchasing, you will reach a mutual agreement of all parties that is signed. Congratulations, you are not Under Contract on your first home!

5. Under Contract Steps

Don’t get too excited yet! There is still quite a bit of work to do! Here are the Under Contract steps with a very short description. Keep an eye out for a future post with more details about these steps!

a. Earnest Money – This is essentially a deposit on the house that counts towards your down payment. Similar to many forms of deposits, this amount can be lost if you illegally walk away from purchasing the home. Don’t stress – this is why you have an Agent there to guide you!

b. Inspection – An inspection is a limited exam of the health of a home. In short, we need to make sure the place isn’t falling down!

c. Title – When you purchase a car, you transfer the title of the car in order to transfer ownership of the vehicle to another person. The title work on a home is very similar, although it is more in depth!

d. Insurance – Similar to a car or any major asset you own, you will need to put insurance on your house to protect you and your largest asset!

e. Appraisal – A fair market opinion of value of a home. In short, this is a protection to make sure you are not over paying for the home and that a lender is not loaning money for more than what that home could turn around and be sold for.

f. Final Loan Approval – It is just as it sounds… Final approval of the loan amount you applied for!

6. Closing

Congratulations! You did it! You made it through the home buying process and will now sign your life away for the largest purchase you will likely ever make! Show up to closing to sign all of the documents you needs to close on your loan and the property, pop a bottle of champagne, take some photos, get a gift from your Realtor, and start planning your house warming party. You are on your way to building long-term wealth!

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