As a first-time homebuyer, it can be hard to fully understand what goes into buying a home. You likely already know that you need to save up a down payment, talk to your bank, and hire a realtor. But there are a few more steps in the process. Here’s our comprehensive list of every step you need to know when you’re considering buying a home!
1. Decide if you’re ready to buy a home
Buying a house is a big commitment, so it’s essential that owning a home aligns with your goals and lifestyle. Consider your career goals, your lifestyle, if you’re going to continue living in your current city, and if you’re prepared for the financial responsibilities that come along with being a homeowner.
During this phase of planning, you should reflect on the neighbourhood you’d like to live in, the amenities that are important to you, what you want in a home, and if there are any must-haves on your list.
Are you financially prepared to be a homeowner? As a renter, you have it a little easier when something goes wrong, or repairs are needed, and usually, the landlord takes care of it. As a homeowner, anything that goes wrong or breaks is yours to take care of. It is essential to have money set aside for those things.
Write out your 5 year plan – include what you hope you achieve in your career and family life. When you understand where you want to be in the future, you’ll have a better idea of what steps you should take next.
2. Figuring out your finances
Once you have a good idea of the necessities that you want in your home, you can take a look at the market and see what price range you can afford. There are plenty of free calculators online that show you how much house you can afford, based on your income and expenses, while avoiding becoming over-extended because of your new home.
Researching at this stage is crucial for you to be prepared to head into the next steps of talking to a bank and a realtor.
Research and write down what you learn. Look up those free calculators that tell you what you can afford based on your income and expenses. Outline what is affordable for you. Can you afford to buy a home or should you save a bit more and wait?
3. Save for a down payment
Once you’ve settled on your goals and what you can afford each month, it’s time to figure out how much you need to save for your down payment. Saving up a large sum of money can take time to do, depending on how aggressive and disciplined you’re willing to be.
The bigger your down payment, the lower your mortgage will be. Many first time home buyers put down 5-10% of the total home price. It’s recommended to put down 20% or more, if possible.
Make a decision on how much money you want to put down. Again, this comes back to looking at your finances. What can you afford? What won’t stretch your finances out too thin? Remember, you need to be able to still pay for other expenses and life!
4. Check your credit score
Your credit score is a significant factor in determining whether or not you’ll be approved for a mortgage and the rate you’ll receive. Typically, the better your rating, the better your interest rate. While you’re saving for your down payment, make sure your bills are paid on time, and you’re utilizing less than 75% of your total available credit to boost your score over time.
Pay your bills on time. Come up with budgets. Use an online credit score checker to see where your credit score sits and what you might be able to do to improve it.
5. Get pre-approved
You’re saving for your down payment, doing all you can to boost your credit, and you’re ready to start looking at homes in your desired area, so it’s time to talk to a lender. Like any other big purchase, it’s a great idea to shop around and check with many banks to see which one can offer you the best rate.
During these appointments, the bank or lender will review your financials, your debt-to-income ratio, your credit, and if you can really afford to purchase a home. If you’ve followed steps 1 through 4 your discussions should go very smoothly. Meeting with a lender will help you narrow down the list of homes you can look at that will fit in your price range. They will also let you know their process and what details and information they require from you.
A pre-approval is a more in-depth process compared to a pre-qualification. It requires paperwork, credit checks, and is more time consuming, but it is more of a guarantee and is a step towards the home buying process.
Book appointments with a few banks and lenders (shop around!) to find the best rate and determine if you’re ready for a pre-approved mortgage.
6. Find a realtor
With Google, Yelp, and Facebook reviews, it’s easier than ever to do research on which realtors in your area you’d like to do business with. Meeting with the realtors you are interested in from reviews, or perhaps a recommendation from someone you trust, can help you pick the right realtor for you.
Find a realtor that has an excellent track record, extensive knowledge of your desired areas, and make sure they’re not too busy to take you on as a client. These are all things you should take note of during your first meeting.
Set up meetings with a few realtors that you’ve researched. Make sure you head into those appointments with questions that will help determine if the realtor is a good match for you.
7. Shop for a home
Shopping for a home is the fun part for most home buyers! Being open and honest with your realtor is essential in order to find exactly what you’re looking for. Once you let them know what you’re looking for and what neighbourhood you want to live in, they should be able to come back with several homes that fit the bill. Make sure you are very particular during the showings, pay close attention to details of the house, and take note of anything you may want to look into further. It’s also recommended that you take notes during each showing, as once you see several homes, you can lose track of which house you liked for which reasons. Don’t rush this process because you want to choose a home you’re going to be thrilled to own and not regret.
Talk to your realtor about showings. Maybe even make a list of what you want in a home versus what you’re willing to compromise. It can help narrow down the list – making it easier on your realtor when it comes to finding homes that match up with your ideal. Use this home comparison chart when viewing homes.
8. Make an offer on your home
Once you’ve found the home you love, it’s time to make an offer. Be prepared for negotiations! This is the time your realtor will shine because they will be able to create an offer based on market factors, competition, and listing price. Either you will arrive at a deal that is suitable for both you and the seller, or you need to keep looking. It’s not uncommon to have an offer declined, but really is dependent on the market and your offer. You may end up needing to put an offer on another home. Once the offer is accepted, you sign paperwork that addresses the closing date, contingency clauses based on inspection, and financing. It’s at this point that you also pay your deposit.
Make an offer based on the asking price of the home! Ask your realtor pertinent questions relating to this stage in the process.
9. Get an inspection
Typically your realtor can refer you to a reputable home inspector, but you can also research and hire your own if you choose. As the buyer, you are responsible for paying fees associated with a home inspection. This inspection can be the breaking point of some offers if there is significant damage to the home that you don’t see during the showing. The examination is there to protect you during this big purchase, and usually, the issues found during inspections can be easily fixed or negotiated into the details of the sale. The inspector is looking for structural damage, termites, mold, asbestos, etc.
This is also the last time you’ll spend in your new home before you move in, so if you need to measure rooms or spaces for specific items, now would be the time!
Call the home inspector and set up a time for the inspection. This is important since it’s something you’ll definitely want to do well before the paperwork is submitted and conditional factors are closed.
10. Negotiate any repairs needed
Any major repairs that are needed will require some negotiating. Either the seller can fix them before your closing date, or they can adjust the price of the home which will allow you to pay for the repairs. Any minor issues can likely be fixed as you move in and take possession.
Major issues can lead to a lender saying ‘no’ to you and your mortgage, so it’s important to iron out these details before the appraisal happens.
Talk to your realtor about contacting the seller if the home inspection determines that there are major maintenance problems. Follow up with your realtor to make sure this gets done!
11. Get an appraisal
An appraisal is a required part of the lending process, and the lender you’ve chosen will want to ensure the house is an appropriate investment. This assessment will determine the value of the home by an impartial party. It’s similar to the home inspection but in the eyes of the lender.
If the appraisal isn’t what you expect, and it’s low, and the sale is contingent on inspection and appraisal, you can still walk away at this point and get your deposit back. You can also continue negotiating and get the seller to either fix the problem responsible for the decreased value or lower the price, and you can take care of the problem before you move in.
If the appraisal determines the investment low, walk away or negotiate with the seller.
12. Get insurance and Utilities Set Up
Your appraisal and inspection is great and you’re ready for the next step: insurance. Call your insurance broker or company and let them know you’re buying a new home. Many insurance companies offer discounts when you pair with your auto insurance, but you can also shop around for better rates. Your lender will require you have homeowner’s insurance, so this is an important step.
You will know your closing and move-in date, so set up your utilities, cable, and internet appointments, because you don’t want to end up in the dark during your moving days!
Call your insurance company and inquire what insurance is available for homeowners. At this stage, also call your utilities and internet company to make that switch so the lights are on when you move in.
13. Secure Financing
This final financing process can take up to 30 days to complete, so at this point, avoid changing your job or impacting your financial situation significantly if possible. Don’t rack up your credit cards or do anything to alter your debt-to-income ratio because that could delay this process. The lender may ask for more information from you, including bank statements, tax returns, or proof of income, so try to get that to them promptly to speed up the process.
Avoid spending any unnecessary hefty expenses. Stick to your budgets. Provide the lender with any additional information they may need.
14. Closing Day
The closing day is the official day the home becomes yours. Closing costs can be 2% to 7% of the total housing cost, so keep that in mind during the beginning of this process. During the closing process, you’ll likely feel like you’re signing your life away, but it’s all for that beautiful new home you’re excited to move into!
Get excited about moving in! Start imagining your new life in your new home.
15. Move-in, Decorate, and Settle In!
Welcome to your new home – it’s time to decorate! Once you’ve got all your belongings in your new home, the really fun part starts. You get to make this new space all your own! This means furniture, decorations, painting, appliances, and more. It’s time to create a nest that’s all yours. Personalize it whichever way you see fit. Once you’ve decorated a bit, you can start to settle in. It’ll start to feel like your home. No more shopping around or signing papers. A new chapter of your life starts now.
Make a list of decorations or missing furniture and appliances. Budget for them and then start shopping and settling in! Make this home yours by personalizing it with your unique taste and style.
There you have it! A complete guide to buying a home. As you can see there is so much involved in the purchase of a home. We would recommend getting in touch with an excellent real estate agent to make your home buying process goes as smoothly as possible. If you’re interested in purchasing a new home, be sure to read our comprehensive guide to building a new home.