1. Decide if You’re Ready to Buy a Home
Purchasing a home is a major responsibility. You not only need to be financially stable, but you must also be emotionally prepared. Homeownership comes with many benefits, but it’s also a significant commitment. If you decide you don’t like the neighborhood or want something closer to work, it isn’t always easy to pack up and move. Plus, you’ll have to be sure that you can afford the monthly mortgage payments and other associated costs for the next few decades. So, before you begin looking, it’s important to decide whether or not you’re truly ready for homeownership.
2. Calculate How Much You Can Afford on a House
Once you determine that you are ready to take that next step toward homeownership, you need to calculate how much you can afford. Most experts recommend that you don’t spend more than 28% of your annual income on your mortgage. You can use a mortgage calculator to determine approximately how much the monthly payment on a home would be so you can plan accordingly. Remember to also factor in things like taxes and insurance and leave room in your annual budget for routine maintenance.
3. Save for a Down Payment and Closing Costs
Once you’ve determined what you can afford, it’s time to start saving. Most lenders will require you to make a down payment to secure a loan. To be on the safe side, you should budget for 20% of the cost of the home if possible. However, many lenders will accept 5-10% if you meet certain criteria. Also, keep in mind that you’ll have to pay closing costs on top of the down payment. This includes various fees such as origination fees, title fees, credit check fees, inspection fees, legal fees, etc. So, leave room in your budget for about 3-5% of the sales price to account for these additional costs.
4. Decide What Type of Mortgage is Right for You
Once you’ve put away an adequate amount of savings, it’s time to decide what kind of mortgage makes the most sense for your situation. Most homeowners will go with a conventional mortgage offered by a retail lender such as a bank or credit union. But there are other options available. FHA loans are a good option for those who may not qualify for a conventional mortgage. VA loans also feature amazing benefits but are only available to veterans of the US military. A jumbo loan is another type of mortgage you may consider if you purchase a luxury property outside the range of a typical mortgage.
5. Get Prepared for a Mortgage
Once you’ve decided which type of loan makes sense, you’ll need to prepare for the application. This means gathering all important financial documents and paying off any existing debts to the best of your ability. The better your debt to income ratio, the easier it will be to qualify for a low-interest rate. Once you have everything in order, you should approach your lender about getting pre-qualified.
6. Find the Right Real Estate Agent for You
While not a legal requirement, the vast majority of homeowners seek the help of a real estate agent when looking for a home. But not all agents have the same experience and expertise. So, it’s crucial to find one that is right for you. Look for an agent who has had at least a few similar transactions under their belt. Many agents go years without actually closing a sale, which means they may not be helpful to you. Also, be sure to find an agent who specializes in the location and type of home you’re considering. Conducting a brief interview of all potential candidates before committing to one can help you find the right candidate without wasting any time.
7. Begin House Hunting
Once you’ve found the right agent for the job, it’s time to start looking at properties. Before you begin, it’s helpful to make a list of preferred features and essential features in a home. This will be helpful in deciding when you need to keep looking and when it’s time to compromise. For instance, maybe you’d like a swimming pool, but you need three bedrooms to accommodate all your children. Then it makes sense to look at properties with and without pools then compare the prices. This way you can skip any homes with less than three bedrooms to avoid wasting time.
You'll also have to consider the location, which can greatly impact pricing. All types of factors can impact pricing, including the quality of schools in the neighborhood, the safety of the area, and even how near the house might be to power lines.
8. Make an Offer on a House
The next step once you’ve found the perfect home is to make an offer. If you just want to get the process over with, you can simply accept the listing price– or even offer more money if you think there is competition. But, there’s also nothing wrong with making a lower offer to see how the seller will react. If they feel confident that they can get the price they’re after, they may reject it. But if they are tired of showing the home, they may accept your offer or at least meet you halfway.
9. Get a Home Inspection
Once you’ve gone back and forth and agreed on a final sale price, you are in the home stretch. The next step is to get an inspection to ensure the house is structurally sound and doesn’t have any underlying issues that have not been addressed. The inspector will usually take a few hours to examine all the important aspects of the home, such as the foundation, the roof, the plumbing, the HVAC system, and the electrical system.
10. Get an Appraisal
Following the inspection, you will want to get an appraisal to verify the home’s value. An appraisal will likely be required if you are financing the purchase. Your lender will want to be sure that the home is worth approximately what you’re offering in the event that you default on the loan. The appraisal will take into account the condition of the home and the broader market trends in the area to arrive at a fair valuation.
11. Ask for Repairs or Credits
If anything unexpected is discovered during the inspection or appraisal, such as a crack in the foundation or the presence of pests or mold, you can return to the negotiation table and ask that the seller make a concession. You can either request that the seller fix the problem before the closing or ask them to offer a credit so that you can take care of any issues yourself. This credit will come out of the final sales price of the home that you’ll pay at closing. If the seller refuses to address the issue, you have the right to walk away from the sale – although most will oblige as long as the request is reasonable.
12. Do a Final Walkthrough
Once all potential problems are addressed, you will want to do a final walkthrough right before the closing. This will be your last chance to voice any concerns or do any last-minute negotiations before the contracts are finalized. Once you sign on the dotted line, it’s assumed that you are content with the home’s condition as it is. Unless the seller committed obvious fraud or clear misrepresentation, it will be much harder to voice any objections once you sign the contracts. So the final walkthrough is the time to double-check that all repairs have been made and the home is suitable to move into.
13. Close on Your New Home
After the final walkthrough, the last step is to close on the home. Your attorney will prepare a statement listing all the final costs, which you will bring with you to the contract signing, along with certified checks. You can also wire the funds for closing to your attorney. Then you and your broker will review all the paperwork and sign all the necessary documents. If there are no unexpected problems or delays, your attorney will assist in transferring the title, and you will receive the keys to your brand-new home.
Buying a House FAQ
How Can a Beginner Buy a House?
A beginner can get started preparing to buy a home by following the steps outlined in the above article. However, without a strong credit history or proven track record of paying a mortgage, it’s even more essential to make sure all your finances are in order before you apply for a mortgage. This means meeting the necessary income requirements and ensuring your debt-to-income ratio is low. Also, saving for a down payment can be crucial. Researching loan programs for first-time homebuyers can also be helpful for the right lender.
What Salary is Best to Buy a House?
It all depends on what kind of house you’re in the market for and where you want to live. The median sales price of a home in the United States at the start of 2022 was $386,900, which means that you should have a household income of around $100,000 to afford the average home. But this can vary from state to state.
For example, the median price of a home in New York City is around $750,000, meaning you’d need a household income of between $250,000 and $300,000. But, the median sales price of a home in Indiana is just above $200,000, meaning you’d need a household income of around $50,000 to safely qualify.
However, it all depends on several factors, such as your existing debt and credit history. So, you should use a mortgage calculator and the 28% rule to find out exactly how much money you need to afford your dream home.
How Do you Buy a House if You Have No Money?
It’s almost impossible to buy a house if you don’t have a bit of money to put towards the down payment and closing costs. If you have absolutely no money, you should focus on building up some savings and credit history before purchasing a home. Buying a house is a major financial decision, and if you get in over your head, it could haunt you for the rest of your life.
But if you have some money, just not quite enough to qualify for a conventional mortgage, there are programs available that can help. For instance, an FHA loan was designed to help first-time homebuyers qualify for a mortgage and can help you purchase a home with as little as 3.5% down. Or rent-to-own programs are another viable option for those who want to get on the path toward homeownership but don’t yet have the funds to qualify.
How Big Should Your First Home Be?
It all depends on your living situation and what you can afford. Most first-time homebuyers start with a modest condo or single-family home with two or three bedrooms. If it’s just you on your own, then a home of about 1,000 square feet should be very comfortable. If you are a family of four, you may need something closer to 2,500. There is no set rule for what will make you comfortable – some people prefer a minimalist lifestyle while others want the room to expand and entertain guests. But in general, you should look for a home that doesn’t feel either too cramped or too empty to accommodate your living situation.
What is Included in Buying a House?
Typically, when you purchase a home, you acquire not only the physical structure but the plot of land it’s built on and any fixtures that come with it. Before you close on the sale, it’s good to research exactly where the property lines start and end so you don’t accidentally encroach on your neighbor’s property. Even if a fence or other structure is separating the two, that doesn’t automatically represent the property line. You should consult your broker or check public records to find out exactly where it is.
Also, keep in mind the difference between a fitting and a fixture. A fitting or a chattel is moveable and does not transfer ownership along with the home. This includes the previous owner’s personal belongings, such as a couch, mirror, television, or anything of that nature. On the other hand, a fixture is something attached to the home or property and will transfer ownership, such as lighting, appliances, fences, and so on. So, all fixtures will belong to you when you purchase the property, but fitting will remain in the possession of the previous owner.
Do You Need a Down Payment to Buy a House for the First Time?
In most cases, if you are financing the purchase, you will need to put down some money to satisfy the lender. However, there are ways you can avoid putting down money up front and still qualify. For example, if you get a government-backed USDA or VA loan, it is possible to get a mortgage without a down payment. However, you must meet the specific criteria of the program. There are also various ways you can get a mortgage without putting down the full 20%, such as getting an FHA loan or agreeing to pay private mortgage insurance on a conventional loan. That’s why it’s important to do your research before committing to a particular loan product.
How Much Money Do You Need For a Down Payment on a House?
It all depends on the requirements of the lender. The standard is 20%, but some require as little as 5-10%. If you go with an FHA loan, you are only required to put down 3.5% if you have a credit score of over 580. Those who have a strong financial profile may be able to get away with putting down less as a down payment and still secure a decent interest rate. But those who have existing debt or a lower credit score are wise to save as much as possible to avoid paying more in interest over the life of the loan.
What Credit Score Do You Need to Buy a Home for the First Time?
The credit score needed to buy a home also depends on the lender. If you are applying for a conventional mortgage, it’s recommended that you have a credit score of 620 or higher. Some lenders may be more flexible if you have a high income or you’re willing to put down a higher down payment. But, in general, the lower your credit score, the higher your chance of rejection or getting stuck with an exorbitant interest rate.
FHA and VA loans offer slightly laxer requirements because the government backs them. But you still need a credit score of at least 580 to avoid paying a higher down payment. If you are applying for a jumbo loan, you will typically need a credit score of at least 680. In most places, a jumbo loan is anything over $647,200, although that limit increases in more expensive areas.