Updated: Mar 9, 2020
Buying a home takes a substantial amount of time, research, and patience as you try to find the home that matches your exact needs and preferences. No matter the general price range you’re interested in, purchasing a home typically makes for one of the largest investments of your life, which is why it’s important that you’re confident with your purchase decision.
While you’ll likely find it difficult to search for the right home and progress through the home buying process, it can be a fulfilling and exciting experience if you properly prepare for the journey ahead. Even before you’ve started searching for the right home, there are a range of things that you can do to make sure that the property you’ve selected is the right one for you and your family. It is very easy to make a misstep or two during this process, which is why it’s highly recommended that you inform yourself and find knowledgeable support to substantially reduce the possibility of making costly mistakes. Knowing what these home buying steps are before you get started on the buying process should also prevent you from becoming overwhelmed at any point in the process.
Step 1. Get your Finances in Order
Before you even consider buying a home, it’s essential that you get your finances in order. Buying a home is among the largest investments that a person can make, which is why it’s unwise to go through this process if your finances aren’t well thought out. In order to obtain a loan, your credit score and credit history needs to be relatively strong, which is why you should obtain a credit report, which will provide you with your current score and an extensive history of your credit. This history can give you the information you need to determine if it’s possible to buy a home and whether or not you’ll be able to acquire favorable loan rates. There could also be errors and fraudulent activity on the report that you should have sorted before lenders look at your credit history.
Take note of any late payments as well, which can be among the most damaging components of a credit history. Your credit score will also be very important for the type of loan you obtain. Higher credit scores make it more likely that you’ll qualify for the loan of choice. Being able to qualify for better loans can provide you with a much lower interest rate and better terms in general, which will save you a substantial sum of money in the long run.
You can obtain a free credit report and score at Credit Karma.
Step 2. Determine Your Budget
Once you’ve taken a look at your credit report and know your financials are in order, you’ll want to determine your budget, of which there are many variables to consider. You should have a reliable estimate on how much your monthly mortgage payments are going to be once you’ve purchased the home of your choice, which is something that you can quickly calculate with mortgage calculators.
There are many costs that you will need to keep in mind when creating your budget. Different types of mortgages come with different minimum down payment requirements, which typically range from 3.5-5%. Higher down payments can provide you with access to better loans and better loan terms. If you want a low interest rate on your mortgage, it’s highly recommended that you make a substantial down payment. A down payment of 20 percent or more typically paves the way for fantastic loan terms.
There will also be numerous closing costs that you will need to take into account, which include everything from title transfer costs to the escrow deposit and home inspection fees. You should expect to pay around 2-5 percent of the price of the home in closing costs. You should obtain a statement that outlines these fees a few days before closing. If you don’t have the furniture that you’re going to need once you move into your new home, it’s important to place these costs into your budget as well. You might also want to do some remodeling once you get into your new home, which is something that you should be able to determine before you make an offer on the home. With a budget in hand, your search for a new home will be a much more focused one.