PMI, down payments, closing costs--there are a lot of steps toward getting a mortgage and moving into your first home. We've outlined the biggest parts of the homebuying process so you can have full confidence in your journey.
Buying your first home can seem like an intimidating process. Though it’s an exciting purchase, there’s a lot of money on the line, and stress and emotions can run high. Buying a home doesn’t really become second nature to most buyers; it can be different every time.
However, knowing what to expect before you start your search can help prepare you just a little bit more for your journey toward a new home. What follows is a general outline of the homebuying process and your timeline as a first-time homebuyer.
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The homebuying process can actually start long before you browse listings. In fact, many financial experts recommend getting a few years’ head start, primarily to make sure your finances are as good as they possibly can be.
Taking a good look at your finances before you purchase a home gives you time to:
By taking the time to fully understand your financial picture, you can set realistic expectations of when you’ll be able to buy, how much house you’ll be able to afford, and any changes you’ll have to make financially to make it all happen. Raising your credit score takes time and effort, so if you start now, you’ll be much farther ahead in a few years.
It’s smart to start setting aside money for your home three years out. You’ll need a down payment and closing costs, as well as any extras like moving or renovation expenses.
Your down payment goal really depends on your purchasing budget and the mortgage type you’d like to apply for. Having to put down a full 20% is a common misconception; there are loan types that have much lower requirements. If you choose a loan type with a lower down payment, you’ll typically be required to carry Private Mortgage Insurance (PMI). This is a set amount that you pay every month with your mortgage payment; it protects your lender from taking a loss if you default on your mortgage.
Here are just some of the considerations for making a down payment:
Closing costs also need to be considered in the equation: while some lenders allow you to roll closing costs into your overall mortgage, it’s not standard. Expect closing costs to be anywhere between 2%-5% of your loan amount; this is due when you sign the title for your home.
A year out is a great time to start your research on homes, neighborhoods, and lenders. You’ll also be reassessing your finances so you’re fully prepared to purchase a home.
Maybe you already know what you want—great! But if you find yourself questioning if you really do like that house, it’s time to start making lists. Consider these questions:
Most important of all, make a list of deal-breakers. This can give you a comprehensive understanding of exactly what you won’t put up with in order to buy a home. The homebuying process is so complicated, it’s easy to want to buy a home just to get it over with. This typically leads to regret and additional expenses down the line. Be as flexible as you can—you will most likely not get everything you want, but you’ll be able to prioritize better with your needs and wants written out.
Your home is important, but so is your overall environment! Whether you’ve lived in your area for years or are moving somewhere new, get a feel for where you might want to live. Things to consider include:
Now is also when you will want to start thinking about financing. Start looking at local and national lenders. Ask around, read reviews, and learn more about lenders and their loans. You may want to prioritize a lender who retains most of their mortgage loans; if a lender is selling your mortgage loan onto a larger lender, they will often have stricter requirements.
This is also a great time to find a real estate agent to help you with house-hunting. Your lender may have a recommendation for you, especially if you choose a local mortgage expert.
Check in with the goals that you set for yourself. Assess the amount you’ve saved for your down payment, check your credit score through multiple sources, and calculate how much debt you have. If you’re on track, great! If you aren’t where you wanted to be, determine if it is possible to “catch up”, or consider adjusting your timeline.
Check back in with your budget, too. If you’re ready to buy a house, it’s important to make sure you know exactly what you can afford. You can do this by using a home affordability calculator or speaking to a local lender.
When you’re three months away from house hunting, you should be getting your paperwork in order and finding a real estate agent or real estate attorney. Finding a home can take one month, or it might take up to a year—it depends on what you need and your local housing market. Preparing before you start trying to find a home can make a big difference in your timeline.
You should already have a list of lenders you might want to use. Now it’s time to take that a step further and get prequalified with several of the lenders you’ve researched.
To get prequalified, you’ll submit information to a lender about your income, debts, credit, and assets. In turn, they will determine whether or not you meet their lending requirements.
While it’s not a guarantee of any final approval of financing, you are more likely to be approved with prequalification because a lender has already partially evaluated your risk level. Getting prequalified before you hire a real estate agent also shows that you’re a serious buyer; prequalification might also mean that your offer is more readily accepted.
A buyer’s agent will be one of the biggest tools at your disposal. A few months before you plan to start looking for a home, start looking for an agent. Ask friends and family who they've used and who they would recommend. You’ll want to work with an agent who:
You don’t legally need a real estate agent, but the right one can provide serious benefits. Local agents who know the market can help you find homes before they’re listed, or homes that have been difficult to sell. A savvy agent who has the right connections can help you navigate the housing market to find you exactly what you need. If you’re in an area with an especially tight housing market, a good real estate agent can be invaluable.
Once you’ve completed all of the steps above, you can start looking for your first house with confidence. The length of this phase is difficult to predict.
If you live in an area with a hot seller’s market, you may have to put offers on several homes, competing with other buyers to make the right purchasing offer. If it’s an exceptionally tight market, prepare yourself to put in an offer the same day you view a house.
While in a tight housing market, you may also want to adjust your expectations. Now is the time to be flexible, especially when it comes to minor cosmetic changes or amenities that you can add later on. A good real estate agent will be able to guide you on which features to be flexible with.
If you have the luck of being in a buyer’s market, take advantage of it. Spend time looking at all of your options—you don’t have to choose the first home you find! Your real estate agent can also help you negotiate lower purchase prices, find a lower interest rate, and more.
Either way, patience is key while house hunting. Once you find a home that you love, your agent will help you submit an offer and sign a purchase contract.
Congratulations—your offer was accepted! It’s time to apply for your mortgage. The most important thing you can do is to get all of the required documents to your lender in a timely manner. There are critical deadlines that need to be met in order to buy the home.
When submitting a mortgage application, you’ll typically be required to submit basic personal information and ID, documents to verify your income, and information about current debt and assets. Your lender will give you a complete list of everything they need.
The mortgage approval timeline varies from lender to lender, but you can expect it to take upwards of 30 to 45 days to complete. Getting prequalified early on can help expedite the process, as the lender will already have some of your information on file.
There are two really important steps after applying for your mortgage: the lender will send out an appraiser to evaluate the value of your future home, and you will need to find a licensed inspector to look over the property. Your lender will have more information on what they require for each step.
Closing usually occurs 30-60 days after the purchase contract is signed. On closing day, the property is transferred to you, the buyer. Funds will be transferred from escrow, you will pay mortgage and title fees, and the title company will make sure all of the paperwork is in order. In Texas, you may have to wait until funding is received by the seller before receiving the keys or access to your property. Your real estate agent will notify you when you can take full possession of your new home.
Buying a home doesn’t happen overnight, but if you’re aware of the process, you can plan ahead every step of the way. If you find yourself unsure what to do next, know that there are professionals like your real estate agent and local lender who are ready to help.
We want you to have all the details you need to make a strong financial decisions. Learn more about our mortgage loans, or apply now!