18 Steps to Buying Your First Home
Hire a Buyer’s Agent
The first step is to find a real estate agent to represent you as the buyer. Their commission will be paid by the seller so don’t worry about that. Instead focus on the benefits an agent will provide you such as being your guide through all of the steps below in the home buying process.
If you don’t know a real estate agent you trust, ask around to friends and family for referrals. Someone you know has more than likely recently sold or bought a home and could recommend an agent to you.
You can also search online for agents in your city.
A high quality real estate agent will be one who is positive when speaking to you, responds in a timely manner, and points things out to you during the transaction on their own without being asked that you may not have known.
Overall, you’ll be able to instinctively feel that they care about helping you find a home and are working hard for your best interests. If you have a good experience with your agent, be sure to write them a positive review online, film a testimonial video they can use on their website, and/or refer them to friends and family. This is a great way to show your thanks and appreciation for their hard work helping you out.
Get Pre-Qualified / Pre-approved for a Loan
The next step is to get pre-qualified for a loan so that you know what price range of homes you can target. This will prevent you from wasting your real estate agent and the seller’s time going after houses that you won’t qualify for purchasing.
Ask your real estate agent who they recommend using to get pre-qualified for the loan.
Look at Homes for Sale
Once you’re pre-qualified, you’ll want to have already drawn up a list of features you’d like to have in your new home that you can give to your real estate agent.
This will help the agent narrow down the search to find you homes that match your interests and desires.
You can also do some shopping online using a website like Zillow.com or Realtor.com. If you find a home for sale online, email it to your real estate agent so they can set up a showing for you. Don’t email the listing agent because they are working for the seller and won’t have your best interests at heart.
During the showing, your real estate agent will have a listing sheet about the property that tells different features of the property as you walk through. Your agent will also help you look for potential issues with the home that need negotiated if you end up putting the home under contract to purchase with the seller.
Write a Purchase Offer
Once you’ve seen the property and have decided it’s the home you want to purchase, you’ll need to put in an offer.
Your real estate agent will run analysis of the property and share their opinion of value that they think the home is worth to help you determine an offer price to submit to the seller.
If the house is in high demand or it happens to be a seller’s market, expect lots of offers above asking price from competing buyers. If there is a bidding war, be careful not to overpay for the home and remember you can always find another home if this one doesn’t work out.
In a buyer’s market, there are more homes for sale than there are buyers, which usually means buyers get to offer below listing price for the home.
Talk with your real estate agent and determine what you can afford, and what you are willing to pay for a home. He or she will then help you fill out the purchase contract and submit it to the listing agent on your behalf.
At a minimum, the real estate purchase contract will include the following items:
- The mutually agreed-upon sale price
- Earnest money deposit
- Property address and description
- Terms of the sale
- Date of final walk-through
- Date of closing
- Home buyer’s contingencies
Negotiate and Write Counter Offers
One of the important reasons to work with a buyer’s agent is that they are professional negotiators. Your agent understands your real estate market and knows the streets well because they’ve been selling real estate for years. This is advantageous to you, because they understand property values and know how to negotiate the purchase price to get you the best deal they can.
Some things they’ll be negotiating for you include purchase price, closing costs, who pays certain costs, as well as other aspects that are written in the purchase contract.
Make an Earnest Money Deposit
When submitting an offer, you’ll also want to submit earnest money which shows the seller you are serious about your offer and in good faith. It’s usually 1-2% of the purchase price and the check will be held in an escrow account to prevent the seller from cashing the check.
If you pull out of the deal, the seller may get to keep the money. By going through with the deal, the money gets applied on the settlement statement towards the down payment.
Open Escrow / Order Title
At this stage, you will order a title search to be run which we’ve written a detailed guide about here. In simple terms, the title company and/or attorney will research the chain of title to see all the previous owners of the property and make sure the title is clear for being transferred to you as the new owner.
You’ll also want to purchase title insurance policy to protect yourself from damages in the event the title searcher made an error and someone comes after the property claiming they have title to it.
Read this guide on title searches and title insurance
When getting financing, the lender will require the home to be appraised so that they can make sure they don’t lend more money than the home is worth. An appraiser will pull recent sales data from very similar properties and compare features of the recently sold properties to determine what this home is worth.
Your lender will likely loan 70-80% of the appraised value but it’s possible that you’ll receive more depending on the lender and any first time home buyer programs you may be using.
For example, the FHA allows you in their program to put as little as 3.5% down in some cases.
Comply with Lender Requirements
Your lender will have lots of documents to sit down and explain to you which include their requirements you must adhere to for their loan.
For example, if you sell the property to someone else, there is likely a clause in the loan stating that the loan becomes due (also known as the “due on sale clause”). This requires you to pay off the loan with the sale proceeds first before you get any of the remaining money left from the sale.
Another example is the rules and terms for missing payments and how they can foreclose on the loan, taking possession of the property if you get behind on payments.
Overall, make sure your real estate agent and lender both review these documents with you and thoroughly explain them so you are aware of the information and understand what these documents are saying.
Approve Seller Disclosures
The seller is required by law to disclose any known issues with the home on a seller disclosure statement. You’ll review this statement with your buyer’s agent and need to approve these disclosures.
Defects that are pointed out about the home on the seller disclosure statement or during a showing can be negotiated with the seller about fixing them or crediting money on the settlement statement at closing.
The importance of a seller disclosure statement is to make the buyer aware of any issues so that once the buyer purchases the home there are hopefully no surprises that result in lawsuits.
Order Homeowner’s Insurance Policy
As a first time home buyer, you’ll likely need to have the different insurance policies explained to you by an insurance agent. You can get different types of coverage and depending on where you live, there will be different requirements. For example, if you live in an area prone to flooding, you may need to get flood damage insurance.
Consider getting quotes from a few different insurance agents and review the policies with your attorney or someone with home owner’s insurance experience that can help you decide on a policy.
Conduct Home Inspection
Even though the seller disclosed known defects on the seller disclosure statement, you still want to have an inspection done on the home by a professional. This can reveal any structural/foundational defects as well as other issues with the home that may not have been stated by the seller.
The worst thing that can happen is taking over a home and finding an expensive issue with the home that you’ll have to pay for.
Issue Request for Repair
Talk with your real estate agent about issues you want to request the seller to repair and your agent can communicate these to the seller and listing agent. There will be some back and forth negotiation about what the seller will or will not fix as well as what the seller may credit you in monetary value towards the purchase on the settlement statement.
If certain issues with the home are major, you may be able to back out of the purchase contract. Most contracts have an inspection clause in them so make sure to talk to your real estate agent about this clause and the way it works. It could be a release that allows both parties out of the contract without any monetary losses (earnest deposit money or damages for breaching a contract).
The contract will build in a certain amount of time (probably several weeks) between the contract signing and final “closing” of the deal. (In some states, this period is called “escrow.”)
During this time period, you and the seller will be working hard to meet or remove the various contingencies, for example, by securing a loan and scheduling inspections. You’ll need to update each other on the progress being made as well.
Typical contingencies may include:
- Inspection by the buyer
- Ability to obtain financing
- Home appraisal
- Sale of current home
- Clear title
Do a Final Walk-Through
Either on the day of closing or the day prior, you’ll usually schedule a final walk through of the property to ensure its condition hasn’t been altered. The seller will also sign a statement that nothing has changed to their knowledge.
Any last minute issues found may delay closing as a result but it protects you from taking over a property that has issues.
Sign Loan / Escrow Documents
At closing, you’ll usually meet face to face with the seller. Each of you should have your respective real estate agent with you at this meeting (seller with the listing agent and buyer with his/her buyer’s agent).
Other parties that may sit in the closing meeting include a representative from the lending institution as well as attorneys for either party.
You’ll be responsible for signing off loan documents as well as any other documents presented to you by the escrow officer, who has the legal authority to conduct the closing between you and the seller.
A settlement statement will be created for the buyer and seller highlighting all the different debits and credits of the transaction.
The buyer will receive a total debit amount (expense) that he/she owes.
You’ll be responsible for writing a check or wiring in money to the escrow account as well as any money needed brought to closing to cover closing costs.
To learn about the expenses of buying a home read this guide here: Ultimate Guide to Home Buyer Costs.
The closing officer will account all fund and disperse them to all the parties of the transaction. You’ll be handed keys from the seller to take possession of the property and start your journey as a new home owner! CONGRATS!
Next we will cover the final section of the first time home buyers guide which is the things to do after you take over as the new owner of a home.