Homeownership: Simple Steps for a First Time Buyer

Buying a first home is one of life’s greatest achievements. Like many achievements, though, it comes with hard work and perseverance. In the span of just a few months, you must find a home, qualify for a mortgage, make an offer, and close on the property.

You may find yourself asking: What exactly am I doing?

Luckily, there are some easy first steps to set yourself up for success.

Step 1: Identify Your Budget Range

The best action you can take when purchasing your first home is figuring out what you are capable of affording. Before you go to a bank or contact a real estate agent, you need to calculate your debt-to-income ratio. To calculate, divide your total debt by gross monthly income. This ratio is what banks will look at when you try to qualify for a mortgage.

If your percentage is especially high (greater than 43%), you may want to consider paying off more debt before moving further along in the process.

Step 2: Getting Your Finances in Order

Once you calculate your debt-to-income ratio, it is time to prepare for a mortgage. As a first-time homebuyer, you may qualify for a unique financing program such as down payment assistance or lower interest rates. This varies state by state.

The best way to qualify for a mortgage is to get pre-approved. A mortgage pre-approval requires you to supply a lending company with some basic financial information, and they will let you know what mortgage you may be eligible for. Some of the information you will need to provide to the lender are proof of employment, income statements, bank statements, and tax forms. Lenders will potentially want proof of rent payment or bankruptcy or foreclosure documents. While this process can be tedious, it cannot be stressed enough how important it is towards the goal of buying your first home.

Step 3: Find a Real Estate Agent

A qualified professional is the best person to get a job done, and homebuying is no different. You will want to find a qualified real estate agent or Realtor (official designation by the National Association of Realtors) in your area to help you find and close on a home. Realtors have deep knowledge of submarkets, school districts, neighborhood cultures, and house design. Unless you happen to be a real estate agent, it is next to impossible to replicate that knowledge.

Need a real estate agent in Hampton Roads, Virginia? Call the ProActive Team (Billy Wilson and Gary Layne) today at (757) 383-9510 or check out our website.

Once you have selected an agent, you will want to have a preliminary meeting. In the meeting, you will need to cover your priorities for the home and the budget you are working within. If you would like a specific style home or a certain sized yard, you need to let your real estate agent know. They are the ones best equipped to find what you are looking for.

Real estate agents also help you with the upcoming steps that finalize your purchase.

Step 4: Find a House, Make an Offer

Let us say you find the house that you are ready to make into a home. The next step to securing the purchase is to make an offer. Typically, when you make the offer, you will put 0.5%-3% into an escrow account while closing happens. This small deposit is known as earnest money, which demonstrates the buyer’s good faith, and may vary depending on the size of the home. Like other deals, if you pull out of the offer with no contractual reason, you will lose this deposit.

An experienced real estate agent or Realtor is key here, as they will help word the offer in a way that protects your interest. For example, you want to leave yourself leeway if your potential property does not pass a full home inspection. A good agent will know to write a clause in the offer that requires the property to pass full inspection or have all issues fixed.

During this part of the buying process, you will most likely be asked by the bank to pay for an appraisal of the property. An appraisal is a valuation of your property relative to the value of other properties recently sold. The cost of both an appraisal and home inspection vary by locality, but should be around $500 each. Your real estate agent should know respected appraisers and home inspectors and help set up appointments for you.

Step 5: Closing on Your Dream Home

If everything goes well with your appraisal and inspection, then you will begin the closing process. This will probably take between 30-45 days from when the lender starts processing the loan. You will receive a closing disclosure which documents the terms of your mortgage. This document will tell you what you owe at closing. To avoid delays, you should be ready to bring a cashier’s check or proof of wire transfer to a closing meeting. An agent will lead the closing process and help you sign all requisite paperwork. After all this is completed, the home is yours!

Final Thoughts

While this process is stressful, it is always worth it in the end. A place to call home is one of the safest comforts one can have. To deal with the stress of the homebuying process, be sure to use a qualified agent or Realtor. They will have your best interest in mind and a better understanding of the journey that is buying a home. We wish you lots of luck and hope you soon buy the house of your dreams!