15 Home Buying Steps

I had no idea what to expect when it came to home buying.  When I bought my first home, going through the home buying process was a mess for me! I don’t want that to be you, so I am going to lay it all out on the table for you. This is the basic home buying process, a few tips to make things go smoothly, and some advice on what you can expect.

There is a lot of information in this post, so I encourage you to leave your questions in the comments section.  Any question you have, is probably a question that many people have, so don’t be scared!

1. Find an Agent

I also want to make sure you understand how your relationship with an agent works.  For example, I thought you could work with tons of agents, have more people looking for houses for you, and the one that found “The House” would win! WRONG! I repeat, that is wrong!  You should only work with one agent to help you in the home buying process, so make sure you pick a good one! In fact, many agents will have you sign an agreement that you are only going to work with them.

Pro Tip: This is a great area to ask you friends and family for referrals.  Don’t ask them who they know, everyone knows a real estate agent, ask them who they used.  Another great person to ask is your insurance agent. 

2. Get Prequalified for a Loan

Most people do not pay cash for their houses, especially if you’re a first time home buyer, so I am going to assume that you need a loan.  Getting prequalified is important for many reasons. First, you can confidently search for houses within a budget that you know you can qualify for. The second reason, and probably the most important, is so you can have for buying power.  When sellers receive your offer, they will trust you more as a buyer if you can show that you have a bank that has already qualified you for the money you are offering them. What you are prequalifying for is a mortgage.

Pro tip: What is a mortgage?  Yes, it is a home loan, but it is also a partnership with the bank. You and the bank are going to buy a house together, this means the bank owns a portion of the home … until you pay it off. Keep this in mind when looking for a mortgage.

What you will need for prequalification:

Proof of income and employment: you need to show that you are capable of paying the loan off now and will be able to continue to pay it off in the future.

Loan to value: the bank that loans you money is going to want you to have some type stake in the game, so they want you to put some money down on the loan.  Typically firs time home buyers should be looking to put down 5%-20% down. You don’t want to put all of your cash down, but it should be a nice chunk of change. Also note, that if you put down less than 20% you will need to pay for mortgage insurance.  In my opinion, this is an unnecessary expense, you’re basically giving $300-$500 a month to the mortgage company for nothing. That could be used to go towards your principle payments! Do your best to have 20% down when you’re buying a home.

3. Choose a Loan That Fits You

There are different types of loans available, and they all have pros and cons.  From a debt perspective I think it is best to get into a Fixed Interest Loan. Usually these loans have terms of 15-30 years, with the agreement that you will pay the same monthly payment each month for the entire length of the term, and when you’re done with the term your loan will be paid off.

4. Seller Negotiations and Securing Your Loan

This is where you negotiate a price with the seller while simultaneously securing your loan for the same amount.  You might have submitted an offer lower than the original asking price, or maybe you are in a bidding war with another buyer.  Each process is a little different.

5. Inspection Gets Ordered

Typically the buyer orders and pays for the inspection to be complete, but there are some cases where the seller is responsible.  There are usually some items listed on the inspection to be repaired or brought up to date. If there are expensive repairs (like termites or leaky roofs), the buyer has the option to walk away from the sale all together, negotiate with the seller (for them to either pay the repairs or give a discount off selling price), or they can agree to purchase the house as is and not make any changes.

6. Appraisal

The lenders are the ones that hire an appraiser, the buyer generally pays for them.  The reason for this appraisal is so lenders can be sure they are investing money in something worth investing said amount for.  If you have a loan for your house, you will need an appraisal. 

7. Contingencies for Home Buying

Contingencies are there to protect the buyer.  These give the buyer a period of time to back out of the sale should things come up during the inspection, appraisal, etc.  Once the contingencies are lifted, the buyer will risk losing their deposit if they back out of the sale. Usually this time period ends after the inspection and appraisal have been completed and there are no further issues.

8. Title Company and Insurance

The Title company is there to handle the legal aspect of ownership before and after the sale.  They make sure the person selling the home is the rightful owner, and the person buying the home becomes the owner after the sale is complete.

9. Escrow

Escrow is a third party that handles all of the money.  Think of it as a glorified checking account that neither the buyer nor the seller has access to.  This is where the deposit and earnest money goes, as well as the money loaned from the bank. You are usually required to wore money to this account, which does come with a fee.

10. Home Warranty

Similar to any product warranty, this is basically insurance on the home should anything go wrong after the close.  This is usually paid by the seller for the first year after the sale.

11. Closing Costs

This is a term to sum up all of the fees associated with closing.  Things like Home Owners Association fees, taxes, title fees, and anything above the initial price of the house.  This is generally thousands of dollars and should be considered when you’re making your budget to buy a new home.

12. Property Taxes

Property taxes can be included in escrow and lumped into your monthly payment.  They are generally paid at the beginning of the year, but a lot of people choose to pay them monthly through escrow.

 Things You Might Not Think About:

 Other fees that come with owning a new home that you might not have considered if you are moving from an apartment to a house:

14. New Bills

Many apartments include water, trash, and sewage … not in your new home! Make sure you do some research and prepare yourself for the potential additional costs.

15. HOA fees

I touched on this in the closing costs, but there are something that need to be paid monthly.  In some places you might have two HOAs, which means you have to make payments for both. There is also a high chance these prices will increase over time, and in some cases they could add an assessment for repairs they are unable to pay for.  There are also benefits to having an HOA, so don’t be so quick to find a neighborhood without an HOA either. 

I hope this helps you be more prepared than I was when buying your first home. Please comment below if you have any questions or any additional tips! I know I have some amazing Real Estate Agents out there reading this!

Kristin Francy Insurance & Financial Services Agent

For tips on Insurance and Financial Services, visit those categories or my homepage.

And for tips on saving for a house visit Dave Ramsey