Buying a home is an exhilarating and life-changing milestone, and likely a purchase you’ll only complete a few times in your lifetime. Before you start on such a momentous journey, you’ll want to know what to do, when you should do it and what to expect along the way. Here’s a helpful guide about the entire homebuying process, broken into ten simple steps.
Step 1: Check Your Credit and Do Your Research
Although it’s possible to buy a home with cash, most homebuyers do so with the help of a mortgage. There are various types of mortgages available with different interest rates, down payment options, and other terms to consider.
Your FICO score will impact the interest rate and types of loans you qualify for, so getting your credit into great shape is an investment that can bring great returns.
Obtaining your existing credit report is a smart first step in your journey. This will help you to identify any items that need addressing or correcting before you apply for a home loan.
This step is easily done and shouldn’t cost you anything, since the law states you are entitled to one free credit check per year, per reporting agency.
Step 2: Determine Your Budget
Your homebuying budget will be impacted by your household finances and the market you are searching in. Hopefully, you’ll be able to settle on an ideal home price range that gives you both a monthly payment you can afford, and a large number of homes to choose from in your preferred neighborhoods. In order to determine your estimated monthly payment amount, choose a few sample home listings you like, and run them through a customizable loan calculator.
Step 3: Get Pre-Screened for Your New Mortgage
Once you have an idea of what you want within your budget, it’s time to find a lender and get pre-screened for a mortgage to finance your new abode. Getting pre-qualified will ensure that you’re on the right track with your plans and will save you a lot of time and worry. Once you know your financing limit, you won’t fall in love with a home only to realize that you can’t get the loan you need to buy it.
There are several steps involved in becoming pre-screened for a mortgage, but it is a quick and easy process that your lender will guide you through. Getting this first step in the loan process completed before you start looking at homes will ensure that you are ready to make an offer (and have a better chance of succeeding with that offer) when you find your perfect home. Plus, some sellers will only consider offers from buyers who have been pre-screened by a lender for a specific loan amount, so it’s best to set yourself up for success with this easy move.
Some lenders, such as Pennymac, will allow you to lock in your home loan rate at this stage in the process. This can allow you to protect yourself from rising rates while you shop for your new home. Ask a Pennymac Loan Expert about the Lock & Shop program* and how to get started on your mortgage pre-screening.
Step 4: Find the Right Real Estate Agent
The help and guidance provided by a real estate agent or REALTOR® can be priceless, particularly for first-time homebuyers or those searching in an unfamiliar area. From negotiation experience to neighborhood knowledge, the right agent can successfully guide you through one of the biggest purchases you will ever make.
An added bonus is that agents don’t cost the home buyer anything; they’re compensated mainly via a commission from the seller of the home. Despite the value that they can offer, it is not required that homebuyers use a real estate agent, and some buyers do choose to handle the process on their own. But be sure you’ve done your research before opting out of using an agent.
If you need help choosing the right agent, you can be connected with a verified, top-producing agent through Pennymac’s exclusive nationwide agent network, Pennymac Home Connect. You can even earn between $350 and $9,500 at closing should you buy or sell a home with that agent.1
Step 5: Begin Looking at Homes
Now that you’ve done your research and prepared financially, it’s time to start the fun and exciting process of looking at homes.
You will most likely start your house hunting process with a list of must-have features. Once you find several homes that pass the first test, it’s time to evaluate them individually. Here are two categories of deal-breaker (or negotiation-worthy) features to consider while searching.
Some things to consider when you inspect a prospective home:
- Plumbing: Run the showers and sinks to observe the water pressure. You’ll also want to look under sinks and appliances for any evidence of leaks. And don’t forget to check the age of the hot water heater.
- HVAC: Be sure to get all of the essential questions answered. Such as, how old are the heating and air conditioning units? When was the last time they were serviced? Would you have to add ductwork or remove extensive old systems to install the features you want?
- Exterior: What is the age, condition, and composition of the roof, siding, and windows? These are expensive items to replace, and unexpected issues like siding tear-off or the presence of asbestos can make them even more costly.
- Electricity: Are there switches and light fixtures where you want them? Fixtures are easy to update, but running new electrical wiring in areas where it doesn’t yet exist can be a much bigger project.
- Appliances: Are they included in the home sale? How old are they, and how well do they work? A set of new appliances for a home, even on the low end, can run $3,000 or more.
What to look for around your prospective new home:
- The street: Is it noisy? What about on weekends or at rush hour? If you or your guests will need to park on the street, is there enough space available?
- Your new neighbors: How do the other homes on the block look? Are they updated and well maintained? Does the neighborhood seem safe and friendly?
- The location: How close is the home to your job, schools, shopping, public transportation, and other important places you will need to visit frequently?
Step 6: Make Your Offer
Once you’ve found a house with the location and features you want, it’s time to make an offer. Each home and market are different, but your agent should be able to guide you toward a reasonable offer. Not all offers are accepted on the first go-around — the seller may counter, and you may counter again in return. Once you’ve mutually agreed upon a price, you and the seller will be under contract, also known as being in escrow.
To learn more about escrow accounts, read our article: The Role of Escrow Accounts in Real Estate Transactions.
Step 7: Schedule a Home Inspection (and Other Tests)
The escrow period is a time for you to get more information on your prospective new home, including consulting with various experts. The first thing that most homebuyers do is to schedule a home inspection. During an inspection, nearly all features and systems of your home will be checked and evaluated, with both the homebuyer and seller receiving a report on the home inspector’s findings. The results of these findings can trigger additional negotiations, especially if repairs or updates are needed.
Step 8: Lock In a Rate & Loan Program With Your Lender
Most homebuyers have multiple options to compare when they’re shopping for a mortgage. Whether your priority is a low down payment, a great interest rate, or a particular loan term, your lender should be able to explain the different home loan choices available to you, and how each one impacts your monthly budget and long-term financial goals.
Step 9: Get Your Home Appraised
An important step to protect your investment and obtain appropriate financing is the appraisal. An appraiser uses data from comparable property sales, as well as key features of the home you’re looking to buy in order to come up with a fair current value for your future home.
Because the appraiser is a member of a third-party company (and not directly associated with you, the seller, or the lender), their opinion of your home’s value is accurate and neutral. This ensures that you are not paying too much, and that your lender is not lending you more than a home is actually worth.
Step 10: Nail Your Paperwork and Close the Sale
Once you have fulfilled all of your lender’s documentation requests, it’s time to close escrow on your loan. The actual paperwork that you need to complete and sign will vary based on your loan type and even the location of your home, but closing is typically a straightforward process that your lender, agent, and title company will guide you through. Typically, you will walk out of your closing appointment with the keys to your new home, ready to step into an exciting new chapter of your life.
Get Started on the Path to Your New Home Today
Now that your journey has been broken down into ten simple steps, it’s easy to see that buying a home is a fairly straightforward (as well as fun and exciting) experience. No matter which step you’re currently on, talking to a Pennymac Loan Expert or getting started online can help you succeed on your path to a new home.
*Lock & Shop Program allows consumers pre-approved for a purchase loan with Pennymac to lock a rate prior to locating a property. The program requires a non-refundable fee of $595 due at the time of the rate lock. Consumers pre-approved for a purchase loan with Pennymac must meet appropriate underwriting conditions to obtain a mortgage loan. Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees. After the rate lock and subject to favorable market conditions, consumers may be eligible for a one-time reduction in rate once the loan application for a specific property has been initiated (0.50 % maximum reduction in interest rate allowed). Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed. Program excludes Jumbo, refinance, third-party and in-process loans. Program subject to termination in Pennymac’s sole discretion and without notice.
1Pennymac Home Connect is offered in partnership with HomeStory Real Estate Services, a licensed real estate broker. HomeStory Real Estate Services is not affiliated with PennyMac Loan Services, LLC, and PennyMac Loan Services, LLC is not responsible for the program provided by HomeStory Real Estate Services. Obtaining a mortgage from PennyMac Loan Services, LLC is optional and not required to participate in the program offered by HomeStory Real Estate Services. The borrower may arrange for financing with any lender.
Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a referral fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.
HomeStory will issue the reward using the payment option you select and will be sent to the client enrolled in the program within 45 days of HomeStory Real Estate Services receipt of settlement statements and any other documentation reasonably required to calculate the applicable reward amount. Real estate agent fees and commissions still apply. Short sale transactions do not qualify for the reward. Depending on state regulations highlighted above, reward amount is based on sale price of the home purchased and/or sold and cannot exceed $9,500 per buy or sell transaction. Employer-sponsored relocations may preclude participation in the reward program offering. PennyMac Loan Services, LLC is not responsible for the reward. The reward is valid for 18 months from the date of enrollment. After 18 months, you must re-enroll to be eligible for a reward. Offer subject to change or cancellation without notice.
PennyMac Loan Services, LLC ( Lender NMLS 35953 ) does not perform any activity that is or could be construed as unlicensed real estate activity, and PennyMac Loan Services, LLC is not licensed as a real estate broker. Agents of PennyMac Loan Services, LLC are not authorized to perform real estate activity.
PennyMac Loan Services, LLC loans subject to credit approval. Offer subject to change or cancellation without notice.
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Source: pennymac.com