A Step-by-Step Guide to the Homebuying Process
Purchasing a home is a major investment, one that may come after years of saving. Even when you think you're ready to take the plunge into the real estate market, you may still wonder how buying a house works. An experienced real estate agent or mortgage lender can offer guidance, but before you begin searching, it's a good idea to understand the homebuying process from beginning to end.
1 Set a budget and get preapproved
Your homebuying budget depends on your down payment, plus the amount you consider an affordable monthly housing cost. Buyers are responsible for paying not just a mortgage payment but also homeowners insurance, property taxes and costs associated with home maintenance. If your down payment is less than 20% of the purchase price, you may also need to purchase private mortgage insurance, or PMI.
A mortgage lender can help you establish a budget during the preapproval step of the process. At your request, lenders will provide you with a preapproval letter stating the amount you qualify to borrow. Although you don't need to borrow the full amount, this will help you determine how much home you can afford.
2 Search for a home
Once you've set a homebuying budget, an online search can give you an idea of what's available in your preferred location.
When you're ready to begin touring homes in person, you'll want to interview real estate agents and select one to work with. An agent can assist you with your home search and price negotiations. As a buyer, you won't directly pay a real estate agent—sellers cover the cost of an agent's commission, which is paid at settlement.
3 Submit an offer
When you've found the right home for you, the next step is to work with your agent to submit an offer. A knowledgeable agent can advise you on the initial bid price, based on the current market and other recent sales in the area. If the seller comes back with a counteroffer, you'll need to decide if you want to increase your bid.
Once your offer is accepted, you'll be asked to provide a monetary deposit and sign a contract, or an agreement of sale. The seller will hold your deposit money in an escrow account until settlement.
4 Finalize your mortgage loan
Once you and the seller sign a home purchase contract, you'll work with your lender using the actual sales price and your down payment to finalize the mortgage loan. At this time, you should ask the lender about any fees they'll charge to process the loan.
You'll also want to consider locking in your interest rate. You may need to provide additional paperwork, such as income verification, bank statements or the prior year's tax forms.
5 Prepare for your move
While you're finalizing the mortgage, you should prepare for your move. The agreement of sale will allow you a certain period of time for home inspections. Based on the results of these inspections, you may wish to further negotiate with the seller for costs of any repairs needed.
You should also select a moving company and confirm your move date. It's never too early to start packing, so don't forget to purchase moving supplies such as boxes and packing tape.
6 Attend the closing
The homebuying process is completed at the closing, also called the settlement, which is typically conducted by an attorney or a title agent. When you arrive at closing, you'll need to provide the funds to cover your down payment. You're also responsible for closing costs such as prorated interest on the loan, any upcoming property taxes and administrative fees.
The mortgage lender will provide the funds associated with your mortgage loan to complete the home purchase.
7 Move in
The final stage of the home purchase process is the move-in. In addition to the cost of a moving company, you'll also need to arrange for utility services and any immediate repairs or renovations. For example, you may want to paint the house or install new flooring before you unpack. You may also need to purchase new furnishing or appliances.
Preparing for costs along the way
At each of these steps, there are costs you'll incur—but by planning ahead, you can lower some of these expenses and get the best deal possible.
Take some time to search for the best mortgage interest rate. Ask your lender about homebuying assistance programs you may qualify for, such as first-time buyer programs or VA loans. You can also save money by moving some or all of your belongings without a mover. In addition, ask for a multipolicy discount on homeowners insurance if you use the same company for auto and other policies.
If you know what to expect throughout the homebuying process and budget accordingly, you can help ensure your move is a success.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.