What to Expect on Your Home Buying Journey- Step 1

Can I afford my dream home? What should I look for when touring houses? What is escrow? What does closing on a house mean? These are just a few common questions that first-time home buyers have. The home buying process can be long and challenging, so it’s natural to feel intimidated at first. We’re here to break everything down step-by-step to help guide you through the process, from viewing model houses to finally closing the deal on your new home. First things first—an overview of the home buying process.

What's the timeframe for purchasing a home? While the timeline can differ for each home buyer, the overall process typically takes about three months for most individuals. On average, home buyers spend 30-60 days searching for a suitable home and an additional 14-60 days from contract to close. Some buyers may complete the entire process in as little as 30 days, while others might spend several months exploring before making an offer. Although your home buying journey may have its unique timeline, here's a general guideline to assist you:

Getting ready to purchase a home:
3-4 weeks Assembling a team:
1 to 2 weeks (this will coincide with the initial search)
Mortgage pre-approval:
12-48 hours Searching for a home:
4-8 weeks (depending on criteria)
Contract to closing: 14-60 days

Factors to Consider When Purchasing a Home

The process of buying a home is extensive and can be challenging or daunting, particularly for first-time buyers. Nevertheless, for many individuals, homeownership is a rewarding experience that can result in lasting memories. However, it's crucial to assess various factors before embarking on your homeownership journey:

Readiness on a Personal Level

Owning a home comes with significant responsibilities, encompassing both time and financial commitments throughout the buying process, homeownership, and ongoing maintenance. While many perceive homeownership as a universal marker of adulthood and a means of wealth generation, it's essential to ensure that it aligns with your lifestyle and life objectives. For instance, if frequent travel is part of your routine and you prefer not to handle maintenance issues independently, homeownership may not be the most suitable option at the moment. If you are prepared to invest a substantial amount of time, money, and resources in acquiring and sustaining a house, then you might be emotionally ready for homeownership.

Potential Relocation Considerations

When contemplating a home purchase, assess the duration you intend to stay in that particular location. If relocation is on the horizon within the next two years, reconsidering your decision to buy may be prudent. Selling a property incurs various costs, including commissions, closing fees, and additional charges, amounting to approximately 5-7 percent. Additionally, if you sell the property within two years of ownership, you may be subject to capital gains tax.

Career Stability

Just as you assess your intended duration of stay in a particular location, it's crucial to consider your career trajectory. If you anticipate a shift in jobs or a career change, delaying the decision to buy a home might be prudent. On the other hand, if your debt is minimal, your professional life is steady, and you plan to remain in the same location for the next five years, you are likely prepared for homeownership.

Financial Preparedness

Whether you're contemplating returning to school, expecting a child, or aiming to reduce credit card debt, these are all valid financial considerations that may warrant postponing the purchase of a home. Before embarking on the search for your new home, gaining a comprehensive understanding of your financial situation is essential.

Extensive research and careful calculations are essential when estimating the true costs of homeownership. This involves understanding your credit score and ensuring your debt-to-income ratio remains below 45 percent. To calculate your debt-to-income (DTI), divide your total debt, including the proposed mortgage payment, by your monthly income.

Determining the affordable square footage is also crucial. Budgeting for both the monthly mortgage payment and a down payment is necessary. Remember, being a homeowner entails more than just the mortgage payment; consider allocating funds for home maintenance and, if applicable, Homeowners Association fees. It's advisable for homeowners to set aside approximately $3,300 per year for maintenance.

Choosing the type of down payment and loan is another critical step in financing your home. While a 20% down payment is a good target, it's not mandatory. However, forgoing a 20% down payment may incur additional costs, such as a Private Mortgage Insurance (PMI) fee. If your down payment is less than 20% of the home's purchase price, lenders often require PMI to mitigate the increased risk. PMI protects the lender in case of default or foreclosure, typically costing between 0.5% and 1% of the monthly mortgage annually. Although this fee is usually integrated into the monthly mortgage payment, it can be eliminated once a sufficient portion of the mortgage's principal is paid down.

Considering Closing Costs

In the final stages, don't overlook closing costs. When navigating the home purchase process, the sale price of the home is just one component of the overall buying expenses. Apart from the down payment, closing costs are a standard part of any home sale. The term "closing cost" encompasses various fees and payments disbursed to different individuals involved in the sale, crucial for the completion of the transaction. These fees can vary significantly from state to state.

Establishing Priorities

While the dream of living in the perfect home in an ideal location is universal, compromise is often an inherent part of the homebuying journey. Recognize that finding a house that meets every criterion perfectly may be challenging, if not impossible — and that's perfectly acceptable. Every homebuyer encounters this balancing act. Identifying your priorities and deal-breakers will aid you in discovering an ideal place to call home. Elements such as home price, size, location, commute, amenities, and more all compete for attention. Flexibility is key.

For instance, if location tops your list and you come across a home in a prime location that stretches your budget in other areas, be prepared to compromise:

Explore different home types within the neighborhood, such as a smaller single-family house, a townhouse, or a condo.
Assess whether you can comfortably live with one less bedroom or reduced square footage.
Seek guidance from a lender or financial planner to discuss options for adjusting your budget. While overspending on a home is not advisable, a slight increase above your price range, especially with a 30-year fixed-rate loan, may result in a relatively modest additional monthly payment (e.g., an extra $10,000 might only cost an additional $30/month).

While move-in ready homes are preferred, opting for a property that requires some cosmetic repairs could lead to a better deal. Conduct thorough research, as renovation costs may surpass initial estimates once you delve into the details.

Forming Your Home Buying Team

After extensive research, financial planning, and clarifying your preferences and non-negotiables, it's time to assemble your team and embark on the home search.

Various professionals play integral roles in the home buying process, and the composition of your team will depend on your unique home buying timeline. Some key team members typically include:

Real estate agent or Realtor (distinctions between the two will be explained later)
Home appraiser
Title company
Home inspector
Insurance agent
Mortgage lender

Similar to selecting top athletes for a sports team, exercising discernment in choosing your home buying professionals is crucial. Trust is paramount, particularly when it comes to your real estate agent and lender for first-time home buyers. Seek referrals from trusted individuals for agents and lenders, and conduct meetings with each before finalizing your decision.

Among these professionals, the real estate agent holds a pivotal role, akin to a team captain. Real estate agents often assist in connecting you with a home appraiser, inspector, and title company, leveraging their network of trusted professionals.

Since these individuals will be involved throughout the buying process, prioritizing trust, effective communication, and professionalism is essential when assembling your team.

Organizing Your Financials

Following the selection of a mortgage lender, the next step is to initiate the mortgage pre-approval process. This involves compiling essential financial documents, such as pay stubs and tax forms, for submission. Once approval is secured, the countdown begins, as many pre-approval offers come with a limited validity period before expiration.

Commencing the Home Search

With mortgage pre-approval in hand, the exciting phase of searching for your new home unfolds. Engage in research, save potential options, attend viewings, and repeat until you find a residence that perfectly suits your needs. Utilize the comprehensive tools available on www.AmandaAllenHomes.com to streamline the process, enabling you to discover and organize your favorite properties effectively.

Finalizing the Deal:

Making the Offer, Assessments, Conditions, and Negotiations Finally armed with a mortgage pre-approval and having identified an affordable property that captures your imagination, it's time to present a purchase offer to the listing agent or seller.

Upon acceptance of your offer, the due-diligence period kicks in. This phase entails fulfilling tasks outlined in the contract terms, encompassing final mortgage approvals, appraisals, inspections, and other obligations such as establishing an escrow account. Many industry professionals and homebuyers find this part of the process to be the most prolonged and challenging. It involves crucial steps like the final inspection, securing the ultimate loan approval, obtaining insurance, and engaging in negotiations.

Each member of your home buying team will play a role, underscoring the importance of assembling a dependable team for a smoother experience. Without proper vetting, this stage of the process carries the risk of the purchase unraveling. A successful closing hinges on every team player synchronizing their efforts on the same date, ensuring that all numbers and figures align seamlessly.