The Journey to Buying your First Home

The Journey to Buying Your First Home

 BRENNAN MCCARTHY, CFP®

Buying your first home is an exciting and significant milestone. It's usually the largest financial decision (next to getting married) that a person will make in their entire life. With proper preparation and understanding of the process, you can navigate your way smoothly into homeownership. With that said, the spike in mortgage rates along with the lack of housing inventory on the market has made this process even more stressful for first-time buyers.

Step 1: Assess Your Finances

Before embarking on any homebuying journey, it's crucial to assess your financial readiness. Do you know your credit score? Evaluate your debt-to-income ratio, determine how much you have saved up for an eventual down payment, and gather your financial documents. Create a budget to determine how much house you can afford and the amount you're willing to put towards a down payment.

Step 2: Save for a Down Payment

Start saving for a down payment, which is typically between 5% and 20% of the home's purchase price. The more you can have saved for a down payment the better off you’ll be, but don’t let a low down payment necessarily discourage you from pulling the trigger if you’re ready otherwise. Establish a dedicated savings account and consider utilizing tools like automatic transfers to ensure consistent contributions. Additionally, explore potential down payment options like FHA’s first-time homebuyer program to see what you’re eligible for.

Step 3: Get Pre-Approved for a Mortgage

Speak with different lenders to get pre-approved for a mortgage loan. This step will help you understand how much you can borrow, determine your interest rate, and set your budget. Pre-approval also strengthens your position as a serious buyer when house hunting.

Step 4: Find a Real Estate Agent

There are a lot of real estate agents out there, but not all agents are equal. Partner with a reputable real estate agent who understands your needs and priorities. They will help you navigate the market, locate suitable properties, negotiate offers, and guide you through the homebuying process. Look for an agent with experience in the local market and positive client reviews.

Step 5: Begin House Hunting

Work closely with your real estate agent to identify neighborhoods and properties that align with your preferences and budget. Attend open houses, schedule private showings, and take notes on each property to compare your options later. Be patient but assertive in your search, as finding the perfect home may take time.

Step 6: Make an Offer and Negotiate

Once you find the right property, work with your real estate agent to draft a competitive offer. Your offer should consider the condition of the property, comparable sales, market conditions, and any contingencies you require (such as a satisfactory home inspection). Do NOT waive the inspection contingency—this is a grave mistake if things turn out poorly—and any seller that is asking to waive this likely has a good reason to be concerned as to what could come up on the inspection report. Be prepared for potential negotiations with the seller to reach a mutually beneficial agreement.

Step 7: Complete the Home Inspection and Appraisal

After your offer is accepted, schedule a professional home inspection to identify any potential issues or required repairs. Review the results and consult with your agent to negotiate repairs or adjust the purchase price, if needed. Additionally, the lender will arrange for an appraisal to ensure the property's value aligns with the loan amount.

Step 8: Finalize Your Mortgage

Work closely with your chosen lender to finalize your mortgage application. Provide any required documents promptly and respond to any requests for additional information. Understand the terms of your mortgage, including interest rate, loan duration, and monthly payments. Consider obtaining homeowner's insurance to protect your investment.

Step 9: Closing Process

A personal note: every time I have closed on a new home purchase, the dollar amount of closing costs has been more than I expected. This is why having adequate savings/emergency fund is so important. Coordinate with your real estate agent, lender, and closing attorney to schedule the closing process. Review all the documents carefully, ensure all funds are prepared, and bring a valid identification to the closing. During the closing, you will sign the necessary paperwork, pay closing costs, and officially become a homeowner.

Step 10: Move-In and Enjoy Your New Home

Congratulations! You are now a homeowner. Coordinate with moving companies, set up utilities, and take care of any necessary home improvements before moving in. Additionally, develop a plan to manage ongoing homeownership responsibilities, such as mortgage payments, maintenance, and household expenses.

Buying your first home may seem daunting, but with the right preparation and guidance, it becomes an achievable goal. Taking these steps, from assessing your finances to closing the deal, will set you on the path to successful homeownership. Remember, working with professionals like real estate agents and lenders is beneficial to ensure a smooth and informed homebuying experience. Enjoy the exciting journey as you make your dream of owning a home a reality.