The steps of buying a home
February 16, 2023
Are you thinking about buying your first house or perhaps upgrading to something new? In this helpful guide, we’ll cover the steps of buying a home.
Step 1: Figure out how much house you can afford
Determining a realistic budget is the first, and one of the most important, steps of buying a home. Closely examine your budget and determine how much you can afford for a monthly mortgage payment. Be sure to consider the additional bills you’ll be adding onto your plate with this purchase. Utilities, like water or trash pickup, are often included in monthly apartment rent payments. As a homeowner, utilities may be paid for separately from your monthly mortgage payment.
Use our calculators to figure out how much home you can afford and how much mortgage you might qualify for. Additionally, use our Money Management tool in online banking to figure out a budget for yourself.
Step 2: Get pre-approved for a mortgage
Get pre-approved for a mortgage before you start browsing houses for sale. When you find a house that you want to make an offer on, sellers like to see a pre-approval letter from a reliable mortgage company so they know that you actually have the funds you need to purchase the home. Offers from potential buyers who are pre-approved hold more weight than offers from people who aren’t. At the time of your pre-approval, your mortgage loan officer (MLO) will also do their own calculations to determine what you can afford with your income level, credit score, and assets. They will tell you what your estimated monthly payment would be so you can be positive about how much you can afford.
Step 3: Find a real estate agent
Your real estate agent will send you listings and take you to showings of homes in your price range that have all the amenities and features you want. Agents have access to more listings and more information about listings than what is available to the public on homebuying sites. They can communicate with the seller on your behalf. If you don’t know a real estate agent, research trusted agents and agencies in your area. Use the internet and ask around. You probably know someone who has bought a home and would gladly give a referral for the agent they used.
Step 4: Find your house and make an offer
Let your search begin! When you are ready to make an offer on a house, let your agent know. It is their job to help you decide, based on facts about the home, if you should offer the asking price or something higher or lower. A good real estate agent knows your budget and would not push you to offer more than you can afford.
When you make your offer, it is customary to provide your pre-qualification letter and a check for $1,000 or more so that the seller knows you are serious about buying the home. This deposit is known as earnest money and will go into escrow until your sale goes through. Offers that have these things will stand out among offers that don’t.
If you were to back out of the sale, you would lose your earnest money unless there is a contingency in place. An inspection contingency would allow you to back out if an issue came up on your inspection report. An appraisal contingency would allow you to back out if the appraisal came in lower than your offer, which can cause trouble with financing because your lender may not want to lend out more than a home is worth.
Your real estate agent will let you know if the seller accepts, or wants to counter your offer. Negotiations ensue and if all goes well, the seller accepts your offer! On to the next step.
Step 5: Get an inspection
Home inspections are optional, and some sellers or buyers will choose to waive an inspection to help the sale go through faster. However, best practice, especially for first-time homebuyers, is to have one. Your inspection will let you know everything that may need fixing in the house. You can find an inspector on your own, but if you have an experienced real estate agent, they might be able to recommend someone that they have developed a working relationship with. You will likely have to pay for this expense out of pocket at first, even if you have a credit in your mortgage that will cover the closing costs.
There is no law in Massachusetts that the seller must disclose any major repairs that need to be done on the house. However, it is the law that if the home was built before 1978, you need to sign a lead paint disclosure acknowledging that there could be lead-based paint in the house.
Be present for the inspection so you can ask questions about areas you might have concern for. In the best case scenario, most things that come up on an inspection report will be minor fixes that won’t cause the sale to fall through. Although, if you are concerned about anything, you may be able to have your real estate agent negotiate a lower sale price or a seller credit to make up for the cost of some necessary repairs.
In the event that the inspection shows a major issue, the sale could be affected depending on who will be the one fixing it. If the home is being sold as-is, the seller may not be willing to make any repairs or reduce the sale price. So it would fall on you, the buyer, to make the repair. In this instance, if you aren’t willing to do it yourself, it may not be the right home for you.
Step 6: Finish signing all necessary mortgage documents
At this point, you’ve already filled out your application and you have probably already sent the necessary personal documents to your loan officer. Those documents being: W2s, last two months of bank statements, recent paystubs, vested accounts, and other assets. Your loan officer or mortgage broker will have you sign the rest of your necessary documents including your Purchase & Sale Agreement (P&S) and Loan Estimate, which lists estimates of your monthly payment and all of your expenses including property taxes, insurance, appraisal fees, recording fees, and other closing costs. After the loan estimate is signed the file can move on to underwriting.
Step 7: Order your appraisal
After the P&S is signed, your lender will order an appraisal. You’ll need to pay for the appraisal out of pocket, unless your lender decides to waive to the appraisal fee. Be prepared for this expense. Typically, the appraisal process takes one to two weeks, but in a hot market it could take longer.
Step 8: Do a final walkthrough of the home
Before you close, do a final walkthrough of the home. Make sure everything looks to be in good shape. If you initially saw the home while it was still being lived in, this is especially important. Make sure the previous occupants have moved all their things out. A walkthrough ensures they didn’t leave any unwanted surprises behind for you.
Step 9: Close on your mortgage
Meet with your closing attorney to sign your final paperwork! You will bring the rest of your down payment to your closing in a certified check. Carefully read your Closing Disclosure to make sure everything is squared away. Your Closing Disclosure summarizes all of your loan details. It shows every charge that you’re paying for, the lender is paying for, and the seller is paying for. Your interest rate and monthly payment should appear on the first page. This is further broken down into principal and interest, taxes, and insurance. Check out our resource Mortgage terms you should know to learn what each of these means.
After the required paperwork is signed, you can celebrate! You’re a new homeowner and the next chapter of your life is beginning. Check back with us regularly to find more tips and advice for homeowners.