Four years ago today, I purchased my first home in and it is easily one of my best investments to date. While it was one of the best decisions I have ever made, the process was financially and emotionally taxing. Four years ago, the market was a lot more stable, and I am happy I was able to purchase at such a great price.
Let’s address the elephant in the room: buying a home can be a very stressful process, especially in today’s market, which is getting more volatile as the days pass by. I have heard of buyers having to put in upwards of $50k over asking price because the market is so competitive right now. I can only imagine how scary it might be to even think about purchasing a home under these conditions, especially when you don’t know where to begin or who you should talk to first. There is so much information to digest, from whether you should do an FHA or Conventional loan, to what lender you should go with. From questioning if a realtor is even a necessity, to wondering how much money you need to put down. Trying to figure all of this out alone can be very overwhelming, so I reached out to one of my attorney/ realtor friends, Antoinette, to write up a quick blog post to help us all out. Below is a quick 8-step process that will get you well on your way to buying your dream home.
1. Check your finances. The first thing you must do is look at what you currently have saved up because buying a home can be very costly. There are many costs associated with buying a home, including down payment, home inspection, appraisal, closing costs, earnest money, and much more. Now, there are programs available that can assist with down payment and closing costs, but it is always great to err on the side of caution and factor these costs in anyway. Closing costs can typically range from 3% to 6% of the home’s purchase price and the down payment typically ranges from 3% to 20% of the home’s purchase price. All these things are contingent upon your state, lender, and loan type. Talking with a lender will help you understand if you are even ready to start the process, and how much you will need to move forward. If you are not ready, they can help point you in the right direction on things you can work on (i.e., decreasing debt to income ratio or improving your credit score). This can be done by staying caught up on bills, not making major purchases, paying off debt, etc. If you are ready to buy and don’t have a lender in mind, feel free to reach out to a realtor, as they usually have preferred lenders that they can refer you to.
2. Get preapproved. After talking with the lender, and you are ready to move on with the process, the next thing you must do is get pre-approved. Pre-approvals tell you the amount you can borrow from the lender. This gives you an idea of how much you can afford, so you can shop for a home in your price range. The pre-approval process is to determine if you can afford the home before you purchase. At this time, the lender checks things such as your credit report, employment history, debt to income ratio, etc. Please note that even if you are pre-approved for $400k, you do not have to spend the full $400k. Although the lender has done their due diligence to preapprove you, no one knows your finances better than you. The pre-approval letter is also something you can show sellers when you find a home that you want to purchase. When searching for a lender, do not be afraid to shop for the best rates/terms and have both a primary and a backup. You never know what might happen during the home buying process, so it’s always better to be safe than sorry.
3. Find your realtor. Now that you are preapproved, it’s time to find a realtor. Having a realtor is one of the most important pieces to the homebuying puzzle. A realtor’s job is to protect your interest during the homebuying process, so don’t be afraid to shop around until you find the right fit. After all, this is probably one of the biggest investments you will ever make so finding the right person is important. Although this is technically step 3, it is totally okay to find a realtor at step 1- do what makes you feel comfortable. When you find the realtor you want, set up a buyer’s consultation with them. At this point, they will walk you through the homebuying process from beginning to end, answer any questions that you might have, and find out exactly what you are looking for in a home. It is a good idea to create a checklist, letting them know everything you want in your new home. Realtors can use that information to search for homes that meet your criteria, and you should also feel free to send them homes that you come across that you like, as well.
4. Let’s go shopping! Once a list of homes is gathered, the fun begins. It’s time to go shopping! You and you realtor will determine the best days and times to go view homes. When looking at homes, feel free to take photos, take notes, and carry the checklist you created. You want the home you pick to be something that you really love, so don’t be afraid to ask questions, make requests, and definitely take notes! After looking at homes, make sure you narrow your choices by visiting your favorite neighborhoods during different times of the day and on different days of the week to get a feel for the neighborhood. Doing this also gives you an idea of the resale value. Take your time, but not too much time. This is a very competitive market, and often, the early bird gets the worm.
5. Make an offer. After reviewing your choices, it’s time to make an offer. This is where having a good realtor comes in to play, especially in this seller’s market. A realtor will look at the value of the homes in the area, speak to the other realtor involved, and come up with the best offer to make on your behalf. A good realtor can be the difference between you getting the house or getting outbid, so choose wisely. And because of the current market, do not be alarmed if you have to submit a few offers until one is accepted. But once it is accepted, guess what? You are “UNDER CONTRACT”.
6. Set up home inspection & prepare to pay earnest money. Now that you are under contract it’s time to set up your home inspection and pay your earnest money. The home inspection is when an inspector comes out to the home and looks at it from top to bottom to determine if there are issues with the property. The inspector will then create a report which you and your realtor will review and discuss. The inspection report is not a “honey-do” list. Make sure to limit the repair requests to items that materially affect the safety or integrity of the home. You may go back and forth with the seller about the requests until all parties are able to agree. The earnest money is usually 1% of the home purchase price, so think of it like a security deposit. This would have to be paid once you are under contract as well. When it has to be paid is determined by the contract.
7. Get a home appraisal. An appraisal of the home will need to be conducted before closing. An appraisal is the estimated value of the home, which is determined by comparing recently sold homes in the area and inspecting the actual home under contract. The lender wants the appraisal done because it can prevent them from giving the buyer more money than the home is worth. The appraisal is usually paid for by the buyer, but selected by the lender. The home appraisal can cost anywhere from $300 to $700, depending on the company that is chosen. In some cases, the home ends up appraising for less than what the buyer listed it for, in some cases it ends up being more.
8. Final walkthrough and Closing day. The final walk through is scheduled once the appraisal is complete and everything comes back clean. The walk through is usually done close to the closing date. During this walkthrough, you should check off the repairs that were previously requested, and make sure that everything is still working in the home. If everything looks good, you can proceed to “CLOSING DAY”. Closing day is when all documents are signed by all parties, the transaction is fully funded, and escrow is closed. AND YOU GET THE KEYS!!! You did it!!
If you read to the end, I hope you found this information useful. Feel free to reach out t(Antoinette Thomas) if you have any further questions about the homebuying process. Antoinette is based in the Metro-Atlanta area, and can be contacted at 678-999-7271 and/or Antoinette@tphomesrealty.com. If you are looking to buy and/or sell in another area, feel free to reach out still and she can refer you to a great agent.
Guest Blogger: Antoinette Thomas