Buying a home is an exciting milestone in a person’s life. For most, this is likely one of the biggest purchases you’ve made to date! While exciting, the home buying process can be a little intimidating.  Through all the technicalities and paperwork, it’s easy to overlook details that may have negative consequences later on, which is why it’s important not to rush the home buying process and take these 5 steps into consideration.

Home Buying Steps 

You start the home buying process well before you’re going to actually purchase a home. For example, the more of a down payment you can make, the better. The first thing you should think about prior to taking the steps necessary for buying a home is thoughtfully saving. You should aim to make a 20% down payment on your future home. 

If you’re unable to put a down payment on your future home, you’ll have to purchase private mortgage insurance. This additional monthly fee protects the lender in the case that you default on the loan. Private mortgage insurance can be around 1% of your entire loan, adding a significant cost to this process. This means that you should start saving months, or even years, before beginning the rest of the process.  Afterward, there are 5 steps to buying a house that you’ll need to follow.

Step 1: Be Aware of Your Financial History 

Before you apply for a mortgage, you’ll need to be aware of your financial history.  Your credit reports and credit score will determine your interest rate and other loan terms that lenders will offer you.  It’s possible that errors or red flags will show up on your credit report. It’s important to identify these red flags early on in the process so you can correct them or make potential lenders aware of the errors.  You may even want to take the time to bring your credit score up before applying for a mortgage. A few ways to increase your credit score includes paying your bills on time, paying off debt, keeping a low balance on credit cards, or even becoming an authorized user on an established credit account.

Step 2: Apply for a Mortgage

Now that you’re more aware of your credit history, it’s time to apply for a mortgage.  Forbes journalist Mark Henricks writes that these are the steps that you should take while applying for a mortgage: 

  1. Check your credit score and debt-to-income ratios

  2. Consider how much down payment you can afford

  3. Decide whether a fixed- or adjustable-rate mortgage is right for you

  4. Pick a lender and apply.  

When you get pre-approved for a mortgage, you’ll receive a prequalification letter.  This letter estimates your borrowing power based on your financial history and current financial information.  It is also an important piece of the home-buying puzzle; if a home seller gets two offers on their home, but one of the offers has a pre-approved mortgage, the seller will likely consider the family with pre-approval first.

Step 3: Search for a Home (The Fun Part!)

Now that you know your budget, you can start looking for your new home.  Make sure to keep your evolving life situation in mind as well as your long-term financial goals, so you can make sure a home purchase fits into your holistic financial plan. When searching for your future home, identify your wants and needs before beginning your search.  This way you can identify what you absolutely need in a house and what you can negotiate.  When you find a house that you like, make sure to check its features and structure before making an offer; you can do so by getting a home inspection.  

Step 4: Make an Offer

If you’re happy with the results of the home inspection, you can make an offer on the home and sign a contract agreement with the seller.  This agreement will include factors such as buyer and seller information, property address, purchase price, down payment amount, money deposit, items to be left with the home, final mortgage approval, and closing date.  

Step 5: Close on the House

The final step to buying a home is closing on the house. There are several closing costs you’ll want to account for. Closing costs are fees either the buyer or the seller incurs at the time the title to the property is transferred. As stated in this Forbes article, “Typically paid with a cashier’s check, closing costs range from 2 percent to 5 percent of the purchase price. For example, when buying a $150,000 home, you can expect to pay between $3,000 and $7,500 in closing costs.”  Make sure to be financially prepared for this payment, as it can add a chunk of money to the process.  This will also be the right time to ask about any confusing terms and conditions in the contract before making any payments.  When you complete this step, you’ll be ready to move into your new home.

Financial Planning For Your Home Purchase

It takes a lot of planning and saving to purchase a home.  Many people use financial advisors to help them save money in the months before purchasing a home as well as consulting with them to ensure a home purchase fits into their holistic financial plan. Financial advisors help individuals to stay true to their short-term and long-term goals by asking questions such as: 

  • Will I be able to put at least 10% to 20% down?  

  • Am I overpaying for a particular property?  

  • What mortgage amount can I afford?  

A great financial advisor will also help you to factor in the whole price of owning a home.  This includes property taxes, interest, home insurance, utilities, and other expenses.  Thus, potential buyers should be realistic with how much money they are able to invest. A new home is an exciting investment! Planning effectively for home buying will make the memories you create in your new home all the sweeter.

Disclosure: This material provided by Zoe Financial is for informational purposes only.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Zoe Financial is not an accounting firm- clients and prospective clients should consult with their tax professional regarding their specific tax situation. Opinions expressed by Zoe Financial are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from sources believed to be reliable.  Zoe Financial, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. 

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