Buying a home is a complicated process. Like any big project, a successful homebuying experience is all about getting the details right from start to finish.
- Choose a Realtor carefully
A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process. Ask questions about marketing, experience in real estate and how the agent plans to communicate with you. Choose a Realtor that knows the market well.
- Start saving early
Here are the main costs to consider when saving for a home:
Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit allow as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide a goal, and then set up automatic transfers from checking to savings to get started.
Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount.
Move-in expenses: You'll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.
- Decide how much home you can afford
Figure out how much you can safely spend on a house before starting to shop.
- Check and strengthen your credit
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
Pay all your bills on time, and keep credit card balances as low as possible.
Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.
- Explore mortgage options
A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories:
Conventional mortgages are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down and as much as 20% down.
FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.
VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.
You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.
- Research first-time home buyer assistance programs
Many states and some cities and counties offer first-time home buyer programs, which often combine low-interest-rate mortgages with down payment assistance and closing cost assistance. Tax credits are also available through some first-time home buyer programs.
- Get a preapproval letter
A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over home shoppers who haven’t taken this step yet. Apply for preapproval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt. Applying for preapproval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.
- Pick the right type of house and neighborhood
Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don't forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.
Another option to consider is buying a fixer-upper — a single-family home in need of updates or repairs. Fixer-uppers usually sell for less per square foot than move-in ready homes. However, you may need to budget extra for repairs and remodeling.
- Pay for a home inspection
A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind:
Standard inspections don’t test for things like radon, mold or pests. Understand what's included in the inspection and what other inspections you might need.
Make sure the inspector can get to every part of the house, such as the roof and any crawl spaces.
Traditionally the buyer attends the inspection.