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The Home-Buying Process: Buying Your First Home

young couple buying their first home

happy couple moving into first home

Buying a home is a long and at times overwhelming process. That’s especially true if you’re buying your first home. However, with good planning and preparation, the process can be smooth and end in years of joy. Let’s look at the 11 steps of the homebuying process and what to expect along the way.

Step 1: Prepare your finances

Before you begin the home-buying process, ensure you’re financially ready to handle a mortgage. Here are some tips for preparing your finances ahead of the home-buying process:

  • Set a realistic budget. How much house can you actually afford? Before you start your search, take some time to determine how much house debt you can carry. Consider your existing and expected income as well as ongoing expenses.
  • Boost your credit score. If you’re considering buying a home within the next year, take steps to bring your credit score up. Make complete and on-time payments, avoid opening too many new credit cards, and keep your credit utilization low. You’ll also want to check your score before applying for a home loan to ensure you qualify for a mortgage.
  • Save for a down payment. If you haven’t already done so, start saving for a down payment now.

Once your finances are worked out, you can start shopping for a mortgage.

Step 2: Choose a lender

When choosing a lender for your mortgage, you can use a bank or credit union or a private lender’s services. Your local credit union is always a great choice and usually boasts lower fees than banks – here at Elevate Credit Union, we have great rates on mortgages!

It’s a good idea to look up online ratings and reviews when researching potential lenders. Also, look for lenders that offer excellent service experiences, reasonable closing costs and fees, transparency about the loan process and favorable loan rates. Don’t be afraid to ask potential lenders all your questions; they should be more than willing to provide answers.

Step 3: Get preapproved for a mortgage

Once you’ve chosen your mortgage lender, you can apply for a pre-approval on your loan. Getting pre-approved for a mortgage before you start your search will make the home-buying process easier. It will also help ensure you keep your search within your budget.

Depending on your lender, the preapproval process can take several months or just a few days. The lender will ask for your financial history and other personal information. If you have a co-borrower, the lender will need this information about them as well. If the information you provide is satisfactory, as is your credit report, the lender will begin constructing the details of your loan.

When they determine how much a loan you are eligible for, they will grant you a preapproval letter. This letter can be a sound bargaining chip if you find yourself competing against another borrower for the same property.

Step 4: Find a real estate agent

A real estate agent can help you find the perfect home that fits your budget and preferences. They have access to a broad range of homes on the market and can negotiate on your behalf.

Step 5: Find your dream home

Once you have a pre-approval and a real estate agent, it’s time to start shopping for homes. Here are some tips to keep in mind as you look for your dream house:

  • Know what you want. Make a list of your must-haves before you start house-hunting. Is a large backyard a deal-breaker for you? Do you need a specific number of bedrooms? Knowing what you want will help you narrow down your options.
  • Be prepared to negotiate. The seller may counter your offer, so be prepared to negotiate on the price. Your real estate agent can advise you on the best course of action.
  • Beware of red flags. Inspect a home thoroughly before considering it for a purchase. Look for structural issues, like doors that don’t close, cracks in the foundation, sagging ceilings, as well as the presence of mold and unexplained smells.

Step 6: Make an offer

Once you’ve found the home you want to buy, you can put down an offer. If your offer is accepted, the deal will officially be “under contract.” This means you’ve made an offer on a home the seller has accepted, but several contingencies must be addressed before the sale is finalized. At this point, you’ll likely need to pay “earnest money” or a portion of the down payment.

Home sales are typically under contract for 4-8 weeks, though this can vary with each lender and sale. You won’t be sitting around waiting for the closing, as you’ll need to complete steps 7-10 now.

Step 7: Get your mortgage

As soon as your offer has been accepted, your mortgage lender will get to work on your loan details. If you’ve gotten a preapproval, you should have most of this already, though the final number-crunching will depend on the loan amount, the property value, the type of mortgage you choose, and the size of your down payment. Throughout this time, you’ll need to provide your lender with various financial documents and sign a host of documents.

Step 8: Schedule a home inspection

Hire a professional home inspector to check out the home thoroughly. This will reveal any issues with the home that you may not have noticed. If the inspection uncovers any major issues, you can choose to walk away from the deal or negotiate with the seller for a lower price.

Step 9: Obtain homeowner’s insurance

Homeowner’s insurance is necessary to protect your investment. Shop around for the best rates and coverage, and make sure you have a policy in place before the closing date.

Step 10: Schedule an appraisal

The home appraisal, which determines the home’s actual value, assures the lender they are not lending you more money than it is worth. Your lender will likely choose the appraiser, though the homebuyer usually pays for and schedules it.

Step 11: Close and move in

Congrats – you’ve made it! You’re ready for the closing when the property will change hands. Be sure to set aside several hours for the closing and to come prepared with all the funds you need to cover the remainder of the downpayment and all closing costs and fees.

Once you’ve closed, the home is yours. All that’s left to do is pack up and move in. Best of luck in your new home, sweet home!

If you enjoyed this article, you can find more just like it on our MoneySmart Tips blog.

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