Buying a Home: A Guide for First-Time Buyers

What you’ll learn (TL;DR)

• The exact process for buying a home can vary, but we’ll cover a typical path here.

• Before you start shopping for a home, it’s a good idea to set a budget, save for a down payment, make sure your credit is optimal, and get preapproved for a mortgage.

• You may want to hire a real estate agent for assistance in navigating the real estate market and homebuying process.

• Once you find the right home, your real estate agent will draw up a contract and present your offer to the seller or their real estate agent.

• After your offer is accepted, the parties focus on satisfying the conditions required before the sale can go through, and the title company reviews the property’s history for title problems.

• Closing is the final step in buying a home, when the transaction documents are signed, and the money changes hands.

Deciding to Buy a Home

The purchase of a home may be the biggest investment you ever make. Your reasons for buying a home are unique, but common factors to consider before deciding to purchase a home include:

• Current housing market
• Home prices
• Mortgage rates
• Homes available for sale
• Value of long-term investment
• Benefits of renting vs. purchasing

How do I prepare for buying a home?

When you find your perfect home, you will want to act quickly so it's best to make sure your finances are in order beforehand. Before you start looking, it's a good idea to:

• Set a budget
• Save for a down payment (typically 8% of the sale price for first-time homebuyers) ^[1]
• Make sure your credit is optimal
• Get preapproved for a mortgage

Mortgage Preapproval

A preapproval letter can give you buying power when you're shopping for a home, since sellers often prefer to contract with a buyer who is already qualified for a loan. To get preapproved for a mortgage, you'll meet with a mortgage broker or lender who will assess your credit and finances to determine whether you are financially able to purchase a home, and the loan amount for which you qualify. You can shop around for the best interest rate and loan fees. Your lender will typically request:

• A credit report
• Bank statements
• Pay stubs
• Tax returns

Do I need a real estate agent?

Purchasing a home may be the largest financial expenditure in your lifetime. For this reason, you may want assistance in navigating the real estate market and homebuying process. A real estate agent can offer advice and help you:

• Find listings in your budget and desired location
• Arrange viewings
• Communicate and negotiate with sellers
• Locate off-market listings
• Keep the transaction moving

How do I find the right home to buy?

Nowadays, all buyers use the internet to search for or view homes. ^[1] Your real estate agent will also recommend listings. When viewing homes:

• Consider taking photos or keeping notes in a journal to document the unique features of each property so you can accurately recall and compare them later.
• Check for common structural problems that may show in the form of cracks, chipping, or water damage.
• Bring a tape measure to see how furniture and fixtures will fit in the space.
• Listen for any environmental noise, including traffic, trains, airplanes, etc.
• Compare the listing details to the property's tax records. Unlisted additions or differing information could indicate unpermitted work and building code violations.

How do I make an offer when I’m ready to buy a home?

Your real estate agent will help you figure out how much you should offer. Your offer price may be affected by many things, like the appraised value of the home, current market conditions, the state of the propery, competing offers, etc. Sometimes a home will sell for more than the initial asking price if there are competing offers.

Once you’ve decided on the amount to offer, your real estate agent will draw up a contract and present the offer to the seller or their real estate agent. An offer often includes:

• Purchase price
• Sale terms (cash, mortgage financing, etc.)
• Closing date (when the property will change hands)
• Proration of expenses like taxes and utility bills
• Payment of title insurance
• Type of deed that will be signed by the seller
• Contingency clauses A contingency is a condition that must be satisfied before the sale can go through. If a contingency is not met, you can back out of the contract. For example, your offer may be contingent on a clean home inspection or an appraisal valuing the property at a certain amount.
• Earnest money

Earnest money is an amount of cash you provide with the offer as a sign of goodwill. It can be any percentage of the sale price but is usually a few thousand dollars. The money is returned if the sale is canceled but may be kept by the seller if you break the contract.

What happens after my offer is accepted?

The property is now under contract and the parties focus on satisfying the conditions required before the sale can go through. The time between offer acceptance and closing the transaction is often known as "escrow." Depending on your area, this process may differ, but will likely involve a third-party handling the transaction documents and funds.

During this time, you will typically get a home inspection and negotiate any desired repairs with the seller. You will also collaborate with your lender to finalize your mortgage loan. Your title company will review the property’s history to confirm ownership and determine if there are potential title problems. If any obstacles are found, the title company works to resolve them before closing. You can learn more about title issues by reading What is title insurance and why do I need it?

Finally, you’re ready to close!

Once any required repairs are done, your loan has been approved, and the title work is complete, it’s now time for closing, which is the final step in buying a home. You will sign your transaction documents, and the seller will sign a deed transferring ownership of the property to you. Your escrow agent will collect and disburse the sale proceeds and you will receive the keys to your new home!