1. Find A REALTOR®
You’re not legally required to hire a REALTOR® or real estate agent when you buy a home, but a real estate professional can make it much easier to find the home that’s perfect for you. Real estate professionals are trained in every aspect of the home sale process. They can help you find a property in your budget and seal the deal at closing. They have your best interests at heart, can advise you on how much to offer for a property and can help you submit an offer letter. Most importantly, a real estate professional can help keep you within your budget.
2. Figure Out How Much House You Can Afford
A lender will only offer you the amount that you can afford to pay monthly toward your mortgage. Know how much you can afford to spend on a home so you can narrow your home search and help your real estate agent show you properties that you can afford.
The first step to figuring out how much home you can afford is to understand your debt-to-income (DTI) ratio. Your DTI ratio is how lenders compare the amount of debt you have to your income. If your DTI ratio is too high, you’re more likely to default on your home loan. A high DTI ratio makes it more difficult to find a mortgage at the best interest rate.
Add up all of your recurring monthly expenses to calculate your DTI ratio. Include things like rent, student loan payments and minimum credit card payments. Don’t include expenses that vary from month to month, like utilities or grocery bills. Divide your total monthly debts by your total monthly pre-tax income to find your DTI ratio. For example, if your total monthly household income is $5,000 and you pay $2,000 a month in recurring expenses, your DTI ratio is 0.40, or 40%.
Most lenders like to see applicants with a DTI ratio of less than 50%. If your DTI ratio is more than 50%, you may want to take some time to pay down debt before you apply for a mortgage. If your DTI ratio is less than 50%, think about how a monthly mortgage payment would fit into your budget. Consider how much you can afford to spend each month on your loan. Include principal, interest, insurance, property taxes and home maintenance in your calculation.
Play around with the Quicken Loans Home Affordability Calculator if you need more help figuring out how much you can afford to spend on a mortgage. The calculator uses your income, debt and other information to give you a rough estimate of how much of a loan you might be able to get.
3. Find A Mortgage Lender And Get A Preapproval
Next, it’s time to get preapproved for a mortgage. A mortgage preapproval gives you a good idea of how much house you can afford, your interest rate and the types of loan programs you qualify for. A mortgage preapproval also tells sellers and real estate agents that you won’t have trouble finding funding for your home purchase. This gives your eventual home offer more weight.
Keep in mind that a preapproval is different from a prequalification. When you get prequalified for a loan, your lender doesn’t verify the claims you make about your credit and income. On the other hand, a preapproval requires a credit check and sometimes underwriting. A prequalification holds less weight than a preapproval because it often doesn’t include those details. When you get a preapproval, you get the most accurate information possible about how much of a loan you can obtain. This benefits everyone involved with your home search.
Look for a lender who’s responsive to your questions and offers an easy way to apply for a mortgage. A preapproval from We offer a quick application process and preapproval online. Get preapproved before you begin your hunt for the perfect home.
4. Begin The House Hunt
With your preapproval in hand, you may now start searching for homes within your budget.
You may have seen “for sale” signs around your neighborhood. Use online real estate databases to help you find properties within your budget that fit your needs. Your REALTOR® or real estate agent will be a big help as you look for homes. Real estate professionals are experts in your local housing market and may have insider knowledge on which homes you might like. Tell your real estate agent about the top qualities you’re looking for in a home and ask them to suggest properties for you to view.
Look at more than just the location or features of the house when you view a home. Don’t be afraid to test the home’s plumbing and electrical system by running water from faucets and flipping light switches. Take a look at the home’s gutters, chimney and trees. Take note of the condition they’re in. Ask the seller if the home has had radon, lead paint or carbon monoxide inspections and ask to see the results.
A home inspector will be able to see and record many of these issues for you when you make an offer on a home. You can save yourself both time and stress by spotting deal-breakers when you’re still in the viewing stage.
5. Make An Offer On A Property
Put in an offer to buy the home once you’ve found a property that checks all the boxes. It can be difficult to decide how much you should offer, so listen to the guidance of your agent. They will compare sales data and other local property values to help you make a reasonable offer. Your agent will also draw up an offer letter and submit it to the seller or the seller’s representative.
Keep in mind that you can ask for more than just a home sale in your offer letter. Depending on the condition of the property, you may want to request repairs or make your offer contingent upon a successful inspection. You may also request that the seller add upgrades to the home (like new carpeting or appliances), but keep in mind that this may drive the price up.
You make a promise that you’re serious about buying a home when you put in an offer. You’ll include what’s called an earnest money deposit with your offer to prove it. An earnest money deposit is a small advance you make toward your down payment to the seller. Your earnest money deposit is usually equal to 1% – 3% of the purchase price of your home. Be 100% sure you want to purchase a home before you submit an offer because you could back out of the home purchase for a reason not specified, and lose your earnest money deposit.
Next, wait for the seller to respond. The seller has three choices:
1. Accept the offer. If this is the case, congratulations! You’ve bought a home.
2. Reject the offer.
3. Propose a counteroffer. If this is the case, your real estate professional can help you negotiate a purchase price. Sometimes you can’t reach an agreement with the seller and you may need to move on to other properties.
6. Conduct A Home Appraisal And Inspection
After you reach an agreement with the seller, it’s time for the appraisal and the inspection. Appraisals and inspections vary in a few important ways:
An appraisal only gives you an estimate of how much your home is worth. An appraiser looks at things like overall property values in the neighborhood and the general condition of the property. Mortgage lenders require appraisals because they need to know that they aren’t lending you more money than your home is worth.
You have a few options if your appraisal comes in lower than what you offered on the home. You can:
· Renegotiate the purchase price with the seller
· Bring a larger down payment and lower the amount of money you’re borrowing
· Request a new appraisal
· Cancel the sale and continue pursuing a different property
An inspection gives you a more intimate look at the inner workings of your home. During this process, a home inspector will walk through your property and test things like the electrical system, plumbing and other amenities. They will also look at the condition of the home’s roof, foundation, attic and basement. At the end of the inspection, the inspector will present you with a list of everything they found. You can use this list to request repairs from the seller before closing.
Though an inspection usually isn’t a requirement to get a mortgage, it’s a good idea to include a successful inspection contingency in your offer.
After your home passes inspection and undergoes an appraisal, you’re ready to close. Closing involves signing all the necessary paperwork on your mortgage and taking control of the property.
Before closing, you’ll receive a document from your mortgage lender called a closing disclosure. These documents include the final terms of your mortgage loan, what you owe in closing costs and your interest rate. Read and acknowledge your closing disclosure. Your lender will arrange a closing meeting once they know that everything looks correct.
Bring your ID, closing disclosure and cashier’s check or proof of a wire transfer for your down payment and closing costs to your closing meeting. A neutral third party called a closing agent will lead the process. You’re officially a homeowner as soon as you sign all of your paperwork.
Buying a home can be a complicated process. Get a qualified REALTOR® or real estate agent on your side to assist you before you start to compare properties. Take a look at your income and debt and decide how much you can afford to take on in a loan. Get a mortgage preapproval once you have a rough idea of how much home you can afford. It’s a good idea to choose a preapproval and not a prequalification.
You may begin looking at homes once you have a preapproval. Your real estate professional can help you find homes in your price range and neighborhood of choice. Put in an offer with the seller once you find the right property. Negotiate with the seller if you need to. When the seller accepts your offer, set up an appraisal and inspection. If the home passes both the appraisal and inspection, you can close on your loan, pay your down payment and begin the move-in process.