Updated March 15th, 2023
Buying a home is a huge financial decision, especially for first-time homeowners, so it's important to approach it methodically to ensure that you make the right decisions. But with the right planning and preparation, you can make the process a little easier, less stressful, and more exciting.
If you're not sure of the steps for buying a home, we break them down below, along with some details about the costs you will need to factor in as well.
Steps for buying a home
1. Determine your budget and get pre-approved for a mortgage
This is the first step to take when buying a home because you need to know your budget range before you start searching. Getting pre-approval from a lender will give you an idea of the amount you can borrow and the monthly mortgage payment you can afford. This will also help when you make an offer because it shows you're a serious buyer.
2. Start your search and find a real estate agent
With a clear budget in mind, you can now begin your search for a home. There's no single way to buy a home. You can start by browsing online listings or by working with a real estate agent who can help you find a home that meets your needs and budget. It may be worth speaking with a mortgage advisor to get some home-buying advice as well.
3. Research neighborhoods and visit open houses
Research the neighborhoods you are interested in to see if they meet your needs. Check for things like parking, access to public transportation, and nearby shops or other facilities. It is also important to visit open houses to get a feel for the area and to see homes that are for sale.
4. Make an offer and negotiate the terms
Once you have found a home you like, you can make an offer to the seller. Your real estate agent can help you negotiate the terms of the sale, including the price, closing date, and any contingencies you may have. In a competitive housing market, don't be disheartened if your offer doesn't get accepted right away.
5. Get a home inspection and appraisal
Before you close on the home, it's important to get a home inspection to determine if there are any issues that need to be addressed. You will also need to get an appraisal to make sure the home is worth the price you are paying for it. This will be a condition of the mortgage, so the lender isn't lending more than the home is worth.
6. Close the deal and move in
Once you have checked all of those boxes, you can close on the deal and move into your new home!
Costs of buying a home
Buying a home can come with many other costs besides the price of the property. Some of the most important costs to think about include the following:
Your down payment is the first thing to think about. It's the money you put down when you initially buy your home — with the rest coming from a mortgage in most cases. A down payment is typically between 0% and 20% of the purchase price. A higher down payment means that you will have to borrow less from the bank and, as a result, your mortgage could have lower interest rates. Plus, because you're borrowing less, you'll also save on interest across the life of your loan.
Closing costs are the fees you need to pay when you close on a home, including fees for the title search, title insurance, and other expenses associated with the closing process.
Closing costs can range between 3% to 6% of the purchase price. Sometimes you can roll these costs into the mortgage, but then you will end up paying interest on them along with the rest of the loan.
Home insurance is a requirement when you take out a mortgage. It protects you and your home against financial losses, such as damage to the home or theft.
The average cost for homeowners insurance in the U.S. is $1,854 per year, according to a Forbes Advisor analysis.
Another expense to consider is property taxes. These are taxes you must pay to the government every year that are based on the value of your home and the state you live in. Most homeowners pay these monthly along with their mortgage.
On top of all that, there are moving expenses to consider. This could include the cost of hiring a moving company, buying packing materials, other travel costs, and the costs associated with moving in, such as buying furniture or decorating.
Home repairs and upgrades
The great thing about owning your own home is that you can customize and decorate it how you wish. However, you are also responsible for all home repairs and upgrades.
It's hard to predict sudden repairs that you might need to pay for when you move in or later down the line. That's why it's recommended to set an emergency fund aside if you need to fix a leaky roof or upgrade the electrical system.
Combat first-time homebuyer stress
Buying a home can be a complicated and expensive process, so it's no wonder it's considered one of the most stressful life events people experience.
Be mindful of stress management techniques when searching for homes, going to open houses, and dealing with the paperwork that follows. Some things you can do include gathering all the necessary paperwork way ahead of time, finding a broker or real estate agent you trust, and taking time off work to attend viewings and meetings.
Just remember that it will all be worth it when you finally get the keys to your new home!
Enter homeownership prepared
Buying a home is a major life milestone and a big investment. By following our tips for buying a home and being aware of all the steps and costs involved, you can make the process a little less stressful.
Remember to take your time, do your research, and make an informed decision when it comes to choosing a real estate agent, mortgage broker, home inspector, and mortgage lender. This may involve a lot of research in the beginning, but with the right preparation, you can enjoy the benefits of homeownership for years to come.