More and more people are recognizing the importance of investing in real estate. New homebuyers accounted for 32 percent of all buyers in 2023, up six percent from last year. This shift signals confidence in the real estate market. 

However, looking at the other side of the coin shows that these home buyers aren’t adequately informed. A survey found that the delinquency rate for mortgage loans is an issue. Rates on one-to-four-unit residential properties rose to 3.94 percent by the end of the first quarter of 2024.

Navigating the home-buying process for the first time can feel overwhelming. There are fears of making a mistake or forgetting something. However, with proper preparation and understanding of each step, it’s easy to navigate the process from pre-approval to move-in.

Step 1: Prepare Your Finances

The initial phase of the home-buying journey involves getting your finances in order. This step includes budgeting, saving for a down payment, and understanding your credit score.

Budget and save

List all your income and recurring expenses to know your financial situation. Use tools to track spending and identify areas to cut back. It would also help to have a saving goal. Your goal is to save at least 20 percent of the property’s purchase price to cover the down payment and closing costs.

Factor in moving expenses, home maintenance, property taxes, and homeowners insurance. For example, buying a $300,000 home might need an additional $10,000 for moving and initial maintenance.

Understand your credit score

Obtain your credit report and score from major credit bureaus. Review, and if you spot any errors, dispute them. If your credit score isn’t good, start improving it. For example, pay off outstanding debts, avoid new credit inquiries, and keep your credit card balances low. A good credit score can give you better mortgage rates.

Also, make all payments on time and avoid closing old accounts, as they help lengthen your credit history. Aim for a credit score of at least 620 for a conventional mortgage.

Step 2: Secure Financing

With your finances in order, the next step is securing financing. This process involves getting pre-approved for a mortgage and exploring different loan options.

Get pre-approved

Part of the pre-approval process is getting all the necessary documents. Collect pay stubs, tax returns, bank statements, and other relevant financial documents. Lenders need these to assess your financial stability.

Don’t commit to a single lender. Compare and contrast mortgage rates and terms from multiple lenders. If you’re qualified, you need to get a pre-approval letter that shows sellers you’re a serious buyer with financing in place. It helps give you an edge in competitive markets.

Explore mortgage options

Get as much knowledge as possible about your options. Look into fixed-rate, adjustable-rate, FHA, VA, and USDA loans. Just as you would research before you apply for a student loan, understand the various mortgage products available. This step will help you find the best fit for your financial situation.

A fixed-rate mortgage may be best if you plan to stay in the home long-term. For shorter stays, an adjustable-rate mortgage could offer lower initial rates.

Step 3: Find the Right Property

With financing secured, it’s time to find the right home. Here’s how you can zero in on the best property for you.

Research neighborhoods

Make a list of must-have features such as good schools, low crime rates, and proximity to work. If you have kids, know if there are schools near the property. Look for areas with potential for appreciation, such as upcoming infrastructure projects or new business developments. 

When a property catches your eye, don’t commit just yet. Visit potential neighborhoods at various times of the day and week to get a sense of traffic, noise levels, and community vibe. As much as possible, you want to see it beyond the open house. 

Work with a real estate agent

Look for agents with good reviews and a track record of working with first-time buyers. Ask for recommendations from friends and family. Share your budget, must-haves, and deal-breakers with your agent. Clear communication helps your agent find homes that match your criteria.

Attend open houses and tours

Visit several homes to compare features, layouts, and conditions. Take detailed notes and photos to remember each property. Inquire about the age of major systems (roof, HVAC, plumbing), recent repairs, and any potential issues. For example, ask if there have been any past water damage incidents.

Look beyond cosmetic issues and assess the property’s potential for improvements. A home with minor flaws might be a great deal if it meets your core criteria.

Step 4: Make an Offer and Negotiate

Once you’ve found the right property, it’s time to make an offer and negotiate the terms of the sale. This step requires careful consideration and strategic thinking.

Craft a competitive offer

Your ability to pay doesn’t mean you should make a blind offer. Use recent sales data of similar homes in the area to decide on a fair offer price. Turn to your agent for a comparative market analysis (CMA).

Protect yourself by including contingencies for inspections, financing, and appraisal. These precautions allow you to back out if certain conditions aren’t met. In a seller’s market like this time, consider being flexible with your closing costs to make your offer more attractive.

Negotiate terms

When you’re properly informed, it’s easier to negotiate repairs and other costs. Stay calm and professional during negotiations. Your agent can provide valuable advice on when to stand firm and when to compromise. They can also communicate effectively with the seller’s agent. 

Document negotiations and agreements in writing to safeguard your interests against any misunderstandings.

Step 5: Navigate the Closing Process

The final step in the home-buying process is navigating the closing procedures. This step involves completing inspections, securing insurance, and signing the necessary paperwork.

Complete inspections

Hire a qualified inspector to check the home’s structure, systems, and appliances. Carefully go through the inspector’s findings. Request repairs for any significant issues or negotiate a price reduction if needed.

Secure homeowners insurance

Compare policies from different insurers to find the best coverage at the best price. Ensure your policy covers the full replacement cost of your home and its contents. Consider additional coverage for natural disasters if needed.

Finalize the closing

Carefully read all documents, including the Closing Disclosure, to understand your financial obligations. Ask questions if anything is unclear. Conduct a final home tour to ensure it’s in the agreed-upon condition and all requested repairs are complete. 

Bring a certified or cashier’s check for closing costs and down payment. Be prepared to sign multiple documents to finalize the purchase.

Make Homeownership a Reality

Buying your first home is a significant milestone that requires careful planning and preparation. By following this checklist, you can handle each step of the process with confidence and ease. Remember that the journey to homeownership is unique for everyone. Stay patient, keep informed, and soon you’ll be settling into your new home. 

If you’re ready to take the first step toward homeownership, prepare your finances and explore your mortgage options. Happy house hunting!