How to Become a Homeowner (Updated for 2022)
The last two years haven't been kind to first-time homebuyers. Between record low inventories, soaring prices, and now skyrocketing interest rates, the process doesn't seem to be getting any easier.
But our 6-step roadmap you can help you make the process a little easier. Follow these simple steps for becoming a homeowner.
Steps to become a homeowner
Get prequalified for a mortgage
Shop for homes you love
Make an offer and negotiate
Get a home inspection
Apply for a home loan
Closing on your new home
1. Get prequalified for a mortgage
Especially in today's day and age, it can be an advantage to be prequalified for a mortgage as you shop for homes. It signals to potential sellers that you are able to move quickly and are serious about the process.
To get prequalified, you'll generally reach out to a lender and ask them to start the prequalification process. From there, you'll provide all sorts of financial information needed for your bank of choice to process your request. This usually includes information about your income, assets, debts, and credit score. From there, your lender will return to you a prequalification letter, complete with an estimate of what the bank will loan you. Most of the time, this process won't cost you any money, though certain lenders will charge a small amount for it.
Once you know what this amount is, you'll be able to more easily identify homes in your price range, so that you don't waste any time looking at homes you cannot currently afford.
We mentioned that sellers are more likely to work with buyers that are prequalified. It will benefit you by:
Saving you time later
Being able to make an offer on the spot if necessary
Making your offer look more attractive
And while it isn't required by any means, it can be a good idea before you move forward in the process.
2. Shop for homes that you love
Once you know how large of a loan your bank will give you, it is time to find the perfect home that you love. While not always the easiest process, it is guaranteed to be a rewarding one.
To help you find the perfect home with the least amount of frustration possible, you're going to want to be organized and prepared. Be able to answer the following questions:
How much square footage do you need?
How many bedrooms are you looking for?
What town or city are you looking at?
What is a deal-breaker in the process?
How flexible are you willing to be?
Having answers to these questions ahead of time will help you to know which items on your list are negotiable, and which are not. From there, you can decide how to proceed, whether you will make an offer, etc.
3. Make an offer and NEGOTIATE
Eventually, you'll find a home you'll love! When this time comes, you can engage your real estate agent, if you're working with one, about submitting an offer. If proceeding without an agent, you can call the seller's agent, or the seller himself/herself.
Generally, you'll want to leave some room from your first offer to negotiate, but this varies by market conditions. Over the past couple of years, when above asking price sales have been common, this may not have been prudent advice. Just try to stay in tune with the conditions in your local or target real estate market. This is where a buyer's real estate agent can add a lot of value.
Patience is a virtue here - you may find homes you love, make offers, and get outbid. That's okay! Another great home is just around the corner.
4. Get a home inspection
Once you have a real estate offer accepted (congratulations!), it is customary to have the property inspected. Always work with a professional home inspector - he/she is trained according to state and federal guidelines and is well qualified. Typically, home inspectors will analyze all of a home's systems - electric, HVAC, plumbing among them - for items at the end of useful life, lingering problems, and things that may not be up to current code.
You may also use your home inspection as an opportunity to have other testing done on your home. When my fiancée and I bought our home, we decided to have radon and well water tests completed, since the inspection company was already there. We wanted to learn everything we could about our new home.
Once you get the results of the inspection, you can proceed to ask the seller to fix any urgent items. If they decline, you may opt attempt renegotiating price, or you are free to walk away.
5. Apply and finalize your home loan
Once you've agreed on a price and are satisfied with the results of your home inspection, it is important to reengage your lender. They'll have you formally apply for a mortgage. This will require a lot of financial disclosure on your end. Be prepared to produce the following documentation:
Financial statements from savings, checking, investment accounts
Other applicable financial information
This process is likely to result in fees that will assessed at closing. Many lenders will charge you an application fee, as well as an underwriting fee, but both should total less than $1,000. After your loan application is received, your lender will likely pull credit reports for those trying to buy a home, and will then put together a loan offer with an interest rate based on prevailing market conditions.
If you're concerned that interest rates are going to increase, you can see how long your lender is willing to "lock in" your interest rate for.
One word of advice here - if you do decide to rate lock, ask your lender if they have an option to "float down" your interest rate if needed. This will protect you from paying a higher interest rate, but also give you the opportunity to secure a lower rate if interest rates drop before you close. Many lenders today will rate lock for 60 days without a "float down" option, but it never hurts to ask.
6. Close on your new home
Once you've satisfied all the aspects of the process - securing a mortgage, working with a real estate attorney, and more - you will be ready to close on your new home.
Your lender will usually order a "clear to close" designation once the title search is complete, the home is appraised, and all other internal paperwork is complete.
The typical closing usually consists of you taking care of your closing costs (either by wire or check) in the office of your title company or attorney. You'll officially receive the keys to your new home, and the home officially becomes yours.
Our state by state real estate closing guides
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