Step 1: Determine your budget
Before you start searching, you should determine how much you can afford with an online tool like a Home Affordability Calculator. Just plug in some basic information to get an estimate of how much you can spend on a home.
Typically, your total housing payment (including fees, taxes, and insurance) should not exceed 35% of your gross (pre-tax) income, but it’s recommended to stay closer to 25%.
Save up for a down payment
A big part of your mortgage will be determined based on how much you pay upfront in the form of a down payment, which is typically 20% of the home’s final sale price, but you can certainly buy a home with less.
Generally, the higher the down payment, the better the interest rate will be. If you decide to put down less than 20%, you’ll likely need to pay private mortgage insurance (PMI). Speak with your agent and lender to understand your options are determine the best down payment for you.
Don’t forget about closing costs
Closing costs are fees paid at closing and usually total 2%–5% of the final sale price.
Step 2: Get pre-approved for a mortgage
Sellers are typically more willing to accept offers from pre-approved buyers, because it shows that the buyer has the financial resources available to make good on their offer.
Get quotes from multiple lenders and go with someone reliable. Read online reviews of each lender and consider their responsiveness, transparency, and estimated closing timeline.
Apply for pre-approval
Once you select a lender, apply for pre-approval. Your lender will check your credit and ask for all of your financial documents—tax returns, pay stubs, bank statements, credit card statements, student and auto loans, etc.—to accurately assess your financial situation.
Keep in mind that just because you’re pre-approved for a certain amount doesn’t mean you can actually afford that amount. Prepare your own monthly budget to figure out what you’ll be comfortable paying.
Once you’re pre-approved, don't make any big purchases or life changes, such as quitting your job or buying a car, that could negatively affect your credit score.
Step 3: Find a buyer’s agent
Real estate agents are licensed professionals who have access to information that isn’t open to the public. A good buyer’s agent will be an expert on the home buying process, know your area inside and out, be familiar with local listing agents, and be a skilled negotiator.
The seller pays all real estate commissions in a home sale, so working with a great real estate agent won’t cost you a thing.
Self-representation
If you’re considering representing yourself without an agent, you may be at a disadvantage, especially in a competitive market. Most experienced listing agents strongly prefer buyers who have agent representation because it is the best protection for all parties involved: the agents, the buyer, and the seller.
Step 4: Start looking at homes
Once you’re pre-approved and have an agent, you’re ready to look for a home.
Narrow down your search
If you’re like most homebuyers, you’re browsing homes for sale day and night through online portals such as Zillow or Redfin. At this point, it’s a good idea to narrow down your search.
Determine your ideal neighborhoods, and make a list of must-haves vs. nice-to-haves. If you’re having a tough time narrowing down, speak with your real estate agent about what she or he thinks is realistic for your price range.
Tour, tour, tour!
Take as much time and tour as many homes as you need to find the right one.
If you’re already working with an agent, be sure to tell the listing agent at an open house but avoid sharing any additional information that could affect negotiations. Don’t give the impression that you want to make an offer or discuss any details about how much you can afford, how quickly you wish to buy, etc.
Step 5: Make an offer
Some sellers will have an offer-review date, while others will be open to any offers that come in. Make sure you ask your agent about this for each home you’re interested in.
When you’re ready, your agent will help you determine how much to offer and which contingencies to include. To determine your initial offer price ask your agent for a comparative market analysis (CMA). A CMA will show the list and final sale prices for similar homes that recently sold in that area.
If a home has been on the market for 20 days or more, ask your agent about making an offer at list price or under.
Once you submit your offer, the seller will review it with their agent and accept, decline, or submit a counteroffer. If your offer is rejected, make sure your real estate agent explains why so you can learn from each offer.
Negotiate if needed
Counter-offers are common and should even be expected. If you end up in a counter-offer situation, your agent will help you negotiate the best deal possible.
When negotiating, don’t focus only on your final offer price. Instead, look at the whole picture and consider raising your earnest money, waiving contingencies, or proposing an earlier closing date.
Step 6: Close
Once you and the seller agree on the terms, you’ll enter the closing process, or escrow, which usually takes 30 to 45 days. You’ll likely be in very close communication with your agent, lender, and escrow agency during this time.
Closing costs for buyers
Closing costs are the lender and third-party fees paid at the close of a real estate transaction. The fees usually total 2%–5% of the final sale price.
Final steps in closing
Once your enter escrow, you’ll have deadlines to complete each of the following:
- Make your earnest money deposit
- Order your title
- If you have a contingency, get a home inspection and request repairs
- Work with your lender to finalize your loan
- Have your home professionally appraised
- Get homeowner’s insurance
- Coordinate all of your paperwork with an underwriter
- Do a final walk-through
- Submit a cashier's check for your down payment and closing costs
- Close escrow and sign all required paperwork
If all goes well, your contingencies will be removed and your bank will get the money to the seller on time for a smooth closing.
Step 7: Get the keys and move
Welcome to your new home! You will receive the keys usually after 5 pm on your close date.
If you’re moving into a home with a homeowner’s association (HOA), make sure you receive a copy of the rules and regulations—and read it carefully. Some HOAs have rules around what days and times you can move into your home, and whether or not you can repaint the exterior of your home.
Whether or not your home is turnkey ready, there might be some maintenance and remodeling you want to complete before moving in. You’ll also want to think about hiring movers, buying new furniture and appliances, setting up your utilities, etc.
You’ll pay for these after the home is yours but may want to factor them into your home-buying budget or create a separate post-move budget.
Good Luck, Happy House Hunting and Happy New Year!!
Written by Redfin - Home Buyers Guide
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