Roadmap to Homeownership
If you recently decided it's time to buy a home, chances are you're feeling both excited and overwhelmed.
As a first-time home buyer, navigating the home buying process can feel like a mysterious journey — but it doesn't have to be. This is a well-traveled path, and there are many professionals who will guide you along the way. As you get ready to start on your journey, following this helpful road map to the home buying process will give you a sense of the steps you need to take to purchase your new home.
How long does it take to buy a home from start to finish?
On average, it can take about six months to buy a home from start to finish. You can expect to spend at least a few months looking at properties, a week or two lining up financing and getting a mortgage preapproval, and anywhere from a few weeks to 45 days to close on a house. Of course, the length of the home buying process can vary greatly depending on your local housing market, your needs, and your financing options.
What are the steps to buying a home for the first-time?
As a first time home buyer, it's important to get a sense of what the entire home buying process looks like before you get started. These are all the stops you need to make along the way to get from point A (wanting to buy a home) to point B (owning a home).
Before leaving: Are you ready for the home buying process?
Starting the home buying process is a big and exciting decision. Before heading out on your journey to become a first-time home buyer, it's wise to make sure you're ready to buy a house.
Are you ready to commit to living in one place? Taking out a 30-year mortgage is a big commitment. While you can always sell your home down the line if you decide to move, real estate is a long-term investment. By selling soon after buying, you run a high risk of losing money on your mortgage. You should be fully prepared to stay in one place for at least three to five years.
Do you have a down payment saved? First time home buyers have an advantage here because you might qualify for down payment assistance programs. This means you don't necessarily have to have the standard 20% saved up for a down payment, but you will want to have at least 3% to 3.5% of the purchase price saved. Currently, New American Funding doesn’t offer down payment assistance programs.
First stop: Prep your credit
The first box you'll need to check in the home buying process is your financial checklist. Apart from making sure you have enough money for a down payment and monthly mortgage payment, you'll also want to get your credit in order. The healthier your credit score, the easier it will be to qualify for the best mortgage loans.
Review your credit. You can order full copies of all three of your reports for free at AnnualCreditReport.com. Check the reports for accuracy, and make sure to dispute any errors you find that could be dragging down your score. Then try to see your report through the eyes of a lender and consider any actions you could take to improve your credit before applying for a loan. You'll also want to check your credit score — there are several different types, but 90% of top lenders use credit scores to assess your credit risk. Here's how credit scores compare:
- 800 - 850: Exceptional
- 740 - 799: Very Good
- 670 - 739: Good
- 580 - 669: Fair
- 350 - 580: Poor
- 000 - 350: Lack of a credit history
Look at your outstanding debt. Your debt-to-income (DTI) ratio is used by most lenders to decide how much mortgage debt you can realistically afford to take on. You can figure out your DTI by dividing your monthly debt payments (credit cards, loans, etc) by your monthly pre-tax income.
Tend to your credit the year prior to starting the home buying process. Be particularly careful to make all payments on time during the year prior to applying for a mortgage and refrain from opening new accounts or closing inactive ones. Both actions can work against your credit score. Managing and boosting your credit score before borrowing can help with the approval process and potentially earn you a lower interest rate on your loan.
Rest stop: Decide what you want and need in a home
A crucial part of the home buying process is negotiating what you want in a home with a realistic budget. Separating your wants from your needs will focus you on homes in your price range. Before you start searching online, make a list of what home features are non-negotiable for you and what you would ideally like to have as a first time home buyer. This includes features, floor plan, style, location, and nearby amenities.
The most popular features include:
- 3 bedrooms
- Laundry room
- Energy-efficient appliances
Fuel stop: Line up the money
Once you've gotten your finances in order and have an idea of what you're looking for as a first time home buyer, it's time to start turning your dream into a reality.
Research first time home buyer programs. There are a number of different down payment strategies for a first time home buyer you'll want to look into. Some of these include Federal Housing Authority (FHA)-backed home loans, state programs that offer financial assistance, and other U.S. Department of Housing and Urban Development (HUD) housing assistance programs. If you qualify for any of these programs, this could make the rest of the home buying process much easier.
Talk to a Loan Officer. This will help you determine how much you can afford to borrow. From there, you can either set a price range for your first home or do some more work on your finances if necessary. Should you decide you are ready to proceed, request a preapproval letter from the lender. Your preapproval will let you know how much you can borrow and at what interest rate.
Calculate your monthly mortgage payment. Using the information from your preapproval letter, fill out our mortgage calculator to estimate your monthly mortgage payment. From there, you can adjust the home price and down payment until you arrive at a monthly payment that's comfortable for your current budget.
Recommended stop: Hire a real estate agent
This isn't a required part of the home buying process, but it is recommended — especially if you're a first time home buyer. While you can search online, research neighborhoods, and talk to friends and coworkers, a Real Estate Agent will find the homes most appropriate for you and guide you through the negotiating and closing processes. These professionals can be important partners and advocates. Be sure you select someone you can build a relationship with, as you will be spending a lot of time together. Ask your Loan Officer for recommendations. It's smart to interview at least three candidates, and always ask for references.
Hard stop: Make an offer
You found a home you want! Now it’s time for one of the most important parts of the home buying process: negotiation. Be fair, be respectful, and factor in any costs you feel you will incur readying the home. When a homeowners association (HOA) is involved, be sure to understand the added costs and its financial status. Your Real Estate Agent will have comparable sales figures for homes recently sold in the region and the home’s price history.
It’s been a seller’s market for several years, which often results in multiple bids for each property. Since homebuyers typically pay most of the asking price, factor this into your offer to make it more attractive to sellers. Securing preapproval beforehand is also important for this step. A delay in financing could result in your bid being passed over for a competing buyer who is ready to move forward immediately.
Other things you can do to win the bid:
- Don't ask for items like furniture to be included.
- Offer a larger down payment than is required.
- Extend a month of free occupancy to the seller.
Next stop: Complete the loan process
Great, your offer was accepted and now you’ve started the loan process! You're well on your way to becoming a first time home buyer, but the home buying process isn't over just yet. At this point, you'll need to lock down your financing and decide exactly how much you want to borrow. Keep in mind that the higher your down payment is, the lower your monthly payments will be.
Luckily, you now have an entire team who will now help you from start to finish. These include your Loan Officer, your Real Estate Agent, Escrow Officers, Underwriters, Processors, etc. Your Loan Officer will be your primary guide on the financial side – alerting you to any legal forms or signatures needed while your Real Estate Agent will help with setting up inspections, negotiating with the seller for necessary repairs, etc.
Mandatory stop: Inspection
Working with an inspector gives you an important understanding of your future home's condition and how it aligns with the asking price. While you'll do your own walk-through of the house, a trained professional can often spot issues related to quality or safety that you'd never notice. Some home loans will even require an inspection as part of the home buying process.
Here are just a few reasons to hire an inspector:
- Alerts you to issues you may have missed
- Enables you to ask sellers to pay for repairs
- Could allow you to reduce or rescind your offer if major issues are found
- Makes you aware of future maintenance requirements
- Gives you more confidence in your purchase price
Last stop: Closing
Closings are the final and formal exchanges of money and legal documents. While your Real Estate Agent and your lending team will do most of the work before you get to the closing, it will still take a bit of time. Your main role, however, will be to sign a lot of documents related to your mortgage.
While costs vary by region, homebuyers should expect to pay closing fees of between 2% and 5% of their home's purchase price. The average time to close can take up to 45 days. New American Funding's average time to close purchase loans is 23 days.
You Have Reached Your Destination
Congratulations! You have received your keys and your documents have been filed. You are now a homeowner. First order of business: Open the door to your new home and make it your own!
Now that you understand the home buying process, be sure to check out our mortgage calculator to get a sense of your budget. Once you do that, you can get started on your journey to becoming a homeowner with our first time home buyer guide.