It’s more fun to look at homes than it is to talk about your finances with a lender. So that’s what a lot of first-time home buyers do: They visit properties before finding out how much they are able to borrow. Then, they are disappointed when they discover they were looking in the wrong price range (either too high or too low) or when they find the right home, but aren’t able to make a serious offer.

You can find for-sale properties through listing websites, local publications and your real estate agent. Start touring homes to develop a sense of what you want and don’t want in your home, as well as what type of inventory is available in your desired neighborhood. Once you find a property that meets your needs, work with your agent to negotiate a fair price with the seller.
5) Shop around for a mortgage. Even a slightly higher rate can mean paying significantly more interest payments over the life of the loan so don't just talk to your existing bank. Consider non-profit credit unions, web sites like bankrate.com and eloan.com, and independent mortgage brokers who can shop around from multiple mortgage companies to find the one that can offer you the best deal. Just try to do all of your mortgage shopping within a 30 day period so it doesn’t affect your credit too much. You can then use this calculator to compare the loans.

A title search and title insurance provide peace of mind and a legal safeguard so that when you buy a property, no one else can try to claim it as theirs later, be it a spurned relative who was left out of a will or a tax collecting agency which wasn't paid its dues. A title search is an examination of public records to determine and confirm a property's legal ownership, and find out what claims, if any, are on the property. If there are any claims, those may need to be resolved before the buyer gets the property. Title insurance is indemnity insurance that protects the holder from financial loss sustained from defects in a title to a property, and protects both real estate owners and lenders against loss or damage occurring from liens, encumbrances, or defects in the title or actual ownership of a property. 
This is also a prime time to decide whether you'll hire a real estate agent, if you haven't already. While you're under no obligation to do so, there are several potential benefits to working with one. First of all, an agent can provide access to more home options than you'll likely find yourself, as well as set up viewing appointments. Since home-buying can be an emotional process, an agent can also act as a mediator between you and the seller.
Ask the settlement agent for copies of all the paperwork you'll sign before closing, so you can carefully review them at your leisure. You'll be putting your John Hancock on several items, including the HUD-1 settlement statement, which details all of the costs related to the home sale; the Final Truth-in-Lending Act statement, which outlines the cost of the loan and the interest rate; and your final mortgage paperwork.
This is also a prime time to decide whether you'll hire a real estate agent, if you haven't already. While you're under no obligation to do so, there are several potential benefits to working with one. First of all, an agent can provide access to more home options than you'll likely find yourself, as well as set up viewing appointments. Since home-buying can be an emotional process, an agent can also act as a mediator between you and the seller.

Many realtors will not spend time with clients who haven't clarified how much they can afford to spend. And in most instances, sellers will not even entertain an offer that’s not accompanied with a mortgage pre-approval. That's why – if you don't have all cash (how many first-time buyers do do?) – your next step is talking to a lender and/or mortgage broker.
Prior to the closing date, the buyer will want to verify with his or her agent, lender, and escrow company that all of the necessary documents have been signed and terms met. If they have not this should be taken care of immediately to ensure that there are no last-minute problems. The buyer will also want to verify what forms of payment are acceptable. On the closing date, closing costs and fees will be paid.

Sounds hard to believe, but it’s not rare for new homeowners to be late with their first monthly payment, or to miss it altogether, says Neil Garfinkel, a real estate attorney with Abrams Garfinkel Margolis Bergson in New York City. “Maybe you didn’t fully understand the process. You thought it was being auto-deducted but it’s not being auto-deducted. You didn’t get the bill in the mail. Whatever. Those first couple of payments, from a credit perspective, are really, really important,” he says.
Before submitting a purchase offer, request the energy bills from the past 12 months to get an idea of the average monthly cost, suggests Marianne Cusato, an award-winning designer based in Miami, Fla., and co-author of "The Just Right Home." Most utility companies can provide a homeowner copies upon request. “If you are in love with a house and everything else works but the energy bills, have an audit preformed to assess what your options are for making it more energy efficient,” says Cusato. “In many cities the electric company will come out and do the assessment for free.”
We want to hear from you and encourage a lively discussion among our users. Please help us keep our site clean and safe by following our posting guidelines, and avoid disclosing personal or sensitive information such as bank account or phone numbers. Any comments posted under NerdWallet's official account are not reviewed or endorsed by representatives of financial institutions affiliated with the reviewed products, unless explicitly stated otherwise.
It’s important to pay attention to a home's aging big-ticket items before you even make an offer. “A lot of homebuyers are distracted by how cute a home can be,” Portales says, adding that she makes it her job to point out the age of the roof, air conditioning unit, water heater and more to buyers. Then when it comes time to calculate an offer, you should factor in the cost of those pieces that will need immediate replacement when determining how much you think the home is worth.
Ask to be present during the inspection, because you will learn a lot about your house, including its overall condition, construction materials, wiring, and heating. If the inspector turns up major problems, like a roof that needs to be replaced, then ask your lawyer or agent to discuss it with the seller. You will either want the seller to fix the problem before you move in, or deduct the cost of the repair from the final price. If the seller won't agree to either remedy you may decide to walk away from the deal, which you can do without penalty if you have that contingency written into the contract.
In any case, consider picking a mortgage with a fixed rate for the longest time that you think you'll be keeping the home. That's because you could see your monthly payments jump up on a variable rate mortgage if interest rates keep climbing. On the other hand, fixed rate mortgages start with higher interest rates so it may not make sense to pay more to lock in a fixed rate for longer than you need it.

How To Buy A House, In 7 Steps The journey to buying a house can lead you down some perilous roads, past pushy real estate agents, self-interested bankers and not-so-meticulous home inspectors. We lay out a step-by-step approach to help you avoid those pitfalls, from what to look for in a house that will truly make you happy to assembling a team to help close the deal.


As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.
In any case, consider picking a mortgage with a fixed rate for the longest time that you think you'll be keeping the home. That's because you could see your monthly payments jump up on a variable rate mortgage if interest rates keep climbing. On the other hand, fixed rate mortgages start with higher interest rates so it may not make sense to pay more to lock in a fixed rate for longer than you need it.

Some first-time home buyers are naive. Overly optimistic, they think nothing could possible go wrong. If a home has a few problems, they view them as easy fixes and are unrealistic when it comes to the cost and time it takes to fix up the home. Some naive buyers will move to a neighborhood on the wrong side of town, forgetting that you can fix up a house, but you can't change your neighborhood or location without moving.
As a first-time home buyer, you’re probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities, and your internet and cable bills. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs (if you’re buying a condo) and the cost of lawn care. You’ll also be responsible for paying property taxes and homeowners insurance. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3 percent of the purchase price of the home annually to cover repairs and maintenance.
VA and USDA loans: Certain veterans, active members of the military, and qualifying residents of designated rural areas can qualify for a 0% down-payment housing loan -- mortgage-insurance free as well -- from the Veterans Administration or the U.S. Department of Agriculture. In this case, first-time home-buyers could walk into a $300,000 house for just the closing costs, plus the suggested six-month buffer.

After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. According to a NAR survey, 78% of home buyers believe neighborhood quality is more important than the size of a home. And 57% of buyers would opt for a shorter commute over a larger yard.(4) So make sure you factor neighborhood quality and location into your decision.
In a quick conversation with you about your income, assets and down payment, a lender can prequalify you to buy a house. Getting preapproved takes a little more work. A lender will need to verify your financial information and submit your loan for preliminary underwriting. But it pays off when you begin your home search because a preapproval letter shows that you’re a serious buyer.
First-time homebuyers are often moving from rentals that use less energy (gas, oil, electric, propane, etc.) and water than a larger new home will. It is easy to be ambushed by soaring rates when your new house has ceilings higher than your rental – or older windows that leak air. Then there are unexpected utilities, such as buying gas to power a lawnmower. These costs can blow a budget.

"Building equity in a home can be a good way to grow your wealth, but it's important that you do so in a way that doesn't stretch your finances too thin," he cautions. "Things can get really ugly when the housing market declines, so it may be a good idea to take out a 30-year mortgage but accelerate your monthly payments as if you had a 15-year mortgage. If you ever need to lower your payment in the future, you'll still have that option."

A preapproval is based on our preliminary review of information provided and limited credit information only and is not a commitment to lend. We will be able to offer a loan commitment upon verification of application information, satisfying all underwriting requirements and conditions, and property acceptability and eligibility, including appraisal and title report. Preapprovals are subject to change or cancellation if a requested loan no longer meets applicable regulatory requirements. Preapprovals are not available on all products. See a home mortgage consultant for details.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.
For the past 15 years, Williams has specialized in personal finance and small business issues. His articles on personal finance and business have appeared in CNNMoney.com, The Washington Post, Entrepreneur Magazine, Forbes.com and American Express OPEN Forum. Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America" 

When you’ve made an offer that’s within your budget, your Realtor will prepare the paperwork for you to sign and will submit it, along with your pre-approval letter and your earnest money, which is a good-faith deposit of about 1 percent of the purchase price. All this usually happens quickly, especially if other buyers are interested in the same property.
You most likely deposited earnest money when you signed the purchase agreement, which is a deposit made to a seller indicating the buyer's good faith, seriousness and genuine interest in the property transaction. If the buyer backs out, the earnest money goes to the seller as compensation. If the seller backs out, the money is returned to the buyer.
Closing costs and prepaids: Alex Clark, a real estate Endorsed Local Provider whose team closes an average of 100 homes a year in Portland, Oregon, advises his clients to save around 3% of a home’s purchase price for closing costs and prepaids. But that percentage can vary depending on how expensive fees and taxes are in your area. Closing costs are the fees charged by title companies and lenders involved in your real estate transaction. Prepaids cover any prorated property taxes and insurance items.
A lender will help you determine exactly what you can afford and, therefore, which houses you should be considering. To arrive at a purchase price, you’ll factor in expenses like homeowners insurance, association dues, and utilities to make sure you can comfortably make your mortgage payments. The lender will then identify the total amount of money it's willing to lend you.

Approach the process as assembling a team of people who will help you achieve homeownership. With each person, you want to feel confident that the professional will work in your best interests. Heyer recommends not just speaking with multiple professionals regarding your mortgage and home inspection, but also interviewing several agents at the start.
To complete your purchase, you'll have to deposit additional funds into escrow. Since the original earnest money deposit is generally applied towards the down payment, it is important to arrange for the various payments required at different times, before the deal is closed. Failure to offer the required money in time can lead to the risk of deal getting cancelled, earnest money going to the seller, and you still being charged for the various services you availed.
Interest rates, including those offered on mortgage, can be volatile and subject to change. A 0.25 percent rise in interest rate can significantly increase your repayment amount, repayment tenure or both. It is advisable to lock the interest rate for the loan in advance, instead of being at the mercy of the market fluctuations which can be a big risk if the rates rise before you finalize your property purchase. Pre-approved mortgage offers the facility to offer you a rate lock, which means that you can secure a favorable interest rate for the loan. Though chargeable rates are subject to multiple factors, like applicant’s credit score, geographic region, property and the type of loan applied for, attempts to lock in at favorable rates can be beneficial.
Thank you for the wonderful advice. I particularly liked what you said about considering the mortgage fees, and all other things that you will have to pay for when getting a house, to ensure you know what you can afford. My brother is in the market for a home, and was wondering what he should know. If he were to consider these things into his budget, he could know what house he could afford, and move forward with peace of mind.
×