Purchasing your first home is a major life step that comes with many perks. Soon, you’ll say goodbye to the days of paying rent and hello to the long-term stability of putting your hard-earned money towards a valuable asset.
But before you start brainstorming decorative schemes, it’s important to get all your ducks in a row so that your home purchase goes through without a hitch. What do you actually need to do to purchase a home? It takes much more than showing up at a few open houses—though that’s definitely important, too!
Follow the six steps below so that you’re ready to act as soon as you find your dream home.
1. Open a Savings Account (or Two)
No one ever said that buying a home was cheap.
If you don’t already have a savings account, it’s time to open one and start depositing a percentage of each paycheck into it. Your savings account is also a great place to put your tax refund or any other extra cash that comes your way.
To save more quickly, consider using other measures:
- Open a high-yield checking account
- Set up an automatic savings system, or install a round-up app on your phone
- Take on freelance work to put extra money in the bank
2. Set a Budget
How much do you need to save? That depends on the price of the home you’re buying.
Your price range depends on two factors:
- Your income – How much can you afford to pay in recurring monthly housing expenses? These will include your mortgage loan payment, property taxes, homeowner’s insurance, and other fixed costs. Don’t forget to leave wiggle room to pay for unexpected repairs (and maybe a few frivolous decorations)!
- Your savings – Most first-time homebuyers will put down some percentage of their home’s cost in cash. If you have ample savings, this can reduce your monthly cost and up your price range. While some buyers qualify for a 0% down payment, many need to put down 3.5% or more, which can limit their budget.
If you don’t have much cash on hand, don’t despair! There are plenty of programs to help first-time buyers cover their down payment.
3. Research the Local Market
Once you have a budget, see how far it will go in your local area. Look at several listings and compare them in terms of:
- Square footage
- Lot size
- Number of bedrooms
- Date of construction
- Amount of work needed
If you’re looking at $200,000 homes, you may find some huge, stately, historic properties in need of TLC, as well as small, cozy homes that have recently been renovated (or “flipped”). There are pros and cons to both—it all comes down to how much effort you’re willing to put in and how worth it that extra space will be.
4. Make a List of Non-Negotiables
To narrow your focus within your price range, make a list of exactly what you’re looking for.
Rank your priorities, so you have a clear way to compare homes—and when you find the one that ticks all the boxes, act fast!
5. Get Loan Pre-Approval
To make an offer on a home, you’ll need proof of financing. Unless you have cash on hand, that means proving you qualify for a mortgage loan.
What kind of loan can you take out? Make sure you understand each unique loan option, including the difference between VA vs conventional loans:
- Veterans and people buying homes in rural areas may qualify for loans with a 0% down payment through either Veterans Affairs (VA) or USDA Rural Development.
- Other buyers will need to look into first-time homebuyer programs through conventional mortgage loan companies, like Freddie Mac or Fannie Mae.
6. Find a Realtor
You may think that all you need is a few hours on Zillow, but a local realtor can help you understand the steps of the home buying process, come up with a strategy for making offers, and succeed in your bid.
Don’t worry; you won’t even have to pay them! The seller usually pays both realtors’ commissions—talk about a great deal.
Get Ready to Make an Offer
If you’ve followed the six steps above, you already have all your ducks in a row. That means that when you see the perfect home, it’s time to put your nerves aside and pull the trigger.
After you make your offer, you’ll encounter several more steps, from negotiating over anything that turns up in the home inspection to preparing for closing day. But with a little patience, you’ll be well on your way to hiring movers, packing your boxes, and moving into your beautiful new home!