For many people, homeownership is an ultimate financial and life goal. While it's a worthy aspiration, it's easy to underestimate how complex and costly the homebuying process can be. Fortunately, plenty of resources exist to help you with the process. Here are some trusted tools to help you navigate each step to buying a home.
Even before you start house hunting, it's important to prepare your finances, understand what's within your budget and hire a professional who can walk you through this journey.
- Understand what you can afford. You can't truly start shopping for homes until you know your price range, so first learn how much house you can afford. Zillow's Affordability Calculator factors in your income, debts and down payment to calculate approximately what home price is within reach.
- Prep your budget. It's possible you'll need to pause and save for a down payment before you go any further. Learn about budgeting apps, such as You Need a Budget or Personal Capital, which can help you assess how to grow your down payment. Creating a budget will also help you plan for and manage your new house payment, home maintenance and other homeownership costs.
- Find a real estate agent. Once your finances are ready, it's time to find a savvy real estate professional to be your partner in the homebuying process. A great way to find someone is to ask for recommendations from friends who've bought homes in that area. If you don't have any leads, Realtor.com's online agent connection tool can match you with a qualified local Realtor.
Preparing for a Mortgage
Unless you're able to pay for a home with cash, you'll need to take out a mortgage to finance the property. To get the best rate and terms, take some time to research and compare your options—and make sure your credit is in the best shape possible.
- Review your credit. Your credit is a significant factor lenders use to assess whether you qualify for a mortgage and with what rate and terms. While you can check your basic credit score, some mortgage lenders utilize other scores. If you want to get a preview from their perspective, consider signing up for Experian CreditWorksSM Premium, which shows you the FICO® Score☉ used by mortgage lenders. Seeing your credit from a lender's perspective could reveal whether you should take any actions to get your credit mortgage-ready and improve your credit. It's best to do so at least three to six months ahead of applying for your loan so you have time for positive changes to take effect.
- Consider loan options. Mortgages come in a variety of forms, with differing requirements and expenses. Before taking on a conventional loan, it's wise to first check if you qualify for federal loan programs such as FHA, USDA or VA. Try Experian's mortgage calculator to help determine which mortgage loan offers the best deal. The Consumer Financial Protection Bureau (CFPB) also has a useful home loan toolkit that walks you through the different types of loans.
- Get preapproved. Once you know what type of mortgage to apply for and you're ready to take that next step, it's ideal to get preapproved from a lender. A lender will review your credit, employment and income, and if you're preapproved, they'll provide a document that outlines how much you can borrow. You're not locked in, so you can get preapproved at multiple lenders to compare loan offers. Having a preapproval letter makes you a more competitive buyer since it shows you're serious and have the funds. It can also expedite the process later.
Finding Your Dream Home
Now that you're preapproved and have a real estate professional in your corner, the real fun starts! It's time to start researching properties, viewing houses and bidding on the ones you love.
- Research properties. While your agent should help you find homes that meet your criteria, you can also do your own research. You can utilize the Multiple Listing Service (MLS) database or search through home listings on sites such as Realtor.com, Zillow and Redfin.
- Start viewing and comparing houses. Now it's time to start touring homes with your real estate agent. If you're not in a rush, it's prudent to view many different homes, even if they don't perfectly meet your criteria. You may find some pleasant surprises, or get a better sense of your preferences and whether something is priced well or not. Your agent can also give you a comparative market analysis ("comps") to help determine if a price is too high or too low. There are also many free home comparison worksheets online that can help you compare home features and expenses as you view them.
- Make an offer. Once you've found the right property, your agent will walk you through the process of submitting a compelling offer. The seller will either accept, counteroffer or reject your offer. Depending on how hot the market is, you may need to go through this exercise multiple times or negotiate with the seller.
Closing the Deal
After you've found the right home and your offer is accepted, there are still a few more important steps.
- Submit your full mortgage application. Once your offer is accepted, you'll complete your full mortgage application. If you were already preapproved, this process may be shorter, but you'll still need to submit additional documentation. You'll then receive a loan estimate. For more clarity, utilize the CFPB's Loan Estimate Explainer to better understand the details of your loan.
- Get the home inspected and appraised. Once the home goes under contract, it's time for a home inspection. You pay for it, though you aren't required to make necessary repairs, and you can use the findings to potentially negotiate with the seller or even void the sale. You can and should choose your own inspector to get the most objective assessment. Learn what to expect on inspection day. If you're financing the house, you'll also need to get it appraised, though the lender typically selects the professional. Depending on your state and lender, you may also need to purchase homeowner's insurance and title insurance and hire a real estate attorney.
- Close on the home. Once your lender has underwritten your loan and all other steps are complete, you'll arrange to pay your down payment and closing costs. You'll typically meet in person to read and sign your final documents, then you receive the keys and it's all yours! To stay organized, try using the CFPB's Mortgage Closing Checklist before closing day.
Homeownership can help you build financial stability and wealth, but it can be a lengthy process that comes with many rules, expenses and potential headaches. The right tools and team can make the experience a lot easier.