What You Need to Know Before Buying a Home Our 9 Step Guide for first-time homebuyers

If you’ve been looking to buy your first home, you’re probably aware that the housing market is booming.

Interest rates are hitting historical lows, and many homes are sold before you get the chance to make an offer.

You’re probably eager to get your foot in the door before the market changes.

Still, before you purchase your first home, you need a plan.

It’s easy to jump at the first opportunity you get, but it’s just as easy to get stuck in a mortgage that you can’t afford, or a house that you end up hating.

It’s important to take your time, especially as a first-time buyer. So, if you’re looking for a detailed guide to help you on your home-buying journey, keep reading!

Our comprehensive 9-step guide will cover everything you need to know before purchasing your first home.

Before you Begin…

Keep in mind that buying (and owning) a home is never as simple as your lender makes it seem.

Purchasing a home can be extremely rewarding, but you probably know how stressful it is too.

The truth is, your path to homeownership won’t be quite like anyone else’s. It’ll take a lot of research and consideration of your unique financial situation.

So, before you start checking off the boxes on our home-buying guide, ask yourself:

  • • How much square footage do I want/need, and does it fit my budget?
  • • How much money should I put towards my down payment?
  • • Are home prices in my desired neighborhood increasing or decreasing?
  • • Is the home a reasonable distance from my workplace?
  • • Are the nearby schools a good fit for my family?

Overall, these questions are about nailing down a home that you’ll love for years to come. And like we said earlier—take your time.

On average, it’ll take around 5-6 months to find the right home, secure financing, and close on your purchase.

Without further ado, here’s our 9-step guide to buying your first home!

1. Check your Credit

Your credit score is the main determining factor that the lender will use in your mortgage calculation.

It’ll help the bank decide how much they’re willing to lend, and generally, a higher score will mean lower interest rates (more money in your pocket).

If you have a low credit score, finding a good deal on your mortgage will likely be more challenging.

Even if you think your credit score is good to go, take the extra time to review a comprehensive credit report.

Because your credit report is reported by not one but three credit bureaus (Equifax, Experian, and TransUnion), there could be errors that are driving your credit score down.

Generally, a score above 720-740 will be good enough to get you the best deal possible on your mortgage.

If your credit score is lower than that, it’s still possible to find a good deal, but you’ll typically need a score of at least 600 to qualify for most loans. For more on more low-credit mortgage options,

2. Review your Budget

Sounds fairly simple right? You’ve probably spent a lot of time keeping track of your finances already, but make sure to take another look.

Paying off your loan with interest will probably be your largest monthly expense. But there are a handful of other fees that can drive your costs up:

  • • Appraisal fees ($400 - $1000)
  • • Inspection fees ($250 - $500)
  • • Document preparation/underwriting fees ($300 - $900)
  • • Origination fees (0.5% - 1.5% of your loan amount)
  • • Title/Title Insurance fees ($1,300 - $1,600)
  • • HOA fees ($200 - $700, depending on location)

Those fees can add up fast if you’re not careful, and that’s not all.

You’ll usually have to pay for the transfer of your home’s title, plus any county/state taxes.

Plus, if you couldn’t afford a down payment of 20% of your mortgage, factor in private mortgage insurance (PMI).

Because a down payment of less than 20% makes you a risky debtor for your lender, you’ll pay PMI—typically 0.5% - 2% of your loan principal.

Overall, you’ll want to give yourself a financial cushion. Buying a home is almost always more expensive than you’ll expect.

3. Find a Good Realtor

Our guide can only do so much, and you’ll want an experienced realtor to help you along the way.

A whopping 88% of home buyers used a realtor’s services in 2020, and it’s easy to see why…

They’ll be able to help you determine an offer price, recommend good neighborhoods for your needs, provide market insights and more.

The best part about it? The seller will pay the fees associated with your realtor’s services.

4. Pre-Approval & Mortgage Structure

If you’re like most first-time buyers, you’re probably not purchasing a home in cash.

So you’ll have to get pre-approved and spend some time structuring your mortgage.

This step is crucial—without a pre-approval from your lender, you won’t know how much you can borrow and the seller won’t accept your offer.

And if you don’t take some time to structure your mortgage, you could lose thousands or hundreds of thousands.

Your lender will take into account your assets, income, and debts when determining your pre-approval amount, but the main thing you’ll want to focus on is your debt-to-income ratio (DTI).

To figure out your DTI, add up all your monthly debt payments and divide that number by your monthly income. You’re looking for a ratio lower than 43%. If your ratio is higher, it’ll be difficult to find a lender that will give you an offer.

In terms of structuring your mortgage, the most important thing you’ll need to worry about is your interest rate.

A difference of 0.5% or 1% over a 30-year loan term could make or break your bank account. See our blog on structuring your mortgage for more information!

5. Start Shopping

You’ve probably got a very specific set of wants and needs for your first home. You should prioritize the features you need, but it’s important to be flexible.

Chances are, you won’t find everything you’re looking for within your budget—most homeowners don’t.

Still, remember that your home is an investment, and you can make changes as you see fit.

Have your realtor send you home listings to suit your needs. They can set up showings for you as well.

Just keep the health of the home in mind.

Sure, your home can be a blank canvas ready for renovations, but it shouldn’t be falling apart either. Take a look at the home’s structural integrity, the condition of the roof, water pressure, and electrical issues.

If you’re not careful, these issues could end up making your dream home a nightmare.

6. Make an Offer

Like we said earlier, the home-buying process takes 5-6 months from start to finish, so if you’ve made it this far, congratulations!

One of your final steps is to make an offer. This is where your realtor comes in handy.

Your realtor should begin with a comparative market analysis (CMA).

Essentially, you’ll receive an estimate for a fair offer price depending on the price of similar homes in your area.

And don’t forget about earnest money.

Think of it as insurance for the seller. It’s a deposit to show you’re serious about buying the home.

When everything is said and done, that money will typically go towards your down payment.

7. Inspection & Appraisal

You can only see so much during your house showing, so it’s vital to call in an expert to inspect the home after you’ve signed the paperwork.

The inspector will check for any significant damage in the home, and they’ll typically give you more information on the guts of the home.

After an inspection, you’ll be able to ask the seller to pay for any damages.

Finally, the lender will send an appraiser after you’ve signed the mortgage paperwork.

This is where things can get tricky:

If your appraisal is low, your lender won’t approve your loan amount. In this case, you’d have to pay back the difference between the appraisal and your offer price.

If your appraisal is at your offer price, you’re good to go.

And if your appraisal comes in above your offer price, great! You’ll be buying a home below its market value.

8. Move-in!

This one is pretty straightforward. Close with the seller, set up your utilities, and enjoy your new home.

But before you go, we have one more step that we want to share with you.

9. Save from the Start

Home buying is never going to be an inexpensive task.

The problem is, you’ll end up paying hundreds of thousands in unnecessary interest payments by the end of your loan term.

We believe the home-buying process should be more about enjoying your first house than worrying about debt payments.

That’s why we created the Money Max Account.

It’s an all-in-one account and financial tool designed to help you get out of debt as soon as possible.

In as little as 7-10 years, you could have your first mortgage (and any other debts) paid off.

And while the Money Max Account works for anyone and everyone, it’ll help you save even more as a first-time buyer.

Why put more unnecessary interest in your lender’s pocket when you could spend your money on the things that matter: your family, your home, and your lifestyle?

The answer is pretty obvious, right?

The Money Max Account was created to help people everywhere save their money for the things that matter most.

Money Max has already helped homeowners save over $2 billion.

If you’re ready to add your debts to that number, visit our website or give us a call. Our representatives are standing by to answer all of your questions.

Still Have Questions?