So you want to buy your first home

It is a very exciting and nerve-racking time when you finally make the decision to buy your first house. Buying a house is a major milestone for most people and the process of purchasing can be anxiety inducing. To help mitigate some anxiety that you may be feeling, I will walk you through the initial steps and provide some essential tips to make the process successful. If you have already been through this process before and  know the general idea, check out some of my later posts where I go into much more detail of the entire closing process or about starting to invest in real estate.

If you read my other blog posts, then you probably have some sort of desire or interest in retiring early and reaching financial independence. The biggest driver for me to reach a level of financial freedom is having agency over my own time. I aspire to spend my time how I want, whether that be with friends and family or going on a long vacation. Sometimes I even enjoy working, but I don’t want to “have” to work 40 hours a week, so I rather have the choice of when to work and for how long. Let’s take this idea of time being the most precious thing and apply it to how you are starting your house search.

Step One: Pre-Approval

The first step is to get pre-approved. This is essentially chatting with a lender to determine how much of a house you can afford. Many people miss this initial step and start looking at houses right away. What would happen if you started working with a realtor and touring all these houses only to find out that the one you fell in love with is not in your price range. Many people have eyes bigger than their bank accounts and it comes back to bite them in the butt. And above all else, it is time that you have wasted looking at properties that are not even possible. This precious time that we are so limited with in the first place was used on an activity with no reward or outcome.

Now this pre-approval step could be easy or very cumbersome, it all depends on your financial situation. The pre-approval process consists of gathering all your financial documents including your assets, debts, job information, and inputting it into a loan application (for the lender that you chose). If you have your job and just a single bank with your savings and checking accounts, then this process will be extremely easy with minimal documents that you will need to provide. However, if you have several brokerage accounts in addition to your savings and checking, or maybe some other mix of investments or assets, it may get a little complicated. Once you go through this application process, your lender will inform you of your buying power or the price limit that you can purchase at. This is going to be based on current interest rates and your down payment, which ultimately plays a factor in what loan amount you are taking.

There are many factors that go into your buying power when you get pre-approved. I talk about the necessary items for this process in a different post. Check it out if you’re interested in learning what is needed to get pre-approved. 

With this information, you will now be able to start looking at properties that fall into that specific range. This vital information is needed for you and your agent that you are working with to buy your home. You will then be starting the fun process, touring the homes, and walking through the houses that you want and, most importantly, fall within your determined price range.

Step Two: Make your Checklist

As you tour houses you will probably come to the realization that you will not be able to get every single thing that you want. Sometimes you may have to settle for a house with an unfinished basement because you absolutely NEEDED two bathrooms. It is important to come up with a list of needs, wants, and do not wants. This list will further breakdown your criteria of what kind of house you won’t regret purchasing. It will help you narrow your search with your needs or your absolutely must haves. You want these things, and you will make sacrifices of other desires in order to get these musts. These needs may include having a basement, garage, in-unit laundry, or a master bathroom.

The next list you should make are your wants. This may include anything from your needs list, but these are what you might be willing to give up to get that need item. Your wants are still going to be what you search with though. If you come across a property that meets all your needs and wants than you are incredibly fortunate and should move forward on it.

Finally, you want to list out what you do not want in the property. This will help even further narrow down what you are looking for. This item might be a little more straight forward like not having an HOA or not being off a main street vein. As you look at houses, your checklist may change or adjust. Be sure to share all of this information with your agent that you are working with as they can guide you to different neighborhoods for your needs.

Step Three: Make your Offer

The last major step is to make your offer and go through the closing process. Your realtor will help you with this part by providing you comps of other similar houses. They will also start getting all the purchase contract information in order. The comps are going to be based on other houses in the neighborhood with similar configurations. It will take into account the bedrooms and bathrooms, square footage, and extra spaces like garages or basements. It will also consider any upgrades made to the properties. It is very important to try and get this as accurate as possible because it will be used to make your offer. 

You do not want to offer more than what you think the appraisal will come in at. If this happens, you may have to consider an appraisal gap. This is where you are responsible for the difference between the purchasing price and the appraisal value. In an ideal world, the house will always end up getting appraised for higher than the purchase price. However, it does not always work out like that and sometimes the house appraisal comes in at list price or below. That is why the quality and accuracy of the comps is crucial.

The contract to purchase document breaks down all contingency dates and when closing is expected to occur. Contingencies in this document refer to a clause in that purchase contract that specifies an action or requirement that must be met for the contract to become legally binding.  In this month of closing, you will go through the due diligence, inspection, appraisal, and further loan processing with the underwriter. I go over that in more detail in my post about the closing process and timeline.

In Conclusion

The three steps above are just a brief introduction of what you should do when you decide that you want to buy your first home. There is a lot more that goes into it, but the general idea is that you want to be pre-approved before you start searching, you want to be clear about your criteria for your house, and then the final offer to buy the house.

Leave a comment below to add one of the crucial things that you believe is needed when buying your first house or anything that stands out to you.