“Your Ultimate Guide to Buying a House: Key Steps and Tips”

Steps to Buying a House: A Comprehensive Guide

Buying a house is a significant milestone and can be an intimidating process, especially for first-time homebuyers. From preparing your finances to securing a mortgage, there are numerous steps involved, and not all of them are straightforward. At O1ne Mortgage, we understand the complexities of this journey and are here to guide you every step of the way. Call us at 213-732-3074 for any mortgage service needs.

Determine if Buying a House Makes Sense Right Now

Purchasing a home typically requires a substantial upfront investment in the form of a down payment and closing costs. The stronger your financial health, the more likely you are to get approved for a mortgage. Here are some questions to help you determine if you’re ready to buy a home:

Do you have a solid emergency fund? Financial experts recommend having three to six months’ worth of expenses on hand. These cash reserves can provide a safety net in case of job loss or other unexpected expenses.
Do you have the funds to buy a home? This includes an adequate down payment, as well as funds to cover closing costs and moving expenses. If your budget is already stretched thin, you might want to wait to buy a house.
Is your credit in order? Buying a house with bad credit is possible, but you may have a harder time getting approved for a mortgage. Some lenders may charge you a higher interest rate or require a cosigner.

Calculate How Much Home You Can Afford

It’s essential to determine how much home you can afford before you start house hunting. A general rule of thumb is to keep your housing expenses at or below 28% of your gross monthly income. Housing expenses can include:

The mortgage payment, which covers loan principal and interest
Property taxes
Homeowners insurance
Mortgage insurance
Homeowners association fees
Home maintenance costs like lawn care and pool care

Your loan amount, term length, and interest rate will all affect your monthly mortgage payment. A 30-year mortgage will have a lower payment than a 15-year mortgage because the loan balance is spread out over a longer period. However, a longer term means you’ll pay more in interest over the life of the loan. Homebuyers can estimate their monthly mortgage payment with a free mortgage calculator.

Save Your Down Payment

Your down payment is the amount you pay upfront for your home, and you finance the rest with a mortgage. While putting down 20% is often recommended, it’s not a requirement for buying a house. A larger down payment provides homebuyers with a good chunk of equity and allows them to avoid mortgage insurance, which is typically required for those with less than 20% in home equity. However, saving up a 20% down payment can be a significant barrier for many homebuyers. The median down payment in 2021 was 13%, and you can be approved with a down payment of 3% to 5% of the home’s sale price.

Don’t Forget About Closing Costs

Closing costs represent the money you’ll owe when finalizing your home sale. These costs can include:

Loan fees
Taxes
Appraisal fees
Title search fees
Title insurance premiums
Money to fund an escrow account
Real estate attorney’s fees

Closing costs generally range from 2% to 5% of the home’s purchase price and are usually paid upfront. Some closing costs are negotiable.

Prepare Your Credit

You’ll likely need a minimum credit score of 500 to 700 to get approved for a mortgage, though it varies by loan type and lender. Here are some steps to help you get your credit ready for a mortgage application:

Check your credit reports and scores. Pay extra attention to charge-offs, past-due accounts, and accounts in collections as these could affect your ability to get a mortgage.
Pay your bills on time. Your payment history carries the most weight when it comes to your FICO® Score, and a single late payment can stay on your credit report for seven years.
Pay down debt. Mortgage lenders will evaluate your debt-to-income ratio (DTI), which shows how much of your income is going toward debt payments. The more debt you eliminate, the better this number will be.
Stop applying for credit. New credit applications will likely trigger a hard inquiry, which can temporarily decrease your credit score. If possible, wait to apply for other types of credit until after you are approved for a mortgage.
Limit big purchases. High credit balances can also impact your credit score as well as your DTI. It’s wise to hold off on buying big-ticket items until after you buy a home.

Get Preapproved for a Mortgage

The mortgage preapproval process is the same as applying for a mortgage. The lender will review your personal information, credit history, income, employment history, debts, and tax returns. They will then issue a preapproval letter that summarizes your expected loan amount, term, and interest rate. A preapproval letter, which clarifies how much home you can afford, is typically good for 90 days. With that letter in hand, you can go to open houses and make an offer if you find something you like. You’ll then need to undergo the formal mortgage application process.

Find an Experienced Real Estate Agent

Finding a real estate agent is one of the most important steps to buying a house. You want someone who’s experienced and understands your local market. The right real estate agent can:

Search for properties that meet your specifications
Schedule home tours
Put in an offer and negotiate on your behalf
Handle the paperwork for your home sale
Ensure that you have access to necessary seller disclosures

Real estate agent fees, which are paid by the seller, are usually around 5% or 6% of the home price.

Arrange a Home Inspection

After finding a home and making an offer, the next step is arranging a home inspection. A home inspection, which typically costs a few hundred dollars, looks for any potential problems that may affect the home sale or present issues you’d rather not deal with. The inspector will go through all of the home’s major components, including:

Heating and cooling systems
Plumbing systems
Electrical systems
Roofing
Foundation
Attic and basement
Ceilings and floors
Doors and windows

The inspection report may prompt you to negotiate with the seller to make repairs or lower the sale price.

Manage Your New Mortgage

After closing on your home and moving into your new space, it’s crucial to make all your loan payments on time to avoid foreclosure. This is when the lender repossesses the property, and the owner is evicted. You’ll also want to keep up on your homeowners insurance premiums and property taxes. Most mortgage lenders roll these expenses into your monthly mortgage payment and hold them in an escrow account. When these bills come due, they’ll pay them on your behalf.

You can also look for ways to save money on your mortgage later down the road. That might include:

Refinancing your mortgage
Making an extra payment every year
Ending your private mortgage insurance early

The Bottom Line

Buying a house is a significant financial decision and is often associated with the American Dream. While the process can be stressful, knowing what to expect can help you prepare for what’s ahead. Your credit history plays a critical role in getting approved for a mortgage. Free credit monitoring with Experian notifies you whenever there’s a change on your credit report, helping you identify fraud more quickly so you can protect your credit.

At O1ne Mortgage, we are committed to helping you navigate the home buying process with ease. For any mortgage service needs, call us at 213-732-3074. Let us help you achieve your dream of homeownership.