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10 Simple Steps to Purchase a Home in 2020

04/02/2020 Alena Savchenko

BUYING A HOME LOAN PROCESS

It’s one of the largest purchases you’ll ever make, and one that most people will only complete a few times in their entire life. It’s normal to feel intimidated and even confused by the home buying process. Whether you’re looking to buy your first home or haven’t bought a home in a long time and want a refresher, here are 10 simple steps that will get you through the home purchase process.

Step 1: Check Your Credit and Do Your Research

Though it’s possible to buy a home with cash, most homebuyers do so with the help of a mortgage. There are various types of mortgages available, with different interest rates, down payment amounts, and other terms to consider. Your FICO score will impact which types of loans you qualify for, so getting your credit into great shape is an investment that can offer great returns.

By law, you’re entitled to one free credit check per year, per reporting agency, so obtaining your current score should be the first step in the home buying process. With a credit score of 720 or more, you should easily qualify for a great mortgage rate, and a score of 620 should qualify you for an FHA mortgage.

Step 2: Determine Your Budget

Your home buying budget will be impacted by your household finances and the market you are searching in. Hopefully, you’ll be able to settle on an ideal home price range that gives you both a monthly payment you can afford, and lots of homes to choose from in your preferred neighborhoods. In order to determine your potential monthly payment amount, choose a few sample home listings you like, and run them through a customizable loan calculator.

Step 3: Get Pre-Approved for Your Mortgage

Once you have an idea of what you want (and what you can afford), it’s time to find a lender and get pre-approved. Going through the pre-approval process will ensure that you’re on the right track with your plans and will save you a lot of time and worry. Once you know your pre-approval limit, you won’t fall in love with a home only to realize that you can’t get the loan you need to buy it.

There are several steps involved in becoming pre-qualified or pre-approved, but it is a quick and easy process that your lender will guide you through. Getting this first step in the loan process completed before you start looking at homes will ensure that you are ready to make an offer (and succeed!) when you find your dream home. Plus, some sellers will only consider offers from buyers who are pre-approved, so it’s best to set yourself up for success with this easy move.

Step 4: Find the Right Real Estate Agent

The help and guidance provided by a real estate agent or REALTOR® can be priceless, particularly for first-time homebuyers or those searching in an unfamiliar area. From negotiation experience to neighborhood knowledge, the right agent can successfully guide you through one of the biggest purchases you will ever make.

An added bonus is that agents don’t cost the home buyer anything; they’re compensated mainly via a commission from the seller of the home. Despite the value that they can offer, it is not required that homebuyers use a real estate agent, and some buyers do choose to handle the process on their own. But be sure you’ve done your research before opting out of using an agent.

Step 5: Begin Looking at Homes

Now that you’ve done your research and prepared financially, it’s time to start the fun and exciting process of looking at homes.

More details: Real Estate in a Digital Age >

You will most likely start your house hunting process with a list of must-have features. Once you find several homes that pass the first test, it’s time to evaluate them individually. Here are two categories of deal-breaker (or negotiation-worthy) features to consider while searching.

Another common exclusion is “Acts of War,” which means that losses from events such as invasions, insurrections, riots, strikes, revolutions, military coups and terrorism would not be covered. Separate war risk protection can be obtained to cover damage from these events.

What to look for inside of a potential home:

  • Plumbing: Run the showers and sinks to observe the water pressure. You should also look under sinks and appliances for leak evidence, and don’t forget to check the age of the hot water heater.
  • HVAC: How old are the heating and air conditioning units? When was the last time they were serviced? Would you have to add ductwork or remove extensive old systems to install the features you want?
  • Exterior: What is the age, condition, and composition of the roof, siding, and windows? These are expensive items to replace, and unexpected issues like siding tear-off or the presence of asbestos can make them even more costly.
  • Electricity: Are there switches and light fixtures where you want them? Fixtures are easy to update, but running new electrical wiring in areas where it doesn’t yet exist can be a much bigger project.
  • Appliances: Are they included in the home sale? How old are they, and how well do they work? A set of new appliances for a home, even on the low end, can run $3,000 or more. Is Homeowners Insurance Legally Required?

What to look for near a potential home:

  • The Street: Is it noisy? What about on weekends or at rush hour? If you or your guests will need to park on the street, is there enough space available?
  • Your New Neighbors: How do the other homes on your potential block look? Are they updated and well maintained? Does the neighborhood seem safe and friendly?
  • The Location: How close is the home to your job, schools, shopping, public transportation, and other important places you will need to visit frequently?

Step 6: Make Your Offer

Once you’ve found a house with the location and features you want, it’s time to make an offer. Each home and market are different, but your agent should be able to guide you toward a reasonable offer. Not all offers are accepted on the first go-around — the seller may counter, and you may counter again in return. Once you’ve mutually agreed upon a price, you and the seller will be under contract, also known as being in escrow.

To learn more about escrow accounts, read our article: The Role of Escrow Accounts in Real Estate Transactions.

Step 7: Schedule a Home Inspection (and Other Tests)

The escrow period is a time for you to get more information on your potential new home, including consulting with various experts. The first thing that most homebuyers do is to schedule a home inspection. During an inspection, nearly all features and systems of your home will be checked and evaluated, with both the homebuyer and seller receiving a report on the home inspector’s findings. The results of these findings can trigger additional negotiations, especially if repairs or updates are needed.

View more: Cost vs. Value Report 2020 >

Step 8: Lock in a Rate & Term with Your Lender

Most homebuyers have multiple options to compare when they’re shopping for a mortgage. Whether your priority is a low down payment, a great interest rate, or a particular loan term, your lender should be able to explain the different home loan choices available to you, and how each one impacts your monthly budget and long-term financial goals.

Step 9: Get Your Home Appraised

You have already negotiated a price with the seller, and completed an inspection, so why do you now need an appraisal? This step of the purchase process can confuse buyers, but it’s essential to protect both you and your lender’s investment. An appraiser uses data from comparable property sales, as well as key features of the house you’re looking to buy in order to come up with a value for your potential home.

Because the appraiser is a member of a third-party company (not directly associated with you, the seller, or the lender), their opinion of your home’s value is accurate and neutral. This ensures that you are not paying too much, and that your lender is not lending you more than a home is actually worth.

Step 10: Nail Your Paperwork and Close the Sale

Once you have fulfilled all of your lender’s documentation requests, it’s time to close escrow on your loan. The actual paperwork that you need to complete and sign will vary based on your loan type and even the location of your home, but closing is typically a straightforward process that your lender, agent, and title company will guide you through. Typically, you will walk out of the closing with the keys to your new home, stepping into an exciting new chapter of your life.

Get Started on the Path to Your Dream Home Today

Now that the process has been broken down, it’s easy to see that buying a home is a fairly straightforward (AND fun, exciting, and fulfilling) experience. No matter which step you’re on, working with a PennyMac Loan Officer or getting started online is a great way to make your homeownership dream a reality.

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