If you’ve decided it’s the right time to buy a home, congratulations! Now what? Before you start to seriously look at houses to buy, there are some steps you can take to make sure you’re in a good position to purchase a home. This lesson will give you an overview of the homebuying process and some things to start thinking about.

Brief Overview of the Home Purchase Process

If you’ve never purchased a home before, you may not know what to expect. Knowing what it entails will help you prepare for what’s ahead and can help guide your decisions along the way. 

Step 1: Select a Lone Star Luxury Real Estate Agent

A Lone Star Luxury Real Estate Agent will work on your behalf to find a home that meets your needs and will guide you through the homebuying process. Buying a home requires a different skill set than selling one. This being the biggest financial investment you have likely made, having a professional to show you the ropes is the most advisable way to go. As a buyer in the market you do not pay to use a buyer’s agent, it is part of the the seller’s marketing fund to pay buyer’s Agents.

Step 2: Look at your finances and apply for a mortgage.

Look at your finances and determine if you are financially ready. Your savings should allow for a down payment for an FHA or Conventional Loan, as well as possible home repairs, improvements, furniture and/or improvements you may want to perform right away. Your credit should be decent to great, preferably at least a credit score of 620 or higher. When applying for VA, FHA or USDA, the loans are heavy on your tax returns, so make sure the last couple years of your taxes are good and you are showing good debt to income ratios. Reach out to your Lone Star Luxury Agent to find a great lender or if you have a Lender already then make sure to ask them or us about any of these financing details.

Reach out to Lone Star Luxury Agents to get Lender options for pre-approval or to get pre-qualified. We have been through a lot of Lenders and we only recommend the ones with a proven past of getting things done and not waiting until we are in the middle of a transaction to let us know there is a problem. As long as you are honest about your finances, there is little chance that surprises will occur.
Pre-Qualification is an estimate from the Lender on how much home you can afford based on basic information that you provide on your loan application. While pre-qualification will give you a good idea of which homes to focus on, pre-approval is better because it is more official.
For Pre-Approval, you provide the lender with financial documents and information in order to get your loan approved in advance. This will give you greater purchasing power when making an offer on a home because the seller will be confident that you have secured your loan.

Estimate What You Can Afford

Now that you’ve gotten an overview of the process, let’s get into some specifics. At this point, you probably don’t know exactly how much money a lender will approve for your mortgage. However, you can start thinking about the initial down payment amount as well as the ongoing monthly mortgage payment you are comfortable with. Keep in mind that affordability is different for everyone. That’s why it’s important to figure out your range for what you feel comfortable spending based on your financial situation. Using an affordability calculator is a good place to start. Also consider your income. Are you self-employed? Full-time or part-time? Commission-based? It’s important to think about whether your income tends to fluctuate or is steady and reliable.

Use this calculator(opens in a new tab) to determine how much you can afford.

Step 3: Search for a Home

Make a list of your needs and preferences and share it with your Lone Star Luxury Agent. Things to consider include size, location, proximity to schools, commute to work, access to major roads, parks, gyms, and other activities you participate in; and of course working with a Lender they will let you know the price range you qualify for and an estimate of your payment. Your Lone Star Luxury Agent will set up up a search using your criteria and this will notify us the minute a new listing comes available, along with providing you an accurate list of the current available properties. The properties that interest you the most we will get inside of them to take a look and see if the place looks as good as the pictures in person, or if the place looks even better than the pictures.

Think About Location

What matters most to you when deciding where to live? For example, do you want to be near parks, shopping, schools, restaurants, work, or public transportation? Location impacts cost, so it’s a good idea to look in a few neighborhoods so that you can get a better idea of what you can afford. Location can affect not only cost, but also the resale value of the home.

Think About Type of Home

Whether you choose a single-family home, condo, townhome, or manufactured home, the type of home you decide on will come down to your wants, needs, and price point. Keep in mind that some types of housing have extra fees, such as condo fees or a Homeowners Association (HOA) fee, which you’ll be required to pay.  Those fees may cover the cost of general community maintenance or amenities such as a pool. 

Step 4: We Make an Offer, Negotiate, Inspect, Re-Negotiate

Once we have found the right home your Lone Star Luxury Agent will write up an offer, determine an offer price and terms, have you sign the offer, then submit the offer and start the negotiations. Seller will either sign off on offer or counter. We will do what we do best, which is get our clients the best price and the best terms through experienced negotiation strategies. This always depends on the temperature of the market and the condition of the home compared to their list price. Unless we are in a 2022 style market, or the home is really underpriced and has multiple offers on it; there will typically be an option period in which we will take a much closer look at the home and you will have the option to get a full home inspection. If there are any surprises listed on the inspection that are not already listed on their seller’s disclosure, we will renegotiate, or we can cancel the contract. During this option period as a buyer you have the right to cancel the contract for any reason, even if you have a bad dream. The option period is typically a small fee like $100-$250 to take around 3-9 days to get a much closer look at the property.

Step 5: Secure Mortgage and Close on Home

Work with your mortgage Lender to finalize the mortgage loan for your home. Your Lender will guide you through the specific documents and information needed to create the loan file. They will order any required credit check, appraisal, and title work; and they will review all your income and asset documents to ensure they fulfill the loan guidelines. During this process it is important not to do anything with your finances, do not open new accounts, do not spend on any thing that is not necessary and don’t even pay anything off unless your Lender asks you to. When we are ready to close on your home, you will go the title company, which is an agency that facilitates the closing and ensures the transfer of ownership is completed and recorded properly. Here you will sign the paperwork and finalize the purchase. At the Closing you will bring your ID, pay any thing that is due to close it, get your keys to the house once it funds and you are now a home owner. Move on in!

If you are thinking that the down payment will most likely be your biggest expense when purchasing a house, you are probably right if you are using a conventional loan. However, FHA is only 3.5% down and VA and USDA loans are 0% down. You’ll want to plan for other homebuying expenses so you’re better prepared. Let’s take a look.

Other Homebuying Expenses To Consider

Closing Costs

Closing costs include the various fees involved when buying a home and obtaining a mortgage loan. A Lone Star Luxury Agent can get closing costs negotiated to be paid by a seller or a builder depending on the type of loan and terms. Closing costs may include fees for the loan application, title costs, settlement fees, property taxes, recording costs, and lender fees. It also involves upfront expenses like homeowners insurance, mortgage insurance, and an initial escrow account for future insurance and property tax payments. Be mindful that these fees can vary state by state.

The total of these expenses may average between two percent and five percent of the home purchase price, and in some cases the seller or the builder could pay for a portion or all of these closing costs. 

What’s the difference between homeowners insurance and mortgage insurance?

Homeowners Insurance Covers a home’s structure and the personal belongings inside in the event of loss or theft; helps pay for repairs and replacement.

Mortgage Insurance Protects the lender in case you stop paying your home loan, and it’s typically paid along with your monthly mortgage payment. If your down payment is less than 20 percent of the home purchase price, you may need to get mortgage insurance.

When you apply for a mortgage, within three business days the lender will send you a Loan Estimate that details the anticipated closing costs, including which ones you can shop for yourself. The Consumer Financial Protection Bureau (CFPB) recommends that you obtain Loan Estimates from different lenders so you can compare and choose the loan that is right for you.

Other Expenses

In addition to closing costs, here are a few more homebuying expenses to consider.

Moving Costs

Once you’re ready to move into your new home, you may need to hire people to move your furniture and household items. Even if you have friends or family to help, you may still need to account for the cost of a moving truck. 

Also consider materials like boxes and bubble wrap for packing your belongings. If your move-out date happens before your move-in date, you may need to rent storage space and possibly find temporary housing, which could mean paying for two places for a while. 

You may choose to change the locks on your new home. If so, you’ll need to consider the costs of a locksmith.

Utility Hookups

Setting up your new household requires getting connected to a lot of services. Be prepared for initial setup costs such as gas, electric, internet, cable TV, and public utilities (e.g., water and sewer fees, as well as disposal costs for trash and recycling). Sometimes, you may need to pay hefty installation fees for internet/cable connections. Gas and electric companies often require initial deposits. 

Common utilities to set up:

• Internet, phone, and cable 
• Water and sewage
• Garbage collection
• Electric 
• Gas

Furniture

In most cases, buying a home means you’ll have more space to fill. While this is a positive change, it can also be expensive. So, it’s good to put aside some money for home furnishings. While you don’t need to furnish your entire home all at once, consider some basic items you will need. Avoid impulse purchases and take the time to shop for good deals.

Home Improvements

One of the best things about owning your home is that you can make changes that suit your tastes and preferences. You may or may not be able to negotiate making the seller address or at least cover the expense of certain repairs and upgrades. If you prefer a fresh coat of paint on some walls, want to redo carpeting, change light fixtures, or make larger improvements when you first move in, consider planning for these costs ahead of time.

Resources

Savings Calculator
Use this calculator to determine how much you need to save to reach your down payment savings goal. VIEW CALCULATOR(OPENS IN A NEW TAB)

Mortgage Calculator
This calculator can help you figure out an estimate for monthly mortgage payments based on factors like home price, loan terms, and how much you put down. VIEW CALCULATOR(OPENS IN A NEW TAB)

CFPB Spending Tracker
The Consumer Financial Protection Bureau (CFPB) provides this helpful spending worksheet. VIEW WORKSHEET(OPENS IN A NEW TAB)

CFPB Income Benefits Tracker
This tracker from the Consumer Financial Protection Bureau (CFPB) provides a total picture of your income and benefits to help you plan when to pay your expenses. VIEW TRACKER(OPENS IN A NEW TAB)

Homebuying Glossary
This glossary contains common terms often used in the homebuying process and their definitions. VIEW GLOSSARY(OPENS IN A NEW TAB)

HUD-Approved Housing Counseling Agencies
This website lets you search for HUD (U.S. Department of Housing and Urban Development) approved agencies by zip code. FIND A COUNSELOR(OPENS IN A NEW TAB)

Down Payment Assistance Resources
Use this website to find resources to help with your down payment. FIND RESOURCES

More First Time Home Buyer Info:

+ Rent or Buy.
+ Shopping with a Lone Star Luxury Agent.
+ Finding a Lender.
+ Understanding Debt.
+ Credit Score.
+ Understanding the Mortgage Loan Process.
+ Basic Types of Mortgage Loans and Terms.
+ Looking at Types of Homes.
+ Submit a Home Offer, Get an Inspection.
+ Closing your Loan.
+ Welcome to Homeownership.