Are you ready to take the leap from renter to official homeowner? The home buying experience can seem overwhelming at a first glance and sometimes even confusing. However, as a buyer, searching and buying for a house should be an exciting time — after all, it signifies a new chapter in your life.
At Bungalo we’re striving to help home buyers streamline their process through our all-in-one home buying platform. Our Bungalo team is comprised of dedicated experts who inspect and renovate each home to make sure it meets your needs and standards.
Just as we guide users through each step from searching to financing to closing, we also hope to help inform and prepare potential buyers for each step to buying a home. Read on and discover what you need to start your journey as a soon-to-be homeowner.
Is now the time to buy real estate?
As most real estate agents will point out, your home buying experience will depend mostly on when you choose to start your search for a new home. Housing market conditions will always have a big impact on prices, the number of houses on the market and other real estate factors.
With all of that in consideration, is 2021 a good time to buy a house?
The answer depends on your personal home goals for the year.
According to Newsweek, mortgage rates are historically low, which is beneficial for new homeowners who want to apply for a mortgage. However, the current demand for housing keeps increasing, which is driving up home prices in most areas. This probably means that consumer price inflation is not going to return to a normal rate in the immediate future, especially as COVID-19 adds pressure and uncertainty to the market.
Due to the high demand for houses, first-time home buyers will also have increased competition from cash buyers and quicker turnaround as homes leave the market almost as fast as they enter it. This will mean that new home buyers will need to know exactly what they want and what they don’t want, to make faster decisions before their potential dream home is sold to someone else. To improve the odds of homebuying, a buyer will probably also have to be open to submitting multiple offers just to stand a chance in a high-demand, low-supply housing market.
Yet homebuyers shouldn’t despair. As mentioned previously, mortgage rates are historically low, as are interest rates. This can be extremely beneficial to new home buyers, as it can allow them to increase their potential budget for buying a house with a low-interest loan from a trusted lender. Then, with a wider price range available, buyers will have improved options in their search.
A first-time buyer also has the option to get additional financial help from state programs, tax breaks and federally backed loans. If you and/or your family qualify as first-time homebuyers, as defined by the Department of Housing and Urban Development, make sure to visit their website to learn more about your financing options.
If soon-to-be homeowners stay within their search budgets and are approved for their preferred financing option, the investment can be incredibly worthwhile as the property grows in value over time.
Remember: If you’ve saved and prepared for buying a home, the housing market will affect your search, but it shouldn’t derail your plans. If you’re ready to buy a home, then now is the time to do so.
8 steps you can expect as a home buyer
The best way to prepare to buy a house is to make sure you have a deep understanding of each step that leads up to closing on your future home. This means you’ll need to do some research.
Learn and follow our recommended steps to streamline your home buying experience:
1. Determine if you’re ready to buy a home
This might seem like an obvious step, but it’s surprisingly one of the most important factors to consider before you start searching for a new home.
To determine if you’re ready to buy a home, potential buyers need to look beyond whether they want to own a home and take the time to consider all of the finances that will be needed to become a homeowner. Here are the top questions to ask yourself:
Will your financial health (income, employment status, credit score, etc.) enable you to buy a home?
Steady employment and income are critical if you are seeking financing. Lenders will need documentation that not only proves you have enough money, but also that you have a reliable work history and consistent source of income. If you’ve worked steadily for the past two years, then you’ll probably be asked to show your recent pay stubs and W-2s.
Meanwhile, you should also verify that your credit score is good. Your eligibility for a home loan will mainly depend on this factor. In fact, Rocket Mortgage recommended that potential homebuyers have a minimum credit score of 620, as that is the least you can have to be approved for the majority of loans. Not only will your credit score affect whether you can qualify for a loan, but it will also determine your interest rate. The better your credit report, the lower your interest rate will be.
If you don’t have a great credit score, you’ll most likely need to spend time improving your credit before you start the process of buying a new home.
Can you commit to a 30-year mortgage?
Buying a new home isn’t just a major financial investment — it’s also a major time investment.
Not all mortgages are 30-year-long commitments. But the majority are long-term, multi-year financial obligations. If you can’t see yourself spending the next few years (possibly decades) in the same house, it might not be the right time for you to buy a home. Once you purchase a home, you’ll have much less flexibility when it comes to moving, unless you’re in the market for a second home or looking to sell this one.
Depending on your financial situation, career goals and family obligations, take some time to determine whether you’re ready to make such a long-term decision. The choices you make based on these factors will also help you narrow down where and when you want to buy a house in the future.
2. Save for the buying process
Affording a new home takes a large chunk of savings, so make sure you understand any and all additional expenses that may pop up during the home buying process.
The largest portion of your savings will probably go to the one-time down payment to the lender. Common home buying rhetoric tells new buyers that the standard down payment is about 20% of the total cost of the home. However, that’s not the case for many — especially first-time buyers.
Depending on the first-time home buyer program or loan type that you choose, your down payment could potentially be as low as 3% to 5%. If you’re interested in exploring additional down payments and financing options, consider this resource list as provided by Investopedia:
- Department of Housing and Urban Development’s resource list
- Your IRA’s options
- Local and state programs
- Indigenous loan options
However, it can also be beneficial to choose to make a larger down payment if it’s within your budget. This can increase your mortgage options so that you can acquire the right home loan for your financial situation.
If you need help breaking down your down payment options, check out our step-by-step guide here.
Closing costs are additional fees that are due alongside the property’s agreed-upon purchase price. Generally, experts recommend that potential buyers save for closing costs within 3% to 6% of your purchase price. So if your potential new home costs $200,000, you’ll want to save between $6,000 to $12,000.
Closing costs must be agreed upon by both parties, so you shouldn’t be blindsided once you start the buying process. Additionally, your costs will always be unique to the loan type and/or lender that you choose. Once you and your lender come to an agreement, they will provide you with a closing disclosure document, which will outline exactly what your closing costs will be.
Don’t forget to save for any other surprise expenses that may come up as you begin the home buying process. For example, some loans require that you pay for the house to have additional inspections for pests or defects before closing. These last-minute fees should be included in your budget as you begin the search for your new home.
3. Get preapproval for a mortgage
Once you have your budget and have evaluated your savings, it’s the perfect time to get a mortgage preapproval.
This is when serious home buyers will stand out against the crowded housing market. If you start your search already preapproved for a mortgage, sellers will be more likely to seriously consider your offer as you’ve proven your financial commitment.
There are many types of loans to look into when you’re shopping for mortgage preapproval, including:
- Conventional loan
- FHA loan
- VA loan
- USDA loan
Depending on your individual financial situation, you’ll want to choose a lender that will get you the best deal and loan estimate based on your credit, assets and income.
Once you’ve chosen your lender and loan type, the process to get preapproved is straightforward. Each mortgage broker will typically ask you questions regarding your income and assets, and run a credit check. This credit check does appear as a “hard inquiry,” which can hurt your credit score in the short term. Due to this, it’s important that potential buyers only apply for preapprovals when they’re officially ready to start searching for a home.
If preapproved, you will receive a preapproval letter that verifies how big a loan you’re potentially eligible for. This process can take anywhere from one to 10 days and each lender should be able to give you a clear timeline for the preapproval.
If you’re working with a real estate agent, be sure to show them your preapproval letter so that they will help you find homes that fit your budget.
Important reminder: Preapproval letters do have expiration dates. If you don’t progress to the next step (final mortgage approval), you will need to apply for a renewal or seek a new preapproval. Each lender will have their own expiration dates, so reach out to them and verify exactly how long your preapproval letter is valid.
4. Find and choose how you want to search and buy
Your first instinct may be to start searching for a real estate agent. But with Bungalo’s simple and transparent process, you can find, tour and buy a home without using an agent. Instead, our experts work with you throughout the buying process to ensure a simple and direct experience. You can also still choose to go with a real estate agent.
If you start looking for a real estate agent, you’ll probably start seeing online advertisements and front yard signs for potential agents everywhere. However, your best bet is to ask people you personally know for advice. If you have family or friends who’ve recently purchased a home or know an experienced real estate agent, that’s the best place to start.
If you can’t find any personal recommendations, you can also ask your lender if they’re affiliated with real estate agents who can help you with your home search. The best practice is to reach out to two to three real estate agents and then narrow down and pick the best one for you.
Once you have your options, ask them for references. Speaking with past clients will truly show which agent is best for your search.
Finally, if you’ve followed the above tips, don’t forget to trust your instincts. Your real estate agent is your guide through the entire home buying process. They will help you find available homes, choose appropriate offer amounts and finally buy your new home. Don’t commit to an agent just because they’re the easiest or quickest option.
5. Start searching for your new home
You’ve decided you want to buy a home, you’ve saved, chosen your financing options and found a real estate agent. Now, it’s time to start searching for potential homes.
You should plan to answer the following questions to narrow down your search:
- Where do you want to live? (A specific area, neighborhoods, etc.)
- What kind of home are you looking for? Do you have set expectations for the number of bedrooms and bathrooms?
- Do you have any deal-breakers? (Must be in a good school zone, must have a large backyard, etc.)
- What is your budget? Is there flexibility?
To get started searching for your future home, check online listings and drive through ideal neighborhoods to see houses for sale. Don’t forget to also let your friends and family know what you’re looking for — they can help find options, too.
Once you have your initial list of homes, you can then start going to open houses (preferably with your agent, if using one) and viewing potential properties.
6. Find a home and make an offer
When you’ve found a home that fits your most important deciding criteria, it’s time to make an offer. In the current fast-paced housing market, there are more buyers than sellers, which means you’ll probably make more than one offer during your home buying journey.
In the traditional process of making an offer, offers must be submitted to the home sellers in writing as a letter. Your letter must include:
- Your full name
- Current address
- Your payment offer
- A deadline
The deadline in your offer letter refers to the date when the seller must either accept or reject your offer by. In most cases, your real estate agent will write the letter on your behalf and will then submit it to the seller.
This offer letter usually also requires an earnest money deposit, which is about 1% to 2% of the home’s purchase price. The earnest money deposit is a sign of your commitment to the property and will be added to your down payment and closing costs if your offer is accepted by the seller.
You should also include home inspection and home appraisal contingencies in your offer letter and negotiations. These contingencies will protect you if it’s revealed that the home needs major repairs or is worth less than your offer.
However, Bungalo has streamlined this process to make it as easy as possible: simply click “make an offer” on the home listing page on our website.
In the standard process, the seller will either accept your offer, reject it or give you a counteroffer. If the seller gives a counteroffer, you will have to go through every detail of the changed offer, such as the purchase price or terms of the sale, and begin negotiations. That’s why Bungalo’s service includes no-hassle offers — you won’t have to deal with counter offers with any Bungalo home listings.
Buying a home is a huge investment and you shouldn’t make any rash decisions if you feel doubts regarding the price, terms or house’s condition. Walking away is a natural part of finding your right home, so don’t feel pressured to commit if it doesn’t feel right.
On the other hand, if your offer is accepted or all counteroffer negotiations are agreed upon, you can proceed to the next step.
7. Secure a home inspection and a home appraisal
You should always schedule a home inspection once your offer is accepted for a house. The house may have looked perfect during your walkthrough, but an expert will know exactly what to look for in terms of damage or potential issues in your future home.
Most accepted home offers include a contingency where buyers can back out of a purchase — or negotiate repairs — if the home inspection highlights major issues with the house.
This is why every home on our platform has been Bungalo Certified so that new homeowners feel comfortable knowing that their home not only meets but exceeds their standards. Our dedicated team of experts inspects every inch of each home and certifies that they’re in good condition, including HVAC and electrical. In fact, we even offer 90-day post-close protection, meaning we’ll cover anything that doesn’t meet our Bungalo Certified standards for 90 days.*
When the home has been fully inspected, you can then schedule a home appraisal. Mortgage lenders require that you have a home appraisal to identify the property’s current value. Only after the appraisal has been completed will you be able to secure your loan to purchase the house.
However, a potential issue is if the home’s appraised value is less than what you offered to the seller. If that is the case, you will not be able to secure your home loan as lenders can’t give more than what your home is worth. This is a major reason why you should include an appraisal contingency in your offer.
If both the inspection and appraisal go smoothly, you can move forward with the step: closing on your new home.
8. Close on your new home
Closing is the final — and quickest — step in your home buying journey. At this point, your mortgage lender will provide you with a closing disclosure document, which will explain exactly how much you need to pay and each detail of your loan.
After going through the disclosure, you’ll have a closing meeting to officially pay your down payment, closing costs and sign the mortgage note.
Once this meeting is done, you’ll have officially bought a house and become a homeowner.
Common missteps to buying a house
Now that you understand all of the steps you need to take to successfully buy a house, it’s time to also consider the steps you should avoid when buying a house.
Buying a home can be a complicated and emotional process, which can pressure you to rush through it. Here are some mistakes to avoid:
Not saving enough money for a down payment
Although it’s a myth that you should put down a 20% down payment by default, it’s still important that you save as much as you can to pay as much upfront as possible.
As previously stated, the larger the down payment, the smaller the mortgage loan. If you can afford a larger mortgage, you’ll be able to save on interest in the long term.
Not getting a mortgage preapproval
Getting preapproved for a mortgage shows sellers that you are invested in purchasing a new home. It’s a sign of commitment that will make you stand out from other buyers and their offers.
If you attempt to make an offer without a mortgage preapproval, you may seem less serious to sellers, and in an already crowded market, you’ll be far less successful in your home buying journey.
Buying outside of your budget
A dream home can quickly become a nightmare if you’re not able to keep up with your monthly mortgage payment. If you end up in a position where you can’t pay your mortgage, you’ll most likely have to end up selling your home or risk majorly harming your credit score.
If you plan out your budget beforehand and stick to it, you’ll be able to avoid this difficult situation and enjoy your new home purchase.
How long will it take you to go from buyer to homeowner?
The answer to this question is unique to each homeowner. Consistently, once you reach the closing step of buying a home, the process suddenly speeds up and you can find yourself a homeowner after a one- or two-hour meeting on your closing date. For an all-in-one timeline for first-time home buyers, check out our article here.
However, the process of saving for a home, finding a real estate agent and then making offers on potential homes vary widely. The best advice is not to rush through the steps to buying a house.
Buy your future home with Bungalo
Now that you’ve done your research and understand what’s needed to become a homeowner, it’s the perfect time to take complete control of the home buying process with Bungalo Direct. Through our platform, users are guided through every step of buying a home, whether you choose to search by yourself or with a real estate agent, we’ll work with you. Discover how we can help you close on your future home here.
The fact is that buying a home shouldn’t have to be stressful or complicated. Our interactive platform allows potential buyers access to convenient self tours, transparent pricing and pre-inspected homes. Learn more about our all-in-one service to help you smoothly transition from buyer to owner.
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.
*Some limitations apply. See full list of Covered Items.