Now that you’ve decided to take the plunge, let’s explore what you can expect from the home buying process itself. This can be a chaotic time, with offers and counteroffers flying furiously, but if you are prepared for the hassle (and the paperwork), then you can get through the process with your sanity intact. Here is the basic progression that you can expect:
Find a REALTOR®
Finding a good, reliable REALTOR® who is a good fit will help remove stress from the process. Make sure that your Realtor is a good listener, well organized and has time to deal with your needs. Your Realtor is your guide to helping spot and avoid common problems and potential issues with properties. Also, your realtor will be able to assist you with connecting with the right team of industry professionals who you will need the services of along the way like lenders, inspectors, and the like. And your Realtor will be the liason in negotiating a deal between yourself and the seller of the property by submitting your offer properly and negotiating counteroffers.

Preapprovals and Choosing Lenders
Don’t be bound by loyalty to your current financial institution when seeking a pre-approval or searching for a mortgage: Shop around, even if you only qualify for one type of loan. Fees can be surprisingly varied. An FHA loan, for example, may have different fees depending on whether you’re applying for the loan through a local bank, credit union, mortgage banker, large bank, or mortgage broker. Mortgage interest rates—which, of course, have a major impact on the total price that you pay for your home—can also vary.
Once you’ve settled on a lender and applied, the lender will verify all of the financial information provided (checking credit scores, verifying employment information, calculating DTIs, etc.). The lender can pre-approve the borrower for a certain amount. Be aware that even if you have been pre-approved for a mortgage, your loan can fall through at the last minute if you do something to alter your credit score, such as finance a car purchase.
500
The minimum credit score to qualify for an FHA loan if you have 10% for a down payment. 580 is the minimum credit score to qualify with a 3.5% down payment.
Some authorities also recommend having a backup lender. Qualifying for a loan isn’t a guarantee that your loan eventually will be funded—underwriting guidelines can shift, lender risk analysis can change, and investor markets can alter. Clients may sign loan and escrow documents, then be notified 24 to 48 hours before the closing that the lender has frozen funding on their loan program. Having a second lender that has already qualified you for a mortgage gives you an alternate way to keep the process on, or close to, schedule.
Consider Your Financing Options, Then Secure Financing
First-time homebuyers have a wide variety of options to help them get into a home—both those available to any purchaser, including Federal Housing Authority (FHA)-backed mortgages and those geared especially to novices. Many first-time homebuyer programs offer minimum down payments as low as 3% to 5% (vs. the standard 20%), and a few require no down payment at all. Be sure to look into or consider:7
- HUD’s resource list. Although the government agency itself does not make grants directly to individuals, it does grant funds earmarked for first-time homebuyers to organizations with Internal Revenue Service (IRS) tax-exempt status. The FHA (and its loan program) is part of HUD.7
- Your IRA. Every first-time homebuyer can withdraw up to $10,000 out of their traditional individual retirement account (IRA) or Roth IRA without paying the 10% penalty for early withdrawal (but you’ll still pay taxes if you use a traditional IRA). That means a couple could withdraw a maximum of $20,000 ($10,000 from each account) to use toward a first-home purchase. Just know that if you don’t use the funds to pay for the home within 120 days—and if you’re under age 59½—then it becomes subject to the 10% penalty. Also, you will owe income taxes on the withdrawal(s).
- Your state’s programs. Many states, including Illinois, Ohio, and Washington, offer financial assistance with down payments and closing costs, as well as with expenses to rehab or improve a property, for first-time homebuyers who qualify.5910 Typically, eligibility in these programs is based on income and, often, on the size of a property’s purchase price.
- Native American options. Native American homebuyers can apply for a Section 184 loan.11 This loan requires a 1.5% loan upfront guarantee fee and a 2.25% down payment on loans over $50,000 (for loans below that amount, it’s 1.25%). Section 184 loans can be used only for single-family homes (one to four units) and primary residences.
Find a Home
Make sure to take advantage of all the available options for finding homes on the market, including using your real estate agent, searching for listings online, and driving around the neighborhoods that interest you in search of for sale signs. Put out some feelers with your friends, family, and business contacts. You never know where a good reference or lead on a home might come from.
Once you’re seriously shopping for a home, don’t walk into an open house without having an agent (or at least being prepared to throw out the name of someone with whom you’re supposedly working). You can see how it might not work in your best interest to start dealing with a seller’s agent before contacting one of your own.
If you’re on a budget, look for homes whose full potential has yet to be realized. Even if you can’t afford to replace the hideous wallpaper in the bathroom now, you may be willing to live with it for a while in exchange for getting into a place that you can afford. If the home meets your needs in terms of the big things that are difficult to change, such as location and size, then don’t let physical imperfections turn you away. First-time homebuyers should look for a house that they can add value to, as this ensures a bump in equity to help them up the property ladder.
Make an Offer
Your real estate agent will help you decide how much money you want to offer for the house, along with any conditions you want to ask for. Your agent will then present the offer to the seller’s agent; the seller will either accept your offer or issue a counteroffer. You can then accept, or continue to go back and forth until you either reach a deal or decide to call it quits.
Before submitting your offer, take another look at your budget. This time, factor in estimated closing costs (which can total anywhere from 2% to 5% of the purchase price), commuting costs, and any immediate repairs and mandatory appliances that you may need before you can move in.14 Think ahead. It’s easy to be ambushed by higher or unexpected utilities and other costs if you are moving from a rental to a larger home. For example, you might request energy bills from the past 12 months to get an idea of average monthly costs.
When you review your budget, don’t overlook hidden costs, such as the home inspection, home insurance, property taxes, and homeowner’s association fees.
If you reach an agreement, you’ll make a good faith deposit, and the process then transitions into escrow. Escrow is a short period of time (often about 30 days) during which the seller takes the house off the market with the contractual expectation that you will buy it—provided you don’t find any serious problems with it when you inspect it.
Have the Home Inspected
Even if the home that you plan to purchase appears to be flawless, there’s no substitute for having a trained professional do a home inspection of the property for the quality, safety, and overall condition of your potential new home. You don’t want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. If the home inspection reveals serious defects that the seller did not disclose, then you’ll generally be able to rescind your offer and get your deposit back. Alternatively, you can negotiate to have the seller make the repairs or discount the selling price.
Close—or Move on
If you’re able to work out a deal with the seller—or better yet, if the inspection didn’t reveal any significant problems—then you should be ready to close. Closing basically involves signing a ton of paperwork in a very short time period, while praying that nothing falls through at the last minute.
Things that you’ll be dealing with and paying for in the final stages of your purchase may include having the home appraised (mortgage companies require this to protect their interest in the house), doing a title search to make sure that no one other than the seller has a claim to the property, obtaining private mortgage insurance or a piggyback loan if your down payment is less than 20%, and completing mortgage paperwork. Other closing costs can include loan origination fees, title insurance, surveys, taxes, and credit report charges.