Your Complete Guide To Purchasing A New Home

April 29, 2019 | by BMI Staff

Purchasing your first home is almost a rite of passage directly into adulthood. Suddenly, all of the responsibility of being an independent homeowner is on your shoulders. Gone are the days of landlord assistance and late-night maintenance phone calls when something isn’t working correctly. On the flip-side, however, mortgage payments are often more cost-effective than rental payments, and tying a piece of property to your name will boost your credit and your equity. Purchasing your first home is undoubtedly a stressful time, but the feeling of accomplishment once the deal is closed will be well worth it, right? Well, that’s why we’re here—to make sure you check all the necessary boxes before putting pen to paper. This complete guide to purchasing your first home aims to take some of the pressure off of you, while giving you proactive and manageable steps to take on this home-buying journey.  

Step One: Make sure this is the right time for you to buy.
Notice the emphasis in this first step. Regardless of the market, the pressure from parents or peers, or really any external factors, take some time to thoughtfully consider whether this is the right time for you, and only you, to buy a home. The fact of the matter is, it’s a lot of work. The financial gain may not exceed the financial strain. And bad investments are common, especially for those who rush into the decision. Before making this life-altering decision, ask yourself the following questions:

How is my credit score looking?
This one number will play a major role on your loan approval as well as your interest rates.

How secure do I feel in my job?
The only way a bank will approve your loan is if you can prove a steady income for an extended period of time. 
If you switch jobs frequently or have gaps in your employment history, the odds are not in your favor. Additionally, if you feel the slightest bit on edge about your employment status, the worst thing that could happen is losing that income source after the deal has closed. 

How much money could I spare for a down payment?
If you don’t already have a savings account, consider making this your first step. Most mortgage lenders will require a down payment as a sign that you are financially secure enough to take on this responsibility. The bigger the chunk, the lower your payments will be. The ideal down payment for a home purchase is 20% of the overall cost. While this is rarely a requirement, it will help you secure the best interest rates while lowering your payments. 

Step Two: Make your wish list.
Now that you’ve ensured your credit, career, and savings are all in order, it’s time for the fun part. Make a list of absolutely everything you couldn’t live without in your first home. This will be your needs list. Common needs include a certain number of bedrooms and bathrooms, a preferred school district, a garage or finished basement, and the number of home improvements you can withstand. The next wish list will be comprised of your wants. While the first list is stuff you won’t waiver on, the wants list will have a bit more wiggle room. Examples of wants include extra rooms like a library or sunroom, a house on a hill with a view, or a wood-burning fire place. You may really enjoy having these items, but you would still be comfortable without them. It is imperative to ask yourself these questions prior to shopping. House hunting is like grocery shopping. If you go without a list, you’re likely to forget something of value. Additionally, if you begin without determining the importance of each item on your list, you might be swayed into a decision you’ll later regret. 

Step Three: Learn about the different mortgage types.
Of the most common mortgage types, there are fixed-rate mortgages and adjustable-rate mortgages (ARM). The first type is the most common and least confusing option, as it is the more straight-forward of the two. With a fixed-rate mortgage, your interest rate will remain the same throughout the duration of the loan period. This means that your monthly payment will not change, despite market fluctuations. On the flip side of that is the ARM, which does reflect market changes. When choosing an ARM, there is a potential for either a raise or decrease in the amount you will pay.  

Once you decide on a mortgage type, there is another decision to be madethe term length. The two most common term lengths are 15 and 30 years. A 15-year mortgage will obviously produce a higher monthly payment, but the upside is that the interest rate is often lower. Rather than spread yourself too thin on payments, however, many experts recommend opting for the 30-year mortgage, but paying as though it is a 15-year. This will allow you to pay more on the principle, while also allowing wiggle room if finances grow tighter in the years to come. 

Step Four: Get preapproved for your mortgage loan prior to shopping.
This step will not only solidify your budgetary requirements, but it will also help you in the negotiations with sellers. Home sellers will be encouraged to take you more seriously as a buyer if they know you have been preapproved for a home loan when it comes time to make an offer. The last thing you want is for your dream house to slip through your fingers because the competition didn’t skip this step.  

Step Five: Decide whether you need a real estate agent.
Now that it’s time to begin looking for that perfect house, you’ll need to decide whether you would like real estate agent to walk you through the process. If this is your first time ever purchasing a home, having a professional by your side might make you feel more prepared and less stressed. Real estate agents can offer access to more homes than you may have access to on your own, they can act as a mediator between you and the seller, and they can offer expert advice based on their experience in the field.  

Whether or not you go through a real estate agency to find your dream home, you’ll want to tour as many houses as possible to get a good idea of the pricing in your area. 

Step Six: Start researching homeowner’s insurance.
Prior to actually choosing a home, you’ll want to begin your search for homeowner’s insurance. Mortgage lenders tend to require that you find an agency before they agree to the loan. When shopping for insurance, you have a multitude of options. You can shop different companies by getting quotes from individual, captive agents, or you can go through an independent agent who has access to multiple companies. Getting an insurance quote will never affect your credit score, so feel free to price several different companies before making your decision. When it comes to your first home, you’ll want to make sure you choose an agent with enough experience to give you the exact coverage you need. Because BMI is works with independent agencies, we have a network of over 200 agencies, state-wide. Before signing an agent on to write for us, we ensure they are credible and trustworthy. To get you started on your search for the perfect insurance, you may click the button below to connect with a BMI agent in your zip code.  

To make the decision even easier, you may qualify for any number of discounts when shopping for a new insurance policy. BMI offers a New Home discount for homes no older than five years. We also offer a coupling discount when you insure your autos with us. Click the button below to read about all of our home and auto discounts, and see how many you qualify for. 

Step Seven: Make an offer.
Once you’ve found your perfect home, complete with all of your needs and some of your wants, you’ll want to put in an offer. This part of the process is a bit of a balancing act, because you neither want to lowball so much that you offend the seller or lose your credibility as a buyer, nor do you want to pay more than what you should. Some tricks to putting in the most reasonable offer are researching the other homes in the area to find out their selling price, determining how desperate the seller is to get rid of the property, and taking a look at the type of market in the area. If nearby homes were priced similarly to yours, you may be okay to accept a price close to asking. If the seller is living in a transition home, awaiting the sale before making their next move, they might be more willing to drop the price. Finally, if the market in the area is that homes are rarely vacant and sell quickly, you probably don’t want to lose your footing by offering too low. 

Step Eight: Review the contract.
The final step before putting pen to paper is reviewing the contract. You’ll want to understand every clause within the document, ensuring there are contingencies that will allow you to back out of the sale should something go wrong. During this phase, you’ll also want to get an inspection. Inspections play a key role in the something-going-wrong part. If there is minor damage, you can negotiate a lower price to compensate. If there is deal-breaking damage, you’ll need to be able to change your mind on the sale. After the inspection, if everything goes as planned, you’ll pay the closing fees. These fees usually add up to 2-3% of the overall cost of the home. Finally, you’ll submit your mortgage application.  

Step Nine: Finally put pen to paper.
Drum roll, please! It’s the moment you’ve been waiting for. The stars have aligned, and you’re inches away from your first owned home. You’ll have a final chance to walk through and make sure nothing has changed since your inspection, and if all is as it should be, you’ll pay the required closing fees and sign the dotted line—or several dotted lines, rather. On this day, be sure to bring photo identification, inspection certificates, and any other home-buying-related paperwork. Once all is said and done, you’ll be handed the keys to your new home. 

Mazel tov on your new adventure!