Whether you’re a first-time buyer or an experienced homeowner, buying a new home can be an exciting—but sometimes overwhelming—process.
Before you start your search, it's important to get organized and do your homework!
Here are a few things to consider:
What can I afford?
You’ll first need to determine what’s affordable. Keep in mind, when you’re buying a home, you’ll have upfront costs—down payment, closing costs—and you’ll need to be prepared for these expenses. We’ll go through more details in the Qualify for a Mortgage section and you can use our Mortgage Calculator to help estimate what you can afford.
Where do I want to live?
It’s helpful to narrow down your search to the key neighborhoods where you want to live. Keep in mind, you may need to expand your search (based on what’s affordable for the area), but it helps to have a starting point. If you have children, check the available school options in your area.
What do I want/need?
Make sure you have a good idea of what you’re looking for in a new home and prioritize accordingly. There are many quality and affordable homes—from townhomes and condominiums to single-family or multi-family homes—so make sure you conduct a thorough search. You may not be able to get everything on your wish list, but knowing what your requirements are before you get started will make your search easier.
What do I need to start?
Before you get serious with your search, you’ll want to find a real estate agent and get your financing in order. We’ll go through these steps in detail, but it’s a good idea to start gathering your financial records (pay stubs, W2s, bank statements, etc.) and have them ready. Have a co-borrower? Their information will be required, too.
How much do I need to put down?
At one time, lenders may have required a 20% down payment to buy a home. Today, there are options for homebuyers who can’t afford to pay that much upfront. Check with your lender about mortgage programs that allow down payments as low as 3.5% of the purchase price. One important thing to note, if your down payment is less than 20%, you may need to pay what’s called Mortgage Insurance (MI) each month until you reach 20% equity in the home. Ask your mortgage company about specifics for MI cancellation.
What about my credit?
You should take a look at your credit report before you start the homebuying process. This is the time to clean up any past issues and make sure there are no inaccuracies or mistakes. To qualify for a mortgage, you’ll need to meet the lender’s credit qualifications (which may vary by lender but you typically need a minimum credit score of 620). If you’re not in that range, you may need to spend time rebuilding your credit or come up with a larger down payment (i.e., 10% vs. 3%).
Now that you’re organized, it’s time to learn more about the mortgage process.
One of the most important steps in buying a home is getting financing. Before you even start searching for your dream home, you should talk to a lender and determine what you can afford and learn about what types of loans are available. You’ll also need to understand some mortgage basics.
Fixed-rate or adjustable-rate mortgage? To escrow or not to escrow? Pre-qualification vs. Pre-approval? Mortgage financing can seem confusing, but it doesn’t have to be.
Now that you've learned some basics, let's go through the steps of getting a mortgage
Step 1: Determine your budget
Don't look for homes until you know what you can reasonably afford. Remember to not only factor in your monthly mortgage payments, but also taxes, insurance, maintenance and any other monthly costs (car, student loan, credit cards). You can use our Mortgage Calculator to help estimate your monthly mortgage payment.
Step 2: Find a Lender
Now that you have an idea of what you can spend, it’s time to find a lender. Unless you are paying cash for the home, you’ll need to work with a lender to secure financing. And similar to the process of finding a real estate professional, you should talk with a few lenders to find the best fit for your situation. Remember, while the interest rate you’ll pay is a big factor, it shouldn’t be the only factor. Also consider—the different types of loan options available, their customer service, closing costs and other fees, etc. This is the largest financial investment you’ll make, so shop around.
Types of Lenders:
Online Mortgage Broker/Lead Service – There are multiple online services (i.e., LendingTree.com, Bankrate.com) that don't actually lend money, but will work with multiple financial institutions to help you find the best deal.
Mortgage Broker – Similar to above, a broker doesn't work for a particular financing institution. Instead, they work with multiple lenders to find you the best rate or loan product to meet your needs.
Financial Institution (Bank, Credit Union, etc.) – Most major and local banks offer mortgage products, and it's always a good idea to check with your current bank or credit union when looking for a lender. Many times they may offer their current customers preferred rates or discounts.
Non-bank mortgage lender – If your bank or credit union doesn’t offer you the mortgage product you’re looking for, be sure to search for a non-bank mortgage lender. There are many companies that specialize just in financing for homes.
Still need help finding a lender? Ask family and friends for referrals or talk to your real estate agent (many times agents will partner with a few different lenders). Also, search the Internet for a mortgage lender—and ask if they are an approved Fannie Mae lender.
Step 3: Get Pre-Approved
Once you find a lender, you’ll want to get pre-approved. Even if you have an idea of what you can spend, you’ll want to work with your lender to determine the exact amount of financing. Sometimes this is less than you anticipated, sometimes it's more. Keep in mind, you shouldn’t necessarily increase your buying power even if the lender approves you for a higher amount. If you know what your limit is, don’t increase that amount just because you can. Also, ask your lender about special financing and resources like the Neighborhood Stabilization Program that can provide down payment assistance or reduce your upfront costs.
Shop for a Home
After you're pre-approved, it's time to start house hunting!
Find a Home
Looking for a home to buy is very different than looking for a home to rent. There are multiple ways to find your new home—go online, visit open houses, tour model homes—but the homebuying process can be confusing, especially if you’re a first-time buyer.
It’s usually recommended that homebuyers work with an experienced real estate professional. Not only will they assist you in your search, but they’ll be able to provide advice and support throughout the process—contract negotiations, financing, home inspections, closing, etc.
So you think you've found your new home…the next step is to make an offer! You'll work with your real estate agent to submit an offer, and they'll work with you to determine the best price for the home.
Some things to consider when determining an offer amount:
How long has the home been on the market and its current condition?
What's the current market like? When rates are lower, more buyers are apt to make an offer and, possibly, submit higher bids.
Are there any other offers on the property? Multiple offers can influence the price, often pushing it higher.
Your agent will also look at the properties in the neighborhood—they’ll pull “comps” or “comparables” of recently sold homes to get a feel for the fair market value of the home. Once you and your agent decide on a price, they’ll prepare the contract, present to the selling agent and work to negotiate the offer (if needed).
If you and the seller agree to the terms of the contract, then the offer is officially accepted and you’re on the way to purchasing your new home! But before you get to closing, you’ve got a few more things to do.
If your offer wasn’t accepted, it can be a frustrating and disappointing result. But don’t give up—homes come on the market every day. Keep house hunting and your dream home could be right around the corner!
If you were pre-approved, you need to contact your lender to let them know you have a contract in place. They will update your application and finalize the loan process. If you did not get pre-approved (and the seller accepted the offer), you will need to submit your mortgage application as soon as possible.
When you’re working with a lender to finance the home, the lender will typically order an appraisal on the property. The lender should have a licensed real estate appraiser evaluate the property and complete a Uniform Residential Appraisal Report, Form 1004. This report shows the calculation of the fair market value of the home by comparing the property to recently sold homes in the neighborhood. The report should also show the market value based on a “cost approach to value”—calculating the value based on the value of the land plus what it would cost to build a house of similar size and quality. In addition, the report should list detailed information about the property and the neighborhood.
You typically will need to pay what’s called “earnest money” which shows the seller you are serious about buying the home. Think of earnest money as a deposit you are providing the seller (usually around $500 - $1,000 or a certain percentage of the offer price) that will be applied to the purchase once the contract is finalized.
Another important step is the inspection process. Most buyers should request a home inspection before closing and this is typically a condition written into the sales contract. This allows you to uncover any potential issues with the home—structural, plumbing, electrical—that may not be visible when you visited the property.
Usually there is an inspection period that’s defined in the contract, and you must have the inspection completed within that time frame. If some issues are uncovered during this time, you can walk away from the property—even with the contract in place—without penalty (other than potentially forfeiting the earnest money).
Hire a qualified professional to inspect the property—you don't want to cut corners here!
Ask your agent for referrals for a reputable inspector.
Review the inspection report with your agent to determine what repairs (if any) you will ask the seller to remedy. Keep in mind, the seller doesn't have to make any repairs, but you can also walk away from the contract if you aren't satisfied with the inspection/resolution.
Don't ignore any potential issues. Just because you love the home, it doesn't mean you should overlook potential problems.
Don't ask the seller for more than what's fair. Normal wear and tear should be expected (especially if you are purchasing an older home), so don't assume the seller will replace older (but still working) items.
Some homes are sold "as-is" which means you agree to accept the home in its current condition. You can still get an inspection, but the seller will not pay for any repairs that may be needed.
Close on Your Home
You’ve found your dream home, your offer has been accepted, the financing is in place, and the inspection is complete. Now, there’s just one more key step in the process—closing!
The closing occurs when all the conditions of the contract have been met (full loan approval, evidence of clear title, mortgage insurance is in place, etc.).
Prior to the actual closing date, expect to review the list of fees and the terms and conditions of the contract. In addition, you'll need to know the amount that you'll need to bring to closing. Your real estate agent and lender will assist you with this process.
Closings occur at different places in different states. The lender arranges the closing and ensures that the closing agent has all the necessary documents in place. Some closings may be required to take place at a closing attorney’s office, while others may use a title or escrow company.
At the closing, the lender “funds” the loan with a cashier’s check, draft or wire to the closing agent who disburses funds in exchange for the title to the property. This is the point at which transfer of ownership occurs and the buyer receives possession of the property.
Remember to carefully review all documents before signing—ask your attorney if you have any questions or concerns.