Navigating the Home Buying Process: A Beginner’s Guide

Thinking of buying your first home?

Good for you. You’re not alone. But let’s be honest… buying a home is not the same as it used to be. In fact, first-time buyers now make up a record low share of the market, down to 24% as of 2019. And the typical first-time buyer is older than ever: now at 38 years old.

This is a significant shift in the market.

If you’re wondering what’s changed… the median household income of the typical first-time home buyer is now $97,000 – a significant jump from $71,000 just two years prior.

Here’s the issue: when it comes to buying your first home, most people jump into the process headfirst without really understanding how it all works. The fine print. The jargon. The endless requirements that are different from one lender to the next.

It’s no wonder so many are daunted.

What if you could breeze through the entire home buying process with confidence? What if you knew exactly what to expect at each stage of the process?

Whether you’re exploring first mortgage investments or just getting started with saving for a deposit, this easy-to-follow buyer’s guide covers everything you need to know. From determining your borrowing power to settlement, you’ll learn the step-by-step process successful first-time buyers follow.

Here’s what you’ll learn:

• Step 1: Understanding Your Financial Position
• Step 2: Finding the Right Property
• Step 3: Navigating The Mortgage Application Process
• Step 4: Making An Offer That Gets Accepted
• Step 5: Navigating Settlement Day

Step 1: Understanding Your Financial Position

Before you start shopping for homes…

You should have a solid idea of what you can afford. And this doesn’t mean just having a deposit saved up. It means understanding your overall financial picture.

Here’s what you may not know:

Your credit score is more important than you realize. The average credit score of first-time home buyers is 746. Furthermore, the majority of mortgage applications (66%) are denied for various reasons. Of these, 32% are because the borrower’s debt level is too high.

This means that it is essential to get your credit report in order and look out for any problems and weaknesses. You should also work on paying down any existing debt before you apply.

But there’s more…

You’ll also want to have your deposit saved up. The average first-time buyer puts down 9% of the purchase price of their home. This means that on a $300,000 home, the average buyer saves up $27,000 for their down payment.

Scary right?

Step 2: Finding the Right Property

It’s great to know what you can afford, but how do you find the right place for you?

In fact, you may be surprised to know that 55% of first-time home buyers look at 10 or more homes before purchasing. This isn’t being picky. This is being smart.

If you fall in love with the first house you like, you’re doing it wrong. Most people make this mistake and ignore important details about a property when they get caught up in their emotions.

Don’t be that person.

Before you go looking, take some time to think about what you want. The key is to make a detailed list of non-negotiable features.

For example, think about:

• location and commute times
• the number of bedrooms
• outdoor space requirements
• school districts (if applicable)
• local amenities

By having a checklist to reference, you’ll be able to approach property hunting in a more organized way and know when to walk away from a place that’s just not right.

Step 3: Navigating The Mortgage Application Process

This is where things get serious.

Completing a mortgage application can feel like running a marathon through quicksand. It’s exhausting and difficult. But if you’re prepared, the process can be made much easier.

Before you apply, you’ll want to get pre-approved with a lender. This does two things: signals to sellers that you’re a serious buyer and gives you a realistic budget to work with.

The lender will consider several factors when making their decision:

• your income and employment history
• your credit score and credit history
• your debt-to-income ratio
• your savings and assets

The key here is to have everything in order. Gather your pay stubs, tax returns, bank statements, and other important documents before you start.

And here’s a pro tip…

Try to avoid making any major financial decisions or purchases during the application process. Don’t get new credit cards. Don’t buy a new car. Try to keep your job. These things can raise red flags with lenders.

Step 4: Making An Offer That Gets Accepted

So you’ve found the perfect place? Great. Time to make an offer.

But making an offer and getting your offer accepted in this day and age is no easy feat. Nearly half of first-time home buyers end up paying the full asking price or more for their home. So you’re going to have to be strategic.

The first thing you’ll want to do is find a good real estate agent. First-time buyers overwhelmingly find their agent through a referral from a friend, family member, or neighbor (40%). And the vast majority of buyers would work with the same agent again (88%).

Your real estate agent will help you:

• research comparable sales in the area
• calculate a competitive offer price
• structure your offer to make it stand out
• work with the seller’s agent to handle counteroffers and negotiations

The key is to have a strategic plan in place. Don’t get so caught up in winning that you overpay. Stay within your budget and be prepared to walk away if things don’t work out.

Step 5: Navigating Settlement Day

Congratulations, you’ve made it to the finish line.

Settlement (also known as closing) is the day you officially become a homeowner. But there’s still some work to be done.

On settlement day, you’ll sign what seems like a million documents, the seller will give you the keys, and you’ll pay your closing costs.

Closing costs usually run 2-5% of the purchase price of your home. On a $300,000 home, that’s $6,000 to $15,000 you need to have available.

To prepare for settlement day, you should:

• do a final walkthrough of the property
• have your funds ready (cashier’s check)
• review all documents carefully
• ask questions if anything is unclear

Once this is all done, you’re a homeowner!

Wrapping It Up

Buying your first home is no small task. In fact, the home buying process has never been more challenging. For today’s first-time buyers, home ownership is a more difficult milestone to reach than for any previous generation.

But if you’re willing to do the work to prepare and educate yourself, it can still be done.

Here’s the key things to remember:

• get your finances in order
• shop strategically
• work with trusted professionals
• stick to your budget
• be patient throughout the process

The road to home ownership has gotten longer and more expensive. But for most people, it’s still a journey worth taking.

79% of home buyers still view their purchase as a good investment.

And that moment when you finally get handed those keys and step foot in your very own home? It’s an amazing feeling. All the stress and paperwork? Forget it. It all fades away.

Pretty worth it, right?

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