Buying a property is generally a stressful process for many Americans striving to become homeowners who don’t know the ins and outs of the real estate market. So many real estate actors try and manipulate naive house hunters out of their hard-earned money. That is why there are things to know before buying a house.

We made a comprehensive step-by-step guide to buying a property for first-time buyers. This information will give you the upper hand regarding hidden costs, escrow fees, and other factors that affect your monthly mortgage payments.

The Role Escrows Play in the Homebuying Process

Escrow accounts are a vital tool for all parties involved in the homebuying process. An escrow account is held by a third, unbiased party and can be used for buying houses or borrowing money. Entities, such as Lightspeed Escrow, try to provide a fast service during the closing process and ease your homeowning costs.

Before Shopping for a Loan

Establish Your Credit Score

Being realistic about your financial means during the homebuying process will save you many disappointments along the way. That is why you should check your creditworthiness before you start shopping for mortgages. Different lenders and loan programs have different requirements when it comes to a credit score or debt-to-income ratio. So getting familiar with those general requirements will help you shop for mortgages.

Having a credit score higher than 650 is optimal for most conventional loans. If, however, your credit score is lower than 600 - you might need to find government-supported loan programs or other alternative sources of finance. Getting familiar with mortgage criteria ensures that you know what to look for when shopping for a loan and a property.

Pinpoint the Maximum You Are Willing to Spend

Before talking to lenders and house hunting, try to set the maximum amount you are willing to set aside for homeowning. You might think that this step is about defining the price range of a potential home; however, it is not. Establishing a budget is setting the maximum monthly mortgage payment you are willing to pay until the end of a loan. Knowing this will help you negotiate with lenders and sellers and manage your wish list.

Check Your Down Payment Savings

Usually, you will need a 20% down payment when taking out a mortgage for your house. You need to provide 20% of the purchase price and borrow the remaining 80%. Some lenders deem this as a requirement, but others allow you to borrow more than 80% and pay private mortgage insurance as a fee.

In some cases, avoiding private mortgage insurance is possible but at the cost of a higher mortgage rate. A larger down payment can cut the interest rate and shorten the length of your loan, and it can get you preapproved much faster.

Entering the Market

Mortgage Preapproval Process

Previous steps refer to your preparation for entering the market. The first thing to do is find a lender. Whether you hire a mortgage broker or you want to find options yourself, this is a crucial step toward getting a house. Mortgage brokers are a more suitable option for those with not-as-great credit history who need special loan programs.

After acquiring a lender you feel comfortable with, you will need to get preapproved. Essentially, getting mortgage preapproval helps you make an offer later by accurately assessing your financial abilities and available mortgage properties. You will compare the lender’s preapproval and your own budget and look for properties in that price range.

Do You Need a Real Estate Agent?

Hiring a real estate agent is not obligatory, but it can help you immensely, especially if you are a first-time buyer. They can help you with more than just looking for a house. A real estate agent can tell you if your budget matches your wishes and enables you to compromise in the best possible way.

They do a lot of paperwork for you, help you make an offer, and handle the closing process. In short, they are with you every step of the way, and if they do their job right - real estate agents make the home buying process much easier for you.

House Shopping

The real search starts when the preapproval is done, the budget is established, and you disclosed your priorities to the real estate agent. You can search for properties online or allow your agent to do everything for you. House hunting can be exciting if your budget and priorities align.

If you are somewhat near the search area, drive through it and see what neighborhoods you like best. Do not refuse an open house and check out the property as soon as it gets listed - this way, you won’t come last in a seller’s market.

Final Steps Towards Homeowning

Make an Offer: Enter a Bidding War

This step is when a real estate agent comes in handy, as they will help you make an attractive offer that the seller cannot refuse. Nowadays, bidding wars are a common component of the home buying process. Creating an offer can sometimes mean to up the price, but other times an attractive offer will have added benefits for the seller.

When making an offer, some options to consider: allowing the seller to stay in the property for a longer time, agreeing to pay for some repairs instead of them, or storing some of their stuff in the basement.

Home Inspection and Home Repairs

Every good real estate professional will advise against home inspections, and not without reason. Home inspections show you what you cannot see during a house tour - structural and mechanical issues of the property.

While the buyer usually pays for the inspections, the seller should be responsible for the repairs - but this isn’t always the case. The lender will not grant you the money if there are significant damages to the house, so sometimes, you need to negotiate with the seller to speed up the process. Sellers will either pay for the repairs themselves or cut those costs out of the price at the closing.

Underwriting

The final steps towards homeowning are just about keeping your finances clean and double-checking everything. From the moment you get a preapproval letter, make sure to keep your credit score and debt-to-income ratio exceptional - try not to change jobs and don’t max out your credit cards.

Underwriting is a process of double-checking the information you submitted upon preapproval. The lender will most likely ask for proof of income, proof of employment, and other documents that tell a story of your creditworthiness.

Escrow Accounts

Most likely, there will be two types of escrow accounts that you will create - one is transitory, and the other is usually as long as the life of the loan. The escrow account you create with the seller will be closed after the closing when the assets have been transferred to the seller’s account. Real estate escrow is created by transferring earnest money deposit, as a message that you are a serious buyer.

Moreover, along with the monthly mortgage payment, you will be paying escrow fees - property taxes, insurance, and other costs of homeowning and borrowing. This account will collect your annual fees in monthly installments, so you don’t have to think about them at the end of the fourth quarter - also known as the holiday season.

Closing

The closing process starts once you get a closing disclosure, double-check everything and make sure you have attended one last walkthrough. A few days later, the closing date happens when you and all other parties meet to sign the closing papers.

You and your real estate agent will attend this meeting with the seller and his agent, escrow company representatives, and your lender officer. This is probably when you transfer the down payment and the closing costs, sign the papers, and become a homeowner.

What Awaits You as a Homeowner

Making it a dream home is what comes next after the closing and keeping your finances in order so you never have to worry about defaulting on your mortgage. Homeowning is a crucial part of building wealth and security. Maintaining the property, paying the monthly installments in time, and having an honest relationship with your lender guarantees long-term ownership of the home.