The process of buying a home can feel intimidating, whether it’s your first real estate purchase or your third. The key to making it less scary is to know what’s ahead and surround yourself with knowledgeable professionals who can help guide you.
Here’s a step-by-step checklist for buying a house:
- Gather your financial information.
- Find a real estate agent.
- Get preapproved for a mortgage.
- Start touring homes.
- Find the house you want and make an offer.
- Negotiate as needed.
- Schedule a home inspection.
- Submit your loan application.
- Tap other necessary professionals.
- Get an appraisal.
- Do a final walk-through.
- Close and receive the keys.
[Read: The Guide to Selling Your Home]
Think about the kind of house you want and the neighborhood you prefer to live in. Visit sites like Zillow, Trulia, Redfin and realtor.com to get an idea of the houses for sale that meet your criteria.
Consider doing some basic calculations to figure out the home price you could afford. Online mortgage payment calculators are a good starting point and may help adjust your expectations – for example, if you're looking at million-dollar houses when your budget is more in line with a $250,000 house.
Before you reach out to real estate agents and lenders, gather your financial information, including recent pay stubs and bank statements, so you’re ready to provide details as needed. You'll also want to know your credit score and any issues affecting it, so now is a good time to get your free credit report.
Next, reach out to real estate agents and set up initial meetings or calls. It’s a good idea to interview a few and select the agent who fits your personality and communication style and is knowledgeable about the area where you’re looking to buy. The right agent will help educate you on the homebuying process, point out when price and expectations don’t match and offer insights that you hadn’t thought of before.
Treat the initial meeting or call with an agent like you’re interviewing him or her for a job. “I probably have five, six Zoom calls a day from buyers that are introducing themselves to me,” says Dawn McKenna, a real estate broker with Coldwell Banker Realty who helps clients buy and sell homes throughout the Chicago metro area as well as in Naples, Florida.
Contact potential lenders to prequalify or get preapproved for a mortgage. This is the first opportunity to tap your real estate agent for advice and guidance on which lenders may have loan programs that will benefit you.
Rachel Street, a Realtor based in Philadelphia and host of “Philly Revival” on DIY Network, says a client's financial history and ability to get preapproved for a mortgage is often a part of the initial conversation so she knows where to begin. If credit history may be a problem, for example, she can put the client in touch with a credit repair agency.
A strong credit history and financial profile is especially important in times of economic uncertainty because lenders aren’t as willing to take on borrowers with a higher risk of defaulting on the loan. While borrowers with high credit scores and a history of paying off loans on time won't have a problem getting a loan, "if you're not in that situation, you may find it harder to secure financing," says Patrick Boyaggi, co-founder and CEO of Own Up, a mortgage technology company and marketplace based in Boston.
Your real estate agent will likely present you with listings that meet your budget and needs and also encourage you to look online for other homes you may be interested in. While most homebuyers prefer in-person tours of a property to make a decision, McKenna notes that virtual tours, Instagram Live events and enhanced photography for online viewing are growing in popularity among buyers who can’t or don't want to visit in person.
Once you’ve found the house you’d like to call home, it’s time to have a conversation with your agent about making an offer. Review the sale price of similar homes in the area that sold recently to help you determine how much you feel the home is worth.
Street says she often explains the market value of a home based on data, but she stresses that buyers should factor in their own wants and needs as well. For example: “This house is priced at $600,000, but the market value of this house is probably closer to $550,000 – where do you feel comfortable? And obviously you don’t have to come in at $550,000 if you feel it’s worth $600,000 to you,” Street says.
The seller may make a counteroffer or request that you cover certain closing costs, which requires some back and forth between your agent and the agent representing the seller. During negotiations, work with your agent to find the best path forward regarding contingencies in the contract or other outlying factors that might affect the sale price, your willingness to purchase the house or your ability to close on time.
With the deal pending, it’s time to get moving with the due diligence process – part of which is the home inspection. McKenna explains that your agent should be a solid source of professional recommendations as you approach closing and should give you more than one to choose from. “From the moment something is contracted, we give (buyers) several inspectors that have provided in-depth analysis of inspections and have done a great job,” she says.
“As soon as you go under contract, you also want to make a formal application for the mortgage with your lender,” Street says. You’ll need to provide your most recent financial information, such as bank statements and pay stubs, to show you’re still employed and haven’t made any major purchases recently.
Before closing, you’ll also need to pull in other professionals, including a title insurance company, real estate attorney, homeowners insurance company and maybe an architect or contractor if you’re planning to renovate the house immediately.
Your lender will typically require an appraisal of the property to ensure the determined sale price matches the market value of the property. The appraisal often figures into the total closing costs of a home.
A couple of days before closing, you’ll complete a final walk-through of the property, which allows you to check and make sure it’s still in good condition.
Closing itself is fairly straightforward and requires signatures noting the transfer of ownership. You may sign documents in person with a representative from your title insurance company or with e-signatures if they are allowed, depending on your state.
Once you have the keys in hand, you’re now the owner of a new home. Don’t be concerned about navigating tricky situations you’re unfamiliar with on your own – your real estate agent will remain a valuable resource well past your purchase date. “We don’t just drop people when they close,” McKenna says. “We’re constantly in touch with people long after.”
The generation that's taken over homebuying
The Great Recession delayed many millennials from being able to buy a home, but the generation isn’t locked out of property ownership the way it was a few years ago. The National Association of Realtors defines the millennial generation as people born between 1980 and 1998, and according to the 2019 NAR Home Buyer and Seller Generational Trends report, they make up 37% of all homebuyers in the U.S., the largest share of any generation. Over the past five years as millennials have become a significant portion of U.S. homebuyers, they’ve also helped shape trends in location and home type preference, helped usher in technological advances and embraced new platforms that make a home purchase feel more user-friendly. Here are 10 ways millennials are changing the homebuying process.
Updated on Feb. 26, 2020: This story was published at an earlier date and has been updated with new information.Text communication is key.
Text communication is key.
The telephone was once the primary form of communication between real estate agents and their clients, but the younger generation that has grown up with internet and cellphones will likely prefer more text-based modes that make it easy to multitask. “A lot of my clients already work in tech, so their expectation is they’re going to work with an agent that can at least keep up with them in terms of communication,” says Dana Bull, a Realtor with Harborside Sotheby’s International Realty in Marblehead, Massachusetts, who specializes in working with homebuyers. She says millennial homebuyers prefer to text and email their agent more often than older generations, and it’s reasonable to expect they’ll be comfortable using real estate-related apps.Research is a natural part of the process.
Research is a natural part of the process.
When it comes to researching neighborhoods, checking out listings online and doing a deep dive into the fine print of a pending deal, millennial homebuyers are known for doing their homework. Jill Levin, a Realtor with Coldwell Banker Legacy in Albuquerque, New Mexico, says she recently represented some buyers in a deal that went particularly smoothly because the buyers read every disclosure and document sent to them and asked questions beforehand – something she doesn’t see from older buyers who feel experienced enough that they don’t need to read into the details. “There’s way more information today now, and (homebuyers) really, really should be paying attention,” Levin says.The hub for advice is online.
The hub for advice is online.
While apps and online search tools are an integral part of the homebuying process for all consumers these days, millennials are the first generation to grow up using technology broadly in everyday life. The familiarity with smartphones, social media and the internet make communication, finding out information and contacting professionals easier. Millennials are also inclined to shop around for everything from real estate agents to mortgages to contractors. In HomeAdvisor’s State of Home Spending report released in June 2019, the majority of millennials, Generation X and baby boomers research home remodel project costs on the internet, but millennials do so by the largest margin (77%).Homeownership is focused on building wealth.
Homeownership is focused on building wealth.
While purchasing a home involves plenty of hurdles for younger buyers, many of them are choosing to become homeowners because it helps them build wealth in the long term. “There is still interest in buying a house because I’ve got a job, I need a place to live, rent is expensive and I should put my money somewhere,” Bull says of the millennial homebuyer mindset. As they build equity in their home, they’re in a better place to purchase a larger house in the future or use the profit of a sale for other investments.Kid-friendly housing makes a comeback.
Kid-friendly housing makes a comeback.
Homeownership isn’t the only thing that millennials are doing later in life for financial reasons. Millennials are also marrying and having children later than previous generations. But as millennials get older, more are getting to the point where they’re starting families. While a condo in the heart of downtown worked for many first-time millennial homeowners when they were single, home preferences change as soon as kids come into the picture, Bull says: “People are starting to step up into that next level of a single-family home and maybe out in the suburbs.”Walkability is a must.
Walkability is a must.
Even with many millennials leaving urban centers, one feature they won’t compromise on is walkability. “They want more activities in the area, they want walkability, they want the convenience of shopping without having to use their cars a lot,” Levin says. Even in more suburban settings, many millennials are showing a preference for areas that offer residential and commercial spaces within walking distance. Bull says the areas catering to these homebuyer preferences have been dubbed “hipsturbia,” where suburban towns offer an active downtown or main street area with the live-work-play atmosphere many people don’t want to lose when they move out of a major city center.Eyes are on garages and kitchens.
Eyes are on garages and kitchens.
Luxurious features and finishes in a house are ideal, but millennial homebuyers are making their must-have lists a bit more realistic. In a survey of 1,000 Americans who plan to purchase a home in 2020 by real estate information company Clever, millennials' preferred home features focused on details that make life more convenient, especially as they start families. When asked which features are a requirement for their new home, millennial respondents placed a garage, large kitchen and space to grow into as their top three priorities. Details like hardwood flooring, a fireplace, pool and dedicated office space were among the lesser-desired details.High home prices don't deter eager buyers.
High home prices don't deter eager buyers.
Affordability is still an issue for many millennials, especially among the younger members of the generation. But that doesn’t mean millennials are uninterested or afraid of purchasing a home – it’s just a matter of the right timing, the right location and the right home. Between consistently rising home prices and a lack of inventory as homeowners choose to remain in their homes longer, the housing market remains extremely competitive, Bull says, especially in the Boston area where she works. But the millennials who are financially ready to purchase are willing to rise to the challenge. “They’re used to being aggressive to get into the college they want, and then get the job they want,” Bull says, which primes them to make a strong offer if they see a home they like.Low down payments solve savings issues.
Low down payments solve savings issues.
The Clever survey found 70% of millennial homebuyers plan to make a down payment of less than 20%. Low down payment programs have grown significantly in the past 10 years and are now a major part of home purchases – NAR’s 2019 Profile of Home Buyers and Sellers reports that the median down payment for a home in the U.S. is 12% of the purchase price. While low down payment programs help resolve the lack of savings, homebuyers putting less than 20% down should be sure to factor into their budget the added monthly cost of private mortgage insurance.Parents play an important role.
Parents play an important role.
For younger millennials and even Generation Z, which is made up of people born in 1999 and later, coming up with the cash for a down payment is one of the biggest obstacles to becoming a homeowner, even at less than 20% of the purchase price. For millennial first-time homebuyers and the rare Gen Zer getting into the market, financial help from a loved one is often what makes a home purchase possible. “Parents are getting involved a lot – I still see a lot of situations where parents are gifting money or helping in some other way,” Bull says. “I don’t see that changing at all.”Here are 10 ways millennials are changing homebuying:
Here are 10 ways millennials are changing homebuying:
- Text communication is key.
- Research is a natural part of the process.
- The hub for advice is online.
- Homeownership is focused on building wealth.
- Kid-friendly housing makes a comeback.
- Walkability is a must.
- Eyes are on garages and kitchens.
- High home prices don't deter eager buyers.
- Low down payments solve savings issues.
- Parents play an important role.
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.