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5 Smart Steps to Buying Your First Home

Personal Finance
couple sits by boxes inside new house and delights in buying their first home as woman holds the key

Do you spend time daydreaming about the day you'll finally get the keys to your first home? Homeownership doesn't have to stay in your dreams. While buying your first home can seem like a complicated process, it follows a fairly straightforward sequence of steps.

Learning and following these five steps could put you in the best position to get the house you want — while spending the least amount of time and money and protecting what will likely be the largest investment you've ever made.

1. Get Pre-approved for a Mortgage

Becoming pre-qualified by answering a few income-, debt- and expense-related questions online can help you choose a mortgage broker or bank to work with — and give you an idea of the mortgage amount you may qualify for — but it's not the same as an official offer to lend you money.

Getting pre-approved with one lender early on in the process of buying your first home serves two purposes. Pre-approval goes many steps beyond a simple pre-qualification. You must complete an official mortgage application, submitting all your financial information to be verified. This information includes employment income, expenses, savings, debts, your credit rating and your required down payment.

Doing this financial legwork — and taking the opportunity to compare companies — before house hunting could help you secure a fixed mortgage-approval dollar amount with a pleasing financing deal. It may also lock in an interest rate for a specified time frame.

Most experienced realtors prefer to work with pre-approved buyers. They want to know exactly how much house you're approved to buy, and that you're in the position to make a serious offer immediately should a hot seller's market or competition from other buyers arise.

2. Find a Buyer's Agent & Go House Hunting

There are two basic kinds of residential real estate agent specialists. A seller's agent, or listing agent, specializes in listing homes for sale and working with sellers to get their homes sold for the most money. A buyer's agent specializes in knowing the neighborhoods and helping buyers find exactly what they're looking for at the lowest price, all while representing the buyers' best interests during transactions.

As a first-time homebuyer, ask for word-of-mouth referrals and search online for a buyer's agent who has many years of experience helping people buy homes in your desired location.

Are you considering buying your first home at an auction, on a website or through a by-owner deal without an agent? One reason not to pursue these methods is that agents work through the traditional sale-closing process, which includes a title search on the home. A title search protects you from costly problems with the title of the house, which could include undisclosed damage, homeowners associations, tax liens or other unforeseen issues that reduce the value of the house.

Once you've chosen a buyer's agent, work together to visit houses at your desired price point, comparing each to your list of needs and wants. Communicate clearly to your buyer's agent along the way.

3. Put in an Offer

Another plus of choosing an experienced buyer's agent early in the home-buying process means the agent will be able to skillfully represent your interests in the buying negotiation, should you decide to make an offer. Once accepted, your purchase offer is contingent upon your completion of a satisfactory professional home inspection within a specific time frame.

4. Close the Transaction

Usually, the seller's agent chooses the closing company and location, but you'll be able to rely on your buyer's agent to represent your interests at the closing. You'll also be able to review the closing statement before the closing — look carefully for any discrepancy in the amount of money you'll be transferring to complete the home purchase that day.

During the closing, you'll receive your certificate of clear title, the money will be transferred to the seller and all expenses of the purchase will be completed.

5. Protect Your Largest Investment

Buying a home is an investment — and a significant step toward implementing or upgrading your retirement strategy because it will likely be one of your biggest assets, if not the biggest (once the mortgage is paid off). Therefore, you'll want to protect it properly right from the start.

Consider buying enough life insurance to pay off the mortgage you owe on the home to prevent your family from ever losing it. Your choice of life insurance can play an essential role in your retirement plan because different policies offer different financial benefits. You could choose a term life policy to help protect your home, using another portion of your income to start a retirement fund. Or you could choose a permanent life insurance policy, which has a cash value. A convertible term life insurance policy could potentially offer the best of both worlds.

By following these steps, you could be one step closer to making your homeownership dreams a reality. Also, consider how buying a home affects your retirement planning and your overall financial future — after you've successfully gone through the rest of the home-buying process.

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Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“the Company”) does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.