Home-buying: 10 steps to success

Buying a home is one of the biggest financial investments most people will ever make, so getting started can be intimidating. Like any complex process, the home-buying journey can be easier to approach if you break it down into a series of tasks.

Here's a step-by-step guide to the home-buying process.

1. Check your credit report and score

Before contacting a mortgage lender, it's smart to check your credit report. By law, you can get a free report once a year through AnnualCreditReport.com. The report pulls data from the three major credit-reporting agencies: Equifax, TransUnion and Experian. Having the information in hand before you talk with a lender gives you time to find and correct any errors before you begin the pre-approval or application process.

Based on your credit report, FICO assigns you a credit score ranging from 350 to 850. In general, the higher your credit score, the lower the interest rate on your mortgage.

Scores are based on the following factors:

• Payment history. Have you paid your bills on time?
• Amounts owed. What is your overall debt?
• Length of credit history. How long have you been borrowing money? 
• New credit. Have you applied for new credit?
• Types of credit. Do you have a variety of types of credit?

So what is a good credit score? You can usually expect a more competitive mortgage rate at anything above 720. Home buyers who pursue an FHA loan can usually qualify with scores of 580 or above. FICO scores are available at myFICO.com for a one-time or monthly fee. 

2. Figure out how much you can afford

Or better yet, decide how much you’re willing to pay. Just because you can qualify for a larger mortgage doesn’t mean you want to spend that much on your mortgage each month. Use a mortgage calculator to help determine what you can comfortably afford.

Now is also a good time to research your housing market and start going to open houses in your prospective neighborhood to give you a good sense of what your money will get you.

3. Find a real estate agent

This person will be your lifeline through the home-buying process. Not so long ago, people didn’t have much to go on when selecting an agent. A postcard in the mail or a name on a sign might have been all you had to consider if you didn’t have a personal referral. But now it’s a breeze to check reviews online. Go ahead and meet with a few agents and ask some questions. Your agent is your chief advocate, confidante and hand-holder in the process, so you'll want to find someone who is a good fit.

4. Get pre-approved by a lender

It's a smart move to get pre-approved for a loan early in your home search. Knowing how much you're pre-approved for will give you a starting point for your home-buying budget.

In general, the lender will pull your credit information and assess your financial situation to determine what you may qualify for. The lender will usually give you a letter that states the amount they would be willing to lend you.

If you make an offer on a home that other buyers are interested in, already being pre-approved may give you an edge. Sellers want to be confident that the buyer they accept an offer from will be able to acquire financing for the home without issue.

5. Start looking at homes

Let the serious shopping begin! By now you’ve talked things over with your agent and you both know what you really want and need in a home. Armed with this information — along with your price range and knowledge of the local area — look at listings online and with your agent, who will arrange for you to tour properties. Chances are these visits will help you refine your wish list.

6. Make an offer

Once you’ve found a home, your agent will work with you to craft an offer. Remember, the listing price is only a starting point. Your agent will understand the market and help guide you to make the most attractive offer, whether it’s below, at, or above listing price.

Are there any contingencies to your offer? Will you require an inspection? These are all things your agent will help you with. Once you’ve submitted the offer, you’ll wait to hear from the homeowner. Keep in mind that you may not get a simple yes or no, but instead a counteroffer to consider.

7.  Attend the home inspection

If your offer called for a home inspection, this is a big day. A home inspector will look over the home and report on defects you may want to negotiate to have fixed.

More importantly, this is the most time you’ll get to spend in your new home until closing, so it’s a good time to take measurements and start thinking about how you’ll live in the home. This may be the last time you’re inside the home until it’s yours — which could take several weeks or more.

8. Get homeowners insurance and establish utilities

If you already own a home, simply call your insurance agent and let them know you’re buying a new home. They will walk you through opening a new policy.

If you don’t have an insurance agent, now's the time to find one, because your mortgage lender will require proof of homeowners insurance. Even if you don’t have a mortgage, insurance is a critical part of protecting your investment.

You’ll also want to give utility companies your move-in date to establish service. You don’t want to move into a cold, dark house because you didn’t set up an account with the power company.

9. Close on your home

Finally, the day you’ve been waiting for! Expect to read and sign a lot of documents, including all of your loan paperwork from your lender. Taking out mortgage is a big financial investment, so be sure to read everything you sign.

10. Get the keys and move in

Congratulations! You‘re now a homeowner. Your sale contract will specify exactly how soon you get to move in. Sometimes it’s by a certain time on the day you sign closing papers, and sometimes possession happens a few days after closing. Whenever it is, you’ve just ended the home-buying journey and started the adventure of homeownership.