Your first home: The three stages of the home buying process
The process of buying your first home can seem overwhelming. But if you take it step by step, the experience becomes less daunting—and a lot more fun.
The homebuying process consists of three stages: Preparation, house hunting and purchasing.
Stage one: Preparation— deciding on a lender, goals, and budget and getting preapproved.
The better your new home fits your lifestyle and budget, the happier you’ll be living there. Michigan Schools and Government Credit Union (MSGCU) encourages borrowers to sit down and discuss homebuying goals before they move forward.
Lifestyle questions to consider:
- Will this be a starter home you plan to sell in 5 to 10 years or a forever home?
- What things could change in the coming years? Will you start a family or have college expenses?
- Do you want to live near city culture and nightlife, or would you prefer a quiet suburb or rural town? Do you have family and friends you want to stay close to?
- How much of a commute can you tolerate?
- Do you need room for a dedicated home office, a special hobby or frequent guests?
Make a list of your preferences, then determine which are must-haves and which you could live without.
Choosing a lender: Deciding on a mortgage lender is about more than just choosing the lowest interest rate. Consider these questions as well:
- Is the lender local? A local lender knows the area and its real estate market. When you call to ask a question you will talk to your local consultant, not a national call center, and you can meet with your mortgage consultant in person. MSGCU takes pride in establishing long-term relationships with members.
- What does this rate include? Interest rates can be lowered by buying “points” upfront. Each point equals 1% of your mortgage (e.g, one point on a $200,000 mortgage = $2,000). When a lender tells you their rate, ask if this rate depends on your paying points upfront. This could make the interest rate seem lower than it really is.
Determining your budget: There are two costs involved in buying and owning a home: upfront one-time costs and recurring costs.
Upfront costs will come from your savings, so it’s important to know how much you’ll need ahead of time. Here are some estimates to guide you:
- Down payment: 0% – 20% of the cost of the home. Most lenders offer loans with as little as 3% down. If you put down less than 20%, you will be required to pay Private Mortgage Insurance (PMI), which protects the lender if you default on the loan. This additional cost is usually added to your monthly mortgage payment.
- Home inspection: The cost of a home inspection ranges from $200 - $600, depending on the size of the home.
- Closing costs: Include legal and administrative fees involved in the home purchase. Closing costs range from 2% to 4% of the purchase price.
Recurring costs include:
- Your monthly mortgage payment
- Property taxes (often added to your monthly mortgage payment)
- Homeowners insurance
- Utilities and maintenance
- Homeowners association fees (charged by some neighborhoods and condominium associations—typically higher for a condominium than for a house)
MSGCU helps borrowers crunch the numbers to determine their ideal budget for a home.
Preapproval: Getting preapproved for a mortgage makes you more confident when house hunting and shows sellers that you’re serious about buying a home.
MSGCU offers a True Preapproval—a more thorough assessment of your financial situation that will set you up for easier mortgage approval later on.
Stage two: House hunting
Before choosing a real estate agent, do some research online and ask friends for referrals. Then ask prospective agents these questions:
- How long have you been working in real estate?
- Do you work more often with buyers or sellers?
- How many active clients do you have at once?
- Do you have references I can contact?
Once you choose an agent, give them your list of preferences, and they’ll find listings meeting your criteria. Once you find the right home, your agent will help you prepare an offer. If you’ve been preapproved for a mortgage, your offer will be more attractive to the seller. Once the seller accepts your offer, congratulations! You’re onto the next stage: Purchasing.
Stage three: Purchasing your new home
Applying for a mortgage: If you were preapproved earlier, this should make the application process easier. MSGCU doesn’t charge an application fee, but be aware that some banks do. With MSGCU, you can also complete most of the application process online.
The two most common types of mortgages are:
- Fixed-Rate Mortgage: A fixed-rate mortgage has the same interest rate throughout the life of the loan, so your monthly payment will always be the same. Loan terms range from 10 to 30 years.
- Adjustable-Rate Mortgage (ARM): An ARM starts with a lower fixed interest rate which is subject to increases after a certain number of years (e.g., 5 years). If you are planning to move within this number of years, the lower initial payment can save you money. It could also help you qualify for a larger mortgage.
Home inspection: Arrange for a home inspection. If you’ve made your offer contingent on inspection, you can change or withdraw your offer if the home inspector finds significant flaws.
Closing: After you and the seller have agreed on the terms of the sale and your mortgage has been approved, a closing date will be set. On this date, you’ll be responsible for the down payment and other closing costs before you can take possession of your new home. There are a lot of documents to sign, but after the last signature, you’ll be a homeowner! MSGCU guides you through the process and makes sure you completely understand everything you’re signing.
Did we say there were only three stages to buying a home? We forgot Stage #4: Celebration! Take the keys to your new home and get that housewarming party started.
Michigan Schools and Government Credit Union (MSGCU) can help you reach your homebuying goals. Learn more about how we can champion you at msgcu.org by calling 866.674.2848 or visiting us at one of our 17 branch locations.
Michigan Schools and Government Credit Union (MSGCU) is your financial champion. We are a not-for-profit credit union, which allows us to give back to our members through better rates, fewer fees, free financial education, grants and scholarships, and other community support. We work hard every day with members to personalize plans to help them meet their financial goals. This dedication contributes to our 96% member satisfaction score, higher than most banks. Insured by NCUA. Equal Housing Lender.