Home Buying Guide
Home Buying Guide from Coventry Enterprises of America
Home Buying Guide
Step by Step
Buying a home is the largest single purchase most people ever make. The process involves more steps, more paperwork, and more opportunities to make expensive mistakes than most first-time buyers expect. This guide from Coventry Enterprises of America walks through the entire process from the beginning.
Before contacting a real estate agent or a lender, spend time understanding your own financial situation. Know your credit score, your debt-to-income ratio, and exactly how much liquid cash you have available. These three numbers will determine what you qualify for and at what cost.
Most conventional loans require a minimum 5 percent down payment, though 20 percent is the threshold that eliminates private mortgage insurance (PMI). FHA loans accept 3.5 percent down with a 580+ credit score. Beyond the down payment, reserve at least 2 to 5 percent of the purchase price for closing costs and keep 3 to 6 months of expenses in savings after closing.
Pre-qualification is an informal estimate based on self-reported information. Pre-approval involves an actual credit check and review of your financial documents: pay stubs, tax returns, bank statements, and W-2s. Pre-approval carries weight with sellers; pre-qualification generally does not.
Apply with at least two to three lenders and compare their Loan Estimate forms directly. The same buyer can receive meaningfully different rate and fee quotes from different lenders. Shopping for your mortgage is one of the highest-return financial activities you can do in this process.
Work with a buyer's agent who represents your interests, not the seller's. In most transactions the seller pays both agents' commissions, so using a buyer's agent costs you nothing but gives you significant representation. Your agent should help you identify properties, negotiate offers, and navigate the inspection and closing process.
Your offer should include a purchase price, earnest money deposit, contingencies, and a proposed closing timeline. Contingencies are your protections: the inspection contingency lets you walk away if the inspection reveals serious problems; the financing contingency protects you if your loan falls through; the appraisal contingency lets you renegotiate if the property appraises below the purchase price. Do not waive contingencies casually.
Once under contract, hire a licensed home inspector. Attend the inspection if at all possible. The inspector's job is to document the condition of every major system in the home: roof, foundation, HVAC, plumbing, electrical, and more. Review the report carefully and use it to negotiate repairs or a price reduction if significant issues are found.
The lender will order an appraisal to confirm the property is worth at least what you are paying. If the appraisal comes in below the purchase price and you have an appraisal contingency, you can renegotiate or walk away.
Three business days before closing you will receive the Closing Disclosure. Compare it line by line to your Loan Estimate. Some fees can change between documents and some cannot. Ask about any differences you do not understand before you sit down at the closing table.
On closing day you will sign a large stack of documents including the promissory note (your legal obligation to repay the loan), the deed of trust or mortgage (which secures the loan against the property), and various federal disclosure forms. Read everything before you sign. You have the right to ask questions and to take time to review documents.