Buying a home is a very exciting process, but it can be extremely overwhelming, too. This is especially true if you're a first-time homebuyer.
It takes time to understand the ins and outs of the real estate market, mortgages, taxes, property deeds, inspections and more. Even seasoned home buyers can sometimes get confused.
If you want to find the home of your dreams -- and actually close on it -- you need to keep all your ducks in a row, as they say. Below is a checklist of some of the most important steps any first-time homebuyer should take when they're buying their first home in Michigan.
1. Prepare Your Finances
Before you start the home-buying process, you need to get your finances in order. There are a few different steps to preparing your finances for buying your first home.
One of the most important steps is improving your debt-to-income ratio, or DTI, as much as possible. The DTI will be a major factor in determining how much of a mortgage you'll qualify for. The higher your income in relation to your monthly debt obligations, the better position you'll be in.
So, as you're preparing to buy your first house, try to keep your monthly debt obligations low. This includes credit card balances and auto loans, for example.
Next, improve your credit score as much as possible. You can do this by making timely payments on all your debt obligations. If you don't have a strong credit history, consider opening a credit card for the sole purpose of building your credit. The better your credit is, the better interest rate you'll qualify for.
Finally, set money aside for your down payment and home improvements. Almost all mortgage lenders will require at least some down payment. If your down payment is at least 20% of your home's purchase price, you might be able to qualify for a conventional loan and avoid having to pay monthly Private Mortgage Insurance (PMI) payments.
You should have extra money set aside, too, for even minor home improvements. Once you purchase a home, you're likely to want to spring for things such as new paint and maybe even furniture. In addition, you should give yourself a financial cushion in case something needs to be fixed.
2. Get Pre-Approved for a Mortgage
You may have a budget in mind for how much you'd like to spend on a home, but that number won't really matter if you can't get approved for a mortgage for that amount. So, the next step on the checklist is to get pre-approved for a mortgage.
Your lender will run your credit and take a look at some of the financial factors mentioned above to determine how much they're willing to extend to you as well as what your interest rate will be and what type of mortgage you'll qualify for. The lender will likely pull your credit report and ask to see your pay stubs and/or tax returns to prove your income.
A mortgage pre-approval isn't just a "nice-to-have," though. Many real estate agents won't even show buyers homes for sale without a pre-approval letter in hand.
3. Find an Experienced Real Estate Agent
Once you have your mortgage pre-approval, you can start looking for homes. This process is often made simpler with the help of an experienced real estate agent.
When you're searching for a real estate agent to represent you, make sure you look for one who's classified as a buyer's agent -- meaning, they represent home buyers and not just sellers. This is an important distinction, and will help you get the best deal in the end.
You should also look for an agent who has experience in the market in which you want to buy. They should know the specific area and neighborhoods where you want to look, and not just the general area.
Don't worry about costs here, either. Real estate agents are paid their commission out of the seller's end. Home buyers don't have to chip in for any of this cost in most cases.
4. Make an Offer and Negotiate
After searching homes with your real estate agent online and then visiting your top choices in person, it's time to make a formal offer. Your agent will handle all the technical paperwork, which will include sending the seller your offer and your mortgage pre-approval as proof you can afford the home.
Your agent will guide you as to what might make a smart offer. This should be based on a number of factors, including the status of the specific market, how long the home has been on the market and the condition of the home.
After you have made your offer, expect the seller to make a counter. Now, it's time to negotiate. It's always a great idea to have a bottom-line number in mind even before you start negotiating.
In other words, what is the most you're willing to pay for the home? Then, proceed with negotiations with that number in mind.
5. Schedule Inspections
Once your offer has been accepted, you will enter escrow. During this time period -- which typically lasts between 15 and 30 days -- your lender will work on officially underwriting the mortgage. You'll also have the opportunity to conduct inspections on the home before you sign on the dotted line.
These inspections will likely come at your expense, but are worth every dime. In addition to a general home inspection, most homebuyers purchase a termite/pest inspection. Depending on the details of your home, you might also get inspections on the fireplace, well and septic systems.
The goal of the inspections is to have a professional point out any potential concerns with regard to the home, including immediate safety concerns and potentially longer-term things to look out for.
Once these are complete, you have the option of asking the seller for concessions based on the results. Some things, the homeowner may be forced to pay for by law in Michigan, while others are up for negotiation.
6. Close on the Home
Following the inspections, concession process and mortgage underwriting will be the home closing. This is where you will officially sign for the mortgage and the home purchase.
The title company that is handling the closing will also conduct title searches on the property to ensure there are no liens or anything else that would prevent the legal transfer of the property from the seller to you.
Assuming the title is cleared, you'll be good to proceed. When you go to the closing, you'll need to bring with you a bank check for your portion of the closing costs, which will include the down payment at least. You'll also need to bring a government-issued photo ID as well as your writing hand -- as there is a lot of paperwork to sign.
Once you put your John Hancock to all the required paperwork, you'll officially be a Michigan homeowner!