The Ultimate Home-Buying Guide:

Confidently purchase the home of your dreams!

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Are you getting ready to buy the home of your dreams? If you're a first-time home buyer, the process can be incredibly exciting, but it can also be daunting. While you're eagerly imagining how you're going to decorate all of the rooms, it's all too easy to get carried away and not think about the numerous aspects of buying a home:

  • Making sure you've found the right home for your lifestyle

  • The condition of the home and budget for necessary repairs and improvements

  • Determining what you can afford for a home

  • Making offers to purchase

  • What you will need to apply for a home loan

Buying a home is often one of the largest financial transactions the average person will make in their lifetime. For first-time home buyers, it’s definitely the largest transaction to date.

Amidst all the excitement of becoming a homeowner, be aware that the process can take longer than you might initially think, but it will be worth it when you get the keys to your dream home! Whether you're working with a real estate agent or directly with the sellers, you must be fully prepared when you make an offer in writing, and ensure you are positive that you definitely want the property in question.


Chapter 1: Getting Started

Preparing to purchase a home begins long before house shopping and applying for a loan. Before tackling the rest of the home buying checklist, you first want to make sure you are financially ready to purchase. Strengthening your financial position will not only help you get approved for a loan, solid financials can also lower your monthly payments and save you money in interest.

Save, Save, Save for Closing Costs and Down Payment

Even though most individuals, including those who can afford to pay cash for a home, choose to purchase homes using funds obtained with mortgage loans, this does not cover the entire cost of the transaction. There are two big up-front costs for which future homeowners need to plan and save: the down payment and the closing costs.

  • Down Payment: The amount of a down payment required varies depending on the type of mortgage loan for which you are approved. Required down payments range from zero down (perhaps on a VA loan) or three and a half percent on an FHA* loan to five, ten, 15 or even 20 percent down on conventional mortgages. 

    Any conventional mortgage, however, with less than 20% down, will require paying for primary mortgage insurance (PMI) in addition to your monthly payment amount which includes principle, interest and escrow (taxes and homeowner's insurance). Typically, it is best to put as much cash into your home purchase up front as you can without completely draining your savings, as unexpected repair costs go hand-in-hand with home ownership. So a larger down payment will reduce your monthly payment and, likely, save you thousands in interest over time.

  • Closing Costs: Closing costs include fees and expenses associated with purchasing a home which are typically due at the time of closing (the day when the property title is transferred into the purchaser's name). These expenses include items such as appraisal, closing fee, credit report, initial escrow deposit, flood determination and life of loan flood monitoring, home insurance, homeowner association fees, recording fees, title insurance (lender's and borrower's), an origination fee, primary mortgage insurance, and the fee to transfer property taxes. 

    Buyers can typically expect to pay between two to five percent of their new home's purchase price in closing costs. For example, when buying a $200,000 house, the purchaser could expect to pay around $4,000 to $10,000 in fees up front at the time of closing.


Get Your Credit Score in Tippy-Top Shape

Good credit history is not only required to be approved for a home loan, a solid credit score will also qualify you for lower interest rates.

When you are preparing for homeownership, it’s important to clean up your credit before submitting loan applications. Satisfy any unpaid collection accounts, make all payments on time so your credit report reflects timely payments for at least twelve months, and hold off on opening up any new credit cards, purchasing new vehicles or taking out a loan for that fishing boat you have always wanted, as new or recent credit can adversely affect your score.

Lenders want to see an established history of responsibly managed credit. If you have less than stellar credit due to poor financial decisions, fraud or other unexpected circumstances, do what you can to remove or satisfy these negative credit files and bring proof of payment when you meet with your prospective lender.

When your credit is clean and you have enough money in the bank, you will truly be ready to begin the process of purchasing a home by moving onto the rest of the home buying checklist.

Credit Score


Chapter 2: Deciding Which Type of Loan is Best for You

You might qualify for more than one of these kinds of mortgage loans, so you will need to do your research (on your own or with your lender) to determine which type of loan will make the most sense for your life, home ownership goals and unique financial situation.

Depending on your finances, home ownership history, and other qualifications, your choice regarding mortgage types and programs could be limited.

Consider the following types of mortgage loans to determine which could work best for you:

  • FHA* (Fair Housing Administration): With an FHA loan, the government guarantees loan repayment to the lender to incentivize lenders to make loans they otherwise would not approve. FHA loans feature low down payment requirements and no minimum income requirement. Applicants do need to show a reasonable debt to income ratio (the amount of income earned compared to the amount of payments made on existing debts) and decent credit history. Many First-Time Home Buyer loans, which feature favorable loan terms, are backed by an FHA program. 
  • VA (Veterans Affairs): The VA assists service members, veterans and qualifying spouses with home purchases and repairs by guaranteeing a portion of a VA loan, which allows lenders to offer more favorable loan terms to qualifying recipients. To qualify, applicants must meet certain eligibility requirements

  • Conventional: A conventional mortgage is any type of a home loan which is not secured by a government program, such as the VA or FHA, and which is available through a private financier such as a credit union, bank or mortgage company or through the government-sponsored enterprises, Fannie Mae and Freddie Mac. 

    For individuals buying a second home, the conventional mortgage will be their primary option for financing. To qualify applicants for conventional mortgage loans, lenders look at a required mortgage application, proof of income, ability to repay, assets, credit history and down payment.
  • Fixed Rate Versus Variable Rate: With a fixed rate loan, your interest rate and interest payment will remain the same throughout the life of the loan. 

    These rates are typically based on credit score, loan amount and loan term, and they might be higher up front. With a variable (or adjustable) rate loan, you will likely benefit from a lower initial interest rate which will then be adjusted based on a predetermined schedule and a nationally reported index rate. A changing rate means the amount you pay monthly in interest will adjust with the selected index rate.

Comparing the types of mortgage loans and government housing programs available and determining which you qualify for can be an overwhelming task. Be sure to ask your lender for assistance when deciding which type of mortgage loan you want to apply for.

Types of Loans

Chapter 3: Getting Pre-Approved

A pre-approval on a loan means a lender has approved your loan request up to a certain amount, usually for a limited amount of time, (commonly 90 days). This gives potential home buyers the freedom to go house shopping with a specific maximum purchase price in mind: the loan approval amount plus the down payment.

To obtain a pre-approval on a home loan, you will need to submit a real estate loan application, proof of income, proof of assets, employment verification, credit history and documentation proving your identity (such as a driver's license or passport).

Other key items potential borrowers need to know:

  • You must have sufficient income and prove that it is stable.

    The National Association of Realtors (NAR) has found that the average first-time homebuyer earns $72,000 per year while the average repeat home buyer earns $98,000 annually. Even if your income is far below these ranges, you need to prove that you have steady employment by being with the same employer for at least two years, and if you are self-employed, at least five years of solidly making a profit.

    Credit unions are more likely to lend to self-employed home buyers who are likely to face rejection from banks even if their earnings are well above the national averages for first-time and repeat home buyers.
  • Your down payment needs to be proportionate to what you can afford as well as satisfying any concessions of your sales contract.

    NAR reports that most home buyers will finance 90% of their home purchase). In tight markets, the seller may insist on a 10% down payment or more to go into escrow. If you are purchasing a condominium or cooperative apartment, boards in this type of housing may also institute minimum down payment requirements.

  • Many documents will need to be assembled for your home loan application.

    You will need to show proof of your income, assets, and obligations to be considered for a home loan. This will involve gathering one to two years of tax returns, bank statements, and other proof that your net worth is what you say it is. You want your debts to be as low as possible and your assets to be as high as possible when you apply.

  • Having a strong credit rating is dire for getting approved for a home loan.

    You need to get your credit score in good shape to get the best rate on a mortgage as well as be approved in the first place. Make sure that you are paying your bills on time, keep your debt load down if you can't eliminate it entirely, and make more than the minimum payments on your obligations. The credit utilization component is one of the largest triggers in your credit score, so even if you are debt-free but paying your credit cards in full every month you'll want to stay far from your actual credit limit. Credit unions may be more willing to work with home buyers who have fair, damaged, or no credit than banks.


If you already have pre-approval for a loan, getting your mortgage will simply require you to notify your lender of the transaction details. If you do not yet have pre-approval, then you will need to begin the mortgage application process with a lender right away. Submit a real estate application and additional required documentation to your lender.

Once the home seller accepts your offer, you will sign a buy sell agreement and pay your earnest money (this is typically organized through a title or escrow company which will also handle the transfer of the property's title upon closing). Your lender will need a copy of the buy sell agreement in order to move forward with documentation and to begin the next steps of the mortgage process. You will also need to shop around for homeowner's insurance policies in order to select a company and have insurance in place prior to loan closing. Your lender will require proper insurance documentation before closing the loan.

Chapter 4: Choosing a Realtor & Shopping for a Home

If you are buying your second home, then you probably already have a favorite, road-tested real estate agent in your contacts, or feel comfortable enough to navigate the home-buying process on your own.

But if you are a first-time home buyer, then you will likely benefit from working with a knowledgeable and reliable real estate agent who can help you throughout the process, not only locating homes within your price range and checklist, but also with negotiating price.

When choosing an agent, do not simply pick the agent with the lowest commission; look for someone recommended by their peers and yours. Ask your lender if they recommend anyone in particular, verify your agent's license with your local real estate board, see if she or he has any special certifications. And always take the time to look up their recent listings and online reviews and compare list prices with actual final sales prices.

Choosing a RealtorHome

Shopping for a first house or buying a second home can be overwhelming. Simplify the shopping process by narrowing your search to homes you can afford with the amenities you want in the areas where you want to live. Determining these key factors will help you limit the number of houses you will consider during the search, and ultimately could save you a lot of save you time and disappointment.

Use your pre-approval amount, loan cost estimate and down payment to determine the ceiling of your new home's price range. Then, think about your life in the long-term (or over your mortgage term, fifteen to thirty years).

When working with Your New Agent, Be Sure to Ask Yourself:

  • Do you think your family will grow?

  • Will you want to live in a particular school district?

  • Do you have pets that need a yard?

  • Would you prefer dealing with a homeowner's association?

  • Are you looking for a single-family home, townhouse, or condo?

  • Will you grow tired of a long commute to the office? OR

  • Is there a neighborhood which is primed to increase in property value?

Answering these questions will help you determine the type and size of home and neighborhood you want.

Next, we recommend enlisting a trusted advisor, a real estate agent with a good track record and knowledge of your local market who can help you find quality homes for sale in your price range.


Chapter 5: Making an Offer and Negotiating

OfferNegotiationWhen you find a property you like, you will need to make an offer.

For most buyers, a real estate agent will help you through this process, ensuring your written offer (which is essentially a contract), includes all of the legally required information in addition to certain buyer protections. Some states do give buyers the opportunity to begin negotiations with verbal offers, so it’s important you understand the local regulations wherever you are considering purchasing a home.

In Arizona, offers are made in writing and lawyers are usually NOT involved with home sales, which is different from many states.

Typically, in Arizona, the buyer’s real estate agent will work with the buyer to write and negotiate the contract and present the offer to the seller’s representative, and this all happens without the added expense of an attorney.

Finding out how motivated the owner is to sell the property will help you get a feel for how much room exists for negotiation. Once you submit an offer, the seller can either choose to accept, provide a counter offer, or reject your offer.

If you lose out to another buyer, do not get discouraged. This type of competition is common in a tight market. So, you will want to be ready to move onto looking at different properties. If your offer is accepted, you will be required to pay earnest money and sign a buy sell agreement before you secure mortgage financing.


Chapter 6: Home Inspection & Appraisal

A home inspection is an objective evaluation of a home's condition (structure and systems) by a hired inspector.

A buyer should have a timely inspection performed prior to the sale's completion in order to attain a clear understanding of the home's condition and avoid any unpleasant and costly surprises after purchase.

If an inspection reveals problems with a house's condition, the buyer can request repairs be made or use the issues as leverage for further price negotiation. Only hire a certified home inspector who has lots of recent experience and good references. And be sure to attend the home inspection and read the inspector's complete report.

Inspection and Appraisal

A home appraiser determines a reasonable market value for your home or property either "as is" or "upon completion." This value is based on an on-site property inspection, construction plans and market research including recent, nearby sales of comparable properties.

The value determined by an appraiser is the number your lender will consider to be the property's official value for his or her loan-related purposes.

Although borrowers are responsible for the cost of the appraisal, lenders are required to order appraisals for use with certain home loans and have a regulated process for selecting appraisers and ordering appraisals. So, it is financially prudent for borrowers to refrain from ordering property appraisals without first consulting with the lender.


Chapter 7: The Final Walk Through & Closing

About a week prior to closing on your loan, you will want to ask your real estate agent to arrange a final walk through of the home you plan to purchase.

A walk through allows you to check that the property's condition has not changed since the home inspection and that your expectation and terms of the contract are going to be met.

During a walk through, it’s essential that someone visually inspect the home (interior and exterior) and grounds (that landscape features have not been removed), verify the status of agreed upon repairs and test the function of the house's features and amenities including:

  • Light fixture
  • Appliances
  • Heating and air conditioning systems
  • Garage doors
  • Plumbing (toilets, drains and faucets)
  • Windows and doors
  • Exhaust fans
  • Garbage disposals

A final walk through is especially important if a property has been left vacant for an extended period of time, as a dripping faucet or other issue could have gone unnoticed for days or weeks, and there is the potential for undetected damage.

Closing on a house refers to the process and everything that is involved with transferring a property title into the new owner's name. Closing is also sometimes referred to as settlement or escrow. Closing typically takes place in an office setting such as your lender's office, the title company or at an escrow company.

Buyers and sellers sometimes meet to sign documents at the same time, but most of the time this takes place separately. Your lender may or may not be present at the time of closing, as the title company and escrow representatives are qualified to manage and notarize loan document signings.

Prior to closing, you should receive a loan estimate, closing disclosure, notice of your right to rescind, and an initial escrow statement. These documents disclose all of the details of your loan agreement and the time frame within which you have the right to change your mind regarding your home purchase.

On the day of your loan closing, you will need to be prepared to pay the total of your closing costs and down payment, which your lender will discuss with you prior to closing. These funds are typically paid directly to a title company and then disbursed by the title company to the respective payees.

At the time of closing, you will also sign all loan documents such as a promissory note, security paperwork (mortgage or trust indenture), your lender's documents, and documents mandated by the state and federal government. You will also be given a settlement statement or disbursement agreement which details the distribution of loan proceeds as well as your down payment and closing costs.

Walk ThroughClosing

Following closing, the title company is responsible for disbursing proceeds, recording documents with local government offices (the county recorder), transferring taxes and ensuring the transfer of the property's title into the new owner's name.


Chapter 8: Home Buyer Mistakes to Avoid

After going through the exhausting but rewarding process of searching for the perfect home and then applying for a mortgage, the last thing you want is to wind up selling just a few years after going through all of that. It's easier to walk away from a lease than it is to walk away from a mortgage, even if your home is fully paid off.

Furthermore, going to a new home isn't as simple of a process as it was when you were a renter. Here's some costly mistakes to avoid, especially if you are a first-time home buyer.

  • Buy a home for the lifestyle you have, not the lifestyle you could be aspiring to.

    While there are things you may have dreamed of doing with a three-bedroom house that you couldn't do with a one-bedroom apartment, keep your home search realistic for your lifestyle. If you hate doing yard work and don't want to spend your weekends tackling it or paying someone to cut all that grass, then buying a property sitting on several acres is a decision you'll regret.

  • Remember that the financial obligations of home ownership go beyond just your mortgage payments and real estate taxes.

    Loan payments and taxes may be cost more than what it would cost to rent in a similar dwelling in your area. And the tax benefits of home ownership are also incredibly tempting. However, these two items will not be your only expenses as a homeowner.

    As a renter, your landlord is responsible for paying for insurance, water and garbage collection bills, major appliance repairs, landscaping, and other general maintenance. You will have to pay these expenses yourself as a home owner. Water bills and homeowners' insurance are predictable, but you can never predict calling the plumber right before you were going to go on vacation and now have to spend your vacation fund on fixing pipes.

    Even if you have a stable income near or above the national average, it can be difficult paying for routine and unexpected maintenance expenses. So, you want to make sure that you don't get locked into a mortgage and home maintenance expenses you can't afford in the event you and/or your spouse sees a reduction in income in the future.

  • A pre-approval for a mortgage is not the same as an actual approval.

    If you're looking to buy a home in an especially tight market, being pre-approved for financing can help speed up the process. However, a pre-approval doesn't always equate to an actual approval. The underwriter may still deny you for financing because they don't think you have sufficient income and/or assets to complete the home buying process. If you lose your job before closing or your self-employment income has a downturn, this often results in being denied for financing at worst or approved for a much lower amount at best.

If you're looking to buy a home in an especially tight market, being pre-approved for financing can help speed up the process. However, a pre-approval doesn't always equate to an actual approval. The underwriter may still deny you for financing because they don't think you have sufficient income and/or assets to complete the home buying process. If you lose your job before closing or your self-employment income has a downturn, this often results in being denied for financing at worst or approved for a much lower amount at best.



This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.