The moment when you decide the time is right to buy your first home is certainly an exciting one, but that moment will almost certainly be followed by many more moments of confusion, intimidation, and even defeat. Honestly, no matter where you come from or what your background is, entering the housing market for the first time can be daunting.
Take it from me; at age 28, I just purchased my first home—a cozy place just east of downtown Mishawaka, Indiana. When Metropolitan Title asked me to share my experience and the lessons I learned with other first-time homebuyers, it was an exciting opportunity. So, here’s what I learned….
What to Do Before You Start
Yes, there are steps to take before you start. The more time you spend devoting yourself to building upon these steps, the easier you will find the homebuying process.
Save Your Money
I’ll put this simply: homebuying is expensive. I will not go into great detail as to why this is the case—everyone seems to have a different opinion—but just know it is. Obviously, the price of the home you end up buying is dependent upon the condition of the house, its location, its age, its size, and so on.
As of 2023, both Indiana and Michigan were named in Forbes’ 15 states with the lowest average house prices (among many other midwestern states), so there are advantages to looking around these states and region.
Regardless of this fact, homebuying is expensive, so, the advice I’d give is to save and save aggressively. That can be hard if you’re currently renting, but there are tips and strategies out there to save up.
Don’t just live within your means, leave beneath your means. If that means you need to trick yourself into thinking your paycheck is smaller than it actually is, then do so.
I’ll level with you: all the saving is not glamorous, nor is it fun. Your friends may think you’re stingy, frugal, or no fun, but this is an investment you’re making, so it will pay off.
Every dollar and penny saved helps you get closer to becoming a first-time homebuyer.
Build Your Credit
Having a good (or even a great!) credit score will go a long way toward getting approved for your mortgage. Your credit score will indicate to the lenders how good of a borrower you are and how reliably you’ll make your payments.
Making on-time payments for student loans, credit cards, car payments, and even your standard utility bills help build your credit, so enrolling in autopayment programs or keeping a payment calendar will certainly help.
When you talk to your lender about getting approved for a mortgage—which I did in person but was later informed that’s not really something people do in 2024—they will run three credit checks: your low, medium, and high scores. Perhaps ironically, getting a credit check typically decreases your score just a little bit. Lenders know this, so if you have good enough credit, it’s unlikely the decrease will discourage them from approving your application.
Plan Your Budget
Finally, before you start the formal process, I’d recommend spending a little time studying the general geography of your preferred market. Think about what kind of house you want to live in and what mandatories you have as a buyer. I will say, fewer mandatories will help keep your options open. For example, I wanted to buy a house that was in good condition overall, I wanted a basement, and I wanted a garage.
I then spent some time looking at houses with these mandatories on Realtor.com, looking at what houses were on the market at the time.
One thing I did not do, but would definitely recommend to other first-time homebuyers: look at houses that have been recently purchased. Think about why those prices are higher or lower than you may expect. This knowledge will be to your benefit when you truly enter the market.
Knowing the market will help you plan your preferred purchase budget and prepare your down payment. Depending on how eager you are to buy, there are different loan structures, but for a conventional loan, the advice I was given was to prepare a down payment between 10% and 20% of the final purchase price of the home.
Step 1: Getting Approved for a Mortgage
Okay, you still with me? Once you’ve gone through all your planning, the next step is to seek approval from a lender. I alluded to this earlier, but I understand this can be done entirely online (or at least remotely), but I wanted to talk to a loan officer face-to-face. I do not regret that decision: it let me sit in a room with a person and talk to her at a table about where I was in life and what I was planning to do.
I am a member of a local credit union, so they were my first choice for my lender, so I didn’t “shop around” for a lender, but it is something I can recommend if you want to try to get a more favorable loan. Ask each lender you talk to if they have any specials or discounts you qualify for!
Getting a mortgage approved by a lender can be done remotely online or face-to-face.
The typical advice is to bring a bank statement, your most recent pay stub, and print-offs of any loans you have to the approval. If I remember correctly, only the pay stub was useful in my meeting, but it doesn’t hurt to be overprepared, right? Again, I was at an advantage because I was meeting with an officer at my own bank, so your experience at a different bank may differ from mine.
When I met with my loan officer, she asked me some questions about where I planned to buy a home and what my budget was, and then she ran my credit check—that credit check, by the way, is good for 90 days after it’s been completed. Honestly, I mostly remember that meeting as a friendly conversation about what my goals were. So, if you’re prepared for that, there’s no need to be nervous about it.
After I left, the only thing my bank needed were my most recent tax returns. If you can have those with you, your approval process can probably be quicker than mine!
Step 2: Finding an Agent
In my experience, this is probably the most important step! Your agent will set the tone for your entire homebuying experience. They do a lot of work behind the scenes I don’t think many buyers see or understand. However, this work is important because it’s how the homebuying process works “under the hood.”
I’d recommend finding someone who has experience working with first-time buyers. I’m sure if you were to ask my agent, she would tell you I asked some silly questions throughout the process. But I would tell you she always took the questions seriously because she knew they were important to me.
Choosing an experienced realtor who can help you through the first-time homebuying process will simplify the experience.
So, how can you find an agent? I’d recommend talking to people you know and trust who have also bought a home recently. Ask who their Realtor was and what it was like to work with them. I work for a small business, so I asked my boss for a referral—and I’m very glad I did!
Your agent will answer questions for you, help schedule house tours, act as a conduit between you and the sellers, help organize paperwork, and so much more! If I were to point at any of these tips.
One thing that’s worth noting: you do not directly pay your agent. They are paid at the end of the process by getting a cut of the transaction itself. There is also a new law in Indiana which requires buyers to sign an agreement with their agents. At the time I was going through my homebuying process, this law didn’t exist yet, so I didn’t have to sign an agreement with my agent. That said, one is now required.
Step 3: Touring Homes
When you pick your agent, you’ll get set up with a portal through which you can communicate. The portal allowed me to filter out all houses that were outside of my preferred price range or didn’t meet other requirements. Whenever a new house “hit the market” that met my standards, I would be notified by email.
From there, I recommend taking some time to look at the images of the house and look for things you do or don’t like. Categorize your options into three categories: “favorite” for houses you want to tour, “possible” for those you’re on the fence for (pro tip: as time goes on, if you’re on the fence about a house, you don’t really want it), and “reject” for those you’re certain don’t interest you.
Having an open mind when touring homes will help you better understand what you want and don’t want in a home.
Are You Looking for a Dream Home?
Especially for first-time buyers, a good agent will show you some houses that are…. not good. They will use these as opportunities to show you what to look out for when you’re touring. Structurally, electrically, and so forth.
Don’t worry about “missing out” on the perfect house. When the right one comes, you’ll know it. And in an active real estate market, there will be many options. Also, honestly, for first-time home buyers, there is no such thing as your perfect dream home. There will be things about every house you will look at that you don’t love. So, embrace the idea of a “starter home,” and be willing to put some TLC and elbow grease into it.
Step 4: Offering, Inspecting, and Negotiating
Once you find a house you feel is “the one” (congratulations!), now it’s time to submit an offer. And I do mean now.
We’re still feeling the aftermath of the pandemic, so—as you likely noticed during your research phase—houses that are priced well are bought very quickly, while overpriced ones tend to exist in purgatory until the seller “blinks” and lowers the price.
A friend of mine down in the Indianapolis region bought a house during the pandemic. She told me it was not uncommon for houses to go from “recently listed” to “sale pending” in a matter of hours. Thankfully for buyers, the market has settled a little bit as of this writing in 2024. Even still, I toured the house I ended up buying on Saturday before Memorial Day and I submitted my offer the morning of Memorial Day. There were already other offers on the table for the owners to evaluate. In total, the house had been on the market for about 5 days when my offer was accepted.
Especially for first-time buyers, I would advise avoiding the dreaded “bidding war.” Stick to your budget and don’t overpay for your new home. Like I said, if one house falls through, another one will come along.
Offering and E-Signing
Let’s talk about the offering process. This is another instance where getting a good agent is critical. In short, the document upon which the offer is written is a large one, which is intimidating for the first-time buyer. A good agent will walk you through it and explain everything in simple terms.
At the end, you’ll receive an electronic version of the document to e-sign.
At this point, we’re all decently familiar with e-signing documents—and you will likely have already signed a few as part of the homebuying process—but prepare yourself for an onslaught of them.
Among these is an estimate of how much your monthly payment will be. This payment includes the amount you pay on the loan, homeowners’ insurance, title insurance, and taxes all wrapped into one number.
One lesson you can learn from my mistakes: develop a system to organize and keep track of what documents you have signed and what each one says. It will be beneficial and will help you answer your own questions as you become inundated. I underestimated just how many there would be and had at least one moment of panic toward the end of the process because I had forgotten what certain documents had said. A system to organize these documents would’ve been beneficial to me.
There’s a lot of paperwork to be done, but it’s worth it once you’ve secured your first home.
Earnest Money
Your offer’s been accepted! Now, it’s time to show the seller(s) you’re serious about your interest. You do this through a deposit called “earnest money.” Earnest money is a small deposit into the purchase of the home. The amount of earnest money you pay is dependent on a few different factors, but it’s almost never more than 3% of the final purchase price.
If you act in good faith, earnest money is typically refundable should irreconcilable differences arise between you and the seller. I’ll talk about this more when we talk about negotiations.
On the other hand, if all goes smoothly, the earnest money will be applied to your down payment and closing costs.
Appraisal
Your lender also has the right to appraise the property. After all, they are footing 80% of the bill (if not more).
All you really need to know on this step is that the bank won’t lend you more money than they value the property at. So, imagine you’ve submitted a $200,000 offer, but the bank values the property at $190,000. In that case, you’re responsible for the remaining $10,000.
Don’t fear the appraisal. Again, with an experienced agent, you can be confident that you’re not overpaying for the property. This is another reason why you should avoid a bidding war if you can.
Keep in mind, too, that your lender wants you to buy the house if you’ve made it this far in the process. It means you’re going to give them business for up to 30 years. They also understand that having to shell out more money in what is already an expensive process can and does chase away prospective buyers.
Inspection
Again, I refer to the importance of your agent. A great agent will have a web of connections they can refer to you for all manner of homeownership needs. This includes hiring an inspector to go through the home with a fine-tooth comb.
You hire your own inspector and pay them for their work inspecting the home. The inspector, in turn, will give you a report of all the possible issues and oddities in and around the home. Don’t be intimidated by the length of the document. Instead, use it as a checklist of things you can fix up.
Home inspection plays an important role in ensuring you know exactly what your agreeing to when buying a home.
The inspection will cover issues big and small, so make note of the biggest issues and communicate them with your agent (who also receives a copy of the report). This leads us to…
Negotiation
The negotiation phase. With your list of major issues at hand, you can enter negotiations with the seller—either asking them to remedy the issues, seeking an equitable way of resolving them, or asking them to adjust the home’s price to reflect the work or money you’ll need to invest in repairs.
This is where that earnest money comes back into play. If you are being a reasonable negotiator but the sellers are being unreasonable, typically you can walk away from the purchase and be refunded your earnest money. But check with your agent first.
For example, when my house was inspected, we discovered an electrical issue and raised concern about the age of the furnace. The sellers went above and beyond with resolving the electrical issue, so I paid to have the furnace inspected. If it turned out the furnace was going to need replacing, I would’ve asked the sellers to help me do that—thankfully, the furnace was determined to be in good working order, so we were able to move forward. Be creative in your negotiation and you may be surprised by how things work out!
Step 5: Wire Transfers & Closing
My goodness, we‘re almost there! All the inspections have been done. Your checklist of “must-be-fixed” items has been completed. Everything is in order.
Closing Costs
Simply put, closing costs include your down payment and the expense involved in closing. This includes the title search, title insurance, and so on. The exact amount of money you spend on closing will vary depending on the type of loan, local laws, and the home’s value, but it’s typically between 3% and 5% of the purchase price.
Among the many documents you will e-sign, there is an estimate for how much your closing costs will be. This estimate is usually on the high side so the only surprises are pleasant ones.
Making a Wire Transfer
In the homebuying process, there is a lot of money involved. Especially if you’ve been saving your money for years, you may become surprised by how casually people combine the word “thousand” and “dollars.”
In Indiana, if your closing costs are greater than $10,000, that money must be wire transferred from your bank to the title company.
Your title insurance company will send you wire transfer instructions to you through a secure electronic portal. When you receive these instructions, print them off and take them to your bank.
Essentially, these wire instructions tell the bank how much money will be transferred from your bank account into the title company’s Escrow account. So, it includes account numbers, routing numbers, and other information your bank needs to complete the transfer.
My advice: be aware of federal holidays. My closing day was Monday, July 8th, so I went to my bank on July 3rd to complete the wire transfer. However, after 2 o’clock the day before a holiday, the wire doesn’t occur until the workday after the holiday. In my case, this was Friday the 5th.
Becoming a first-time homebuyer is a reason to celebrate!
Final Walkthrough
Your final walkthrough of the house usually takes place the day before the fabled closing day. Alongside your agent, this is your opportunity to take one more look at everything that has happened since the inspection to make sure everything is as you expect it to be.
If there are any issues, note them down and bring them with you to closing day.
Closing Day!
Okay, now you’ve made it! Closing day is the day you’ve been waiting for. There’s always a lot of excitement around closing day—and rightfully so—but when you go and close, just know it mostly consists of signing and dating a lot of pieces of paper.
As the buyer, you’ll go into an office and sign the papers while a loan officer will explain what each document says. Then, the sellers go back to sign the documents. After both parties were done, Metropolitan Title gave us the opportunity to sit down and talk to each other about the home, the neighbors, and generally get to know each other a little bit.
Once closing is done, it’s time to start moving! The home is yours!
One final thing to note: your down payment and closing costs essentially cover the first two months of your mortgage payment. So, in my case, I closed in early July, so my first payment was due in September.
Final Reflections
Buying a home is exciting, but there are moments of nervousness along the way. Between my agent and her referral to Metropolitan Title, it was also an overwhelmingly positive one.
From the day I met with my lender to closing day, just under 5 months had passed. That includes the weeks when my agent was recovering from surgery. At times, it felt like everything was happening lightning-fast, and others where it felt like nothing at all was happening.
Don’t let the rapid times overwhelm you; likewise, don’t like the slow times test your patience. It’s all part of the process.
When the time is right for you to purchase a home, I genuinely hope my story is helpful to you along your journey.
Good luck out there!
