Below is information about the key steps to buying a home.   Understanding each of these basic steps will help prepare you for the homebuying process.   Please be aware that the information below is not intended to provide legal or financial advice, and should not be substituted for the advice of a licensed attorney or financial advisor.

1.  Go Loan Shopping
2.  Making an Offer
3.  Home Inspection
4.  Get Insured
5.  Final Walk-Through
6.  Closing and Settlement

1.  Go Loan Shopping

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Mortgages come in all shapes and sizes, and it is critical that you find the mortgage that is right for you.   Always talk to multiple lenders and comparison shop.   Make sure you understand all the key terms and components, including the difference between a fixed-rate and an adjustable-rate mortgage; loan origination points; the term of the loan; prepayment penalties; and so on.   You should also consider getting "pre-approved" for a loan -- once you have a pre-approval letter from a lender, you'll be an attractive buyer in the eyes of a seller.   Pre-approval demonstrates that you are capable of securing the financing needed to purchase their home.

2.  Making an Offer

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Prior to making an offer, you may want to consult with a real estate attorney to assist you with the paperwork and legal contracts.   For a reasonable fee, a lawyer can review contracts, make you aware of special considerations, and assist you with the closing process.   Shop around for a qualified attorney, find out what services he/she can provide and for what fee, and check that they have ample experience representing homebuyers.

Your first major step is to submit an offer to purchase the home.   The completed form, often referred to as a Residential Offer to Purchase, essentially becomes the contract on the property once the seller signs it.   Make sure you understand everything that is included in this contract!

An offer generally consists of the following components:

1. complete legal description of the property;
2. the amount of earnest money [see below];
3. down payment and financing details;
4. a proposed move-in date;
5. the price you are offering;
6. a proposed closing date;
7. length of time the offer is valid; and
8. additional details of the deal.

The offer should also include contingency clauses for financing and a satisfactory home inspection report.   A termite inspection may also be necessary.   Unless you agree to buy the property "as is", the offer should stipulate that the seller is responsible for ensuring that the plumbing, heating, mechanical and electrical systems are in good working order.

How much should you offer?   Make sure you conduct a close examination of what homes in the neighborhood and surrounding area are selling for, how long the property has been on the market, financing terms and other such factors.

What is "Earnest Money?"   Once you make an offer to purchase the home, you provide the seller with a "good faith" deposit, also known as earnest money.   This demonstrates to the seller your seriousness in making the purchase, and no seller will accept an offer to purchase without such a deposit.   However, this deposit is not transferred to the seller until settlement; instead, it goes into an escrow account where it is held by a neutral third-party.   If you back out of the contract without cause, the seller is entitled to the money.   If your contingencies are not met or your inspector finds significant flaws with the property that were not disclosed, the money reverts back to you.   The seller will likely provide the forms that stipulate the terms of the earnest money -- make sure your rights are explicitly protected in this document.   Also, make sure the seller is not holding the deposit (never give your earnest money to the seller -- it should be made payable to a third party), and that a neutral third party, such as an attorney, title company or escrow service are executing this service for both parties.   As for the amount of earnest money required, it can be any amount you and the seller can agree upon; this varies greatly across the country, and depending if you are in a "buyers market" or a "sellers market".   In some cases, earnest money can be 1-2% of the sale price; in other cases, $500-$1,500 can be sufficient.

If you have any questions about the Offer to Purchase form, consult a real estate attorney.

3.  Home Inspection

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During this process, you are entitled to inspect the home to look for needed repairs and other potential problems.   Your licensed inspection professional should inspect the roof, attic, plumbing and electrical systems, the foundation, the heating and air conditioning units (HVAC), water heater, insulation and ventilation, water source and quality, the potential presence of pests, kitchen appliances, flooring and ceilings, doors, windows, chimney, light fixtures, and so on.   You may also inspect for termite, radon, and well/septic.   See our Real Estate Services Directory for a list of area home inspectors.   Home inspections are critical, and worth every nickel you'll spend; prices can typically range from $200-$500 for an inspection.

Make sure your Offer to Purchase includes a repair contingency.   Such a contingency provides both the buyer and the seller with options should an inspection discover repairs that need to be made.   The seller has the option of making the repairs or refusing to do so.   The buyer has the option of accepting the property in its current condition (in other words, make the repairs yourself), or terminating the contract.   If the seller agrees to make repairs, have your home inspector review the completed work to make sure you are satisfied.

4.   Get Insured

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All lenders will require that you have homeowners insurance.   Shop around, compare coverage and premiums, and find a policy that is best for you.

Also, you may be required to obtain mortgage insurance -- this is a policy that protects lenders against losses that could result from the default of the home mortgage.   It is typically required by lenders if you are making a down payment of less than 20%.

5. Final Walk-Through

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A day or two before closing, you will have the opportunity to visit the property one last time to verify that previously identified problems have been addressed and no new problems have surfaced.

6.  Closing and Settlement

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This is where you sign the loan documents and other necessary legal forms, pay loan fees, and get the keys to your new home!   Closing costs can generally run between 2-4% of the purchase price of the home.   One-time, non-recurring fees include title policies, escrow fees, notary fees, wire fees, courier/delivery service, attorney fees, survey fees, recording fees, and State, County or City transfer taxes.   You may also be paying recurring fees such as fire insurance premium, flood insurance, property taxes, private mortgage insurance (PMI) premiums and prepaid interest.

Negotiating closing costs with the seller is a key step in the homebuying process, and we urge all buyers to educate themselves about this process, and identify the costs that you should and should not be responsible for paying.

At closing, you will receive the following:

1. HUD-1 Form Settlement Statement (itemizes all services provided and fees charged)
2. Truth-In-Lending Statement
3. Mortgage Note
4. Deed of Trust
5. Binding Sales Contract
6. Your new home keys!