Know Where You’re At

The basic steps of the home-buying process are pre-approval, house hunting, offers, escrow, inspection and approval, and closing. Although they may seem daunting, each one on its own isn’t too bad.

Pre-approval is the biggest hurdle: it’s time to get your finances in check, make sure your credit is solid, and calculate how much you’re able to pay as a down payment. While it’s tempting to scan real estate listings first, the financials will help you learn exactly what your budget will be. “The biggest topics that can create stress and confusion are figuring out down payment options and understanding their finances,” says Tu. Sites like Rocket Mortgage have a calculator to sort out what your range is, and can help you compile all the information needed to get an estimate on what your mortgage will look like.

After that, it’s the fun part: house hunting. Here, fun is a relative term: reading real estate listings, going to open houses, and talking to real estate agents may be some people’s hobby, but the process can go on for months. Don’t try to rush it, though, since it’s always better to find the right place you’ll stay in for years.

Your real estate agent will help you with the offer phase. It’s traditional to submit offers in writing, and you may receive a counteroffer. Here’s where you’ll need to be firm with your negotiations and not get too attached to any one location. Best-case scenario, you’ll end up getting a place under asking price, but it’s not uncommon to end up in a bidding war against another buyer. There can even be a fee to put in the offer in the first place, says Tu: “When an offer is made on a home, the seller may require the buyer to pay earnest money — which is held in an escrow account until the buyer and the seller negotiate a contract and close the deal. With the earnest money, the seller is more confident that the buyer is serious and will not back out of the deal — and it protects them if that happens or the sale falls through.”

After the offer is accepted, the closing process begins. This is when you’ll settle on the final mortgage details, so a lot of paperwork is involved. During this phase, you’ll put down a deposit to be added to the escrow account, typically 10 percent of the home price. If anything goes wrong in the final steps, you’ll be able to get this money back, but it’s a sign of commitment.

Home insurance will be purchased, as well as title insurance that can protect against lawsuits from back taxes, conflicting wills, and other legal shenanigans. The closing will be scheduled, and you’ll receive a closing disclosure that explains all the costs 3 days before closing. On closing day, you’ll bring this document, a valid I.D., and a check for your down payment and closing costs.

If all goes well, you’ll file the paperwork, make the necessary payments, close on the property and become the legal owner.

Learn the Terms

It’s a complex world, and there are a lot of terms to know. One of the biggest is how mortgages are calculated. During closing and mortgage settlement, you may have the option to pay a mortgage point. Tu explains: “A mortgage point — sometimes called a discount point — is a fee paid to lower the interest rate on a home purchase or refinance. One discount point costs 1 percent of the home loan amount. For example, if a homebuyer takes out a mortgage for $100,000, one point will cost $1,000. Purchasing a point means the interest is prepaid to result in a smaller monthly payment, and can greatly reduce the amount of money paid in interest over the life of the loan.”

Another thing that’s often confusing is private mortgage insurance. “One of the most common myths has been that homebuyers need to put down 20 percent to buy a home. I’m here to say that this isn’t true — there are many solutions that offer lower down payment options, especially for first-time homebuyers,” says Tu. When considering nontraditional plans, like putting down less, private mortgage insurance (known as PMI) may come into play. “Private mortgage insurance is a common type of insurance that is needed when someone chooses to put less than 20 percent down when purchasing a home. This is often wrapped into a monthly mortgage payment so it’s important to factor that into budgeting if a buyer is planning to opt for a lower down payment.” The good news, however, is that PMI is typically removed from the monthly payment once you’ve reached a certain threshold of the equity paid.

Luckily, you don’t need to know all of this before you start. Just focus on each step of the process and learn what you can along the way, and lean on trusted resources to help you. Here’s where Rocket Mortgage can help you again: dedicated articles on every topic in the Learning Center, trusted experts to help you through every step of the process, and programs like BUY+, which could help you save up to $10,000 toward closing when you buy with Rocket Homes and finance with Rocket Mortgage. Says Tu: “It’s incredibly important for homebuyers to trust their lender, and Rocket Mortgage is built on trust and helping our clients achieve their dream of homeownership.”