The 7 Steps to Buy a Home (without going broke)

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Buying a home means:

- Becoming an owner.

- Owning your living space.

- Building generational wealth.

Unfortunately, homebuying can be confusing.

 

The Journey

 

Buying your first home means finding:

- A loan officer.

- A real estate agent.

- A nice neighborhood.

And an affordable home.

There's a lot to consider.

Especially nowadays when home prices are up.

And interest rates are up.

 

So how exactly does homebuying work?

And is it possible to buy an affordable home today?

 

 

Over a decade ago, I remember staring at the yellow walls in the small bedroom I was renting in Seattle, Washington.

Wondering if I should keep renting.

Or if I should figure out how to buy a home.

I didn't know anything about homebuying.

And wasn't sure if I could get a loan to buy one.

 

But after doing a little research.

And seeing a chart like this of home prices going back several decades..

 

 

I figured owning a home was a good way to build wealth.

Finding a loan officer didn't take long.

And they helped me get a loan to buy my first tiny condo.

It was stressful figuring things out for the first time.

Things like:

- Getting a loan.

- Finding a home.

- Closing on the home.

And moving out of my rental and into the tiny condo.

Hoping I didn't make any big mistakes along the way.

 

But watching the value of that tiny condo go up $100,000 in the first two years..

Got me hooked on real estate.

 

 

Getting that tiny condo lead to:

Figuring out how to get more home loans to buy 6 more properties.

 

 

Real estate became my weird obsession.

Mostly being obsessed with figuring out how to buy properties without having to come up with a bunch of money.

(because I didn't have much money)

A few years into my real estate obsession I found myself working as a banker at Chase Bank.

They had me do around 40 first time homebuyer seminars for people wanting to buy their first home.

Watching someone's eyes light up the first time they realize it's possible to buy their first home never gets old.

 

After leaving my banking job of 10 years and starting this little online education business (Millennial Wealth).

Many people have asked how buying their first home works.

And how to do it without needing to save up a boatload of money.

So here's a short little guide I wish I had if buying my first home this year.

 

The Homebuyer Roadmap

 

Here's the 7 steps to buy a home plus different ways I've learned to save a lot of money along the way.

Hope it's useful.

Let's dive in.  

 

1. Deciding to Buy

 

For most people, I've found deciding to buy a home is based on 2 things.

 

The 1st thing:

Asking yourself the question..

Do I want to own a home?

Owning a home means spending time and money on things like:

- Buying a new heater.

- Replacing a broken dishwasher.

- Calling a plumber to fix a plugged up toilet.

 

But buying a home also means:

- Owning an asset.

- Having a place to call home.

- Building generational wealth for your family.

There's pros and cons when going from renter to homebuyer.

 

The 2nd thing:

Another question to ask yourself is..

Can I qualify to get a home loan?

According to the National Association of Realtors, 8 out of 10 people use a home loan to buy property.

Most people don't have $300,000+ in cash laying around (I sure didn't when buying my first tiny condo).

Getting a good deal on a home loan has a lot to do with your credit score.

Many home loan lenders view credit scores like this:

 

^{Credit score ratings}

A homebuyer with a 740+ credit score.

Has a lot more home loan options than a homebuyer with a 619 or below credit score.

A score of 619 or below doesn't mean it's not possible to get a home loan.

It just means there's less home loan options available.

Wanting the responsibility of being a homeowner and having many home loan options are two big parts of the homebuying decision.

 

2. Determining Your Budget

 

Home loan payments can be more expensive than renting.

One way I've found to help keep my monthly costs down as a homeowner is to own property with a separate area I could rent out.

For example:

Instead of buying a tiny 1 bedroom condo as my first home, I found a tiny 2 bedroom condo.

The purchase price was more.

But buying a 2 bedroom condo and renting out one of the bedrooms.

Was less expensive each month than buying a 1 bedroom condo and making the entire monthly payment all by myself.

 

This works for houses too.

When buying a home I was going to live in, I've always tried to find a property with a separate area I could rent out, for example:

 

 

I lived downstairs in this home and rented out the upstairs.

 

 

I rented out the garage and bedroom in this home which are used as separate living areas.

Using this strategy can work too if you have a larger family.

Finding a home with a tiny rental home in the backyard is another option.

Or putting one in yourself (Home Depot sells lots of tiny homes).

I've found it helpful to keep these things in mind when looking for a home.

 

The free ​Redfin app​ is my favorite way to look up homes for sale.

It has an easy to use calculator I like to tinker with to estimate the monthly payment when looking at a property for sale.

 

 

Renting out part of your home can lower your monthly payment by 25% to 40% (if you want) and free tools like Redfin or Zillow can help you estimate your monthly payment in advance.

 

3. Getting a Home Loan

 

Applying for a home loan pre-approval means sharing your:

- Employment history.

- Bank statements.

- Tax returns.

- Paystubs.

...and other personal info with a loan officer.

The loan officer will review your info to figure out which type of home loan they can pre-approve you for.

According to the National Association of Realtors, here are the 3 most common types of home loans:

 

 

And here's a short description of the 3 most common home loans:

 

The VA Loan

VA loans are for service members of the military, veterans, and members of the national guard and reserve.

VA loans allow a down payment as low as 0%.

So if a home was selling for $400,000.

And a homebuyer qualifies for the VA Loan.

They would not need to come up with any money for the down payment.

 

The FHA Loan

FHA loans are for everyone.

FHA loans allow a down payment as low as 3.5%.

So if a home was selling for $400,000.

And a homebuyer qualifies for an FHA loan.

They would need to come up with $14,000 for the down payment (more about where this money comes from below).

 

The Conventional Loan

Conventional loans are the most popular home loan.

Conventional loans allow a down payment as low as 3%.

So if a home was selling for $400,000.

And a homebuyer qualifies for the conventional loan.

They would need to come up with $12,000 for the down payment.

But coming up with down payment money.

Is often the hardest part for most first time homebuyers.

(it was the hardest part for me too)

 

The 5 most common places people get their down payment money from are:

- Investment accounts.

- Retirement accounts.

- Gift funds from family.

- Checking/savings accounts.

But the most overlooked option is:

- First time homebuyer programs.

There's over 2,000+ first time homebuyer programs in America that cover $5,000 or $10,000 or $20,000+ of a first time homebuyer's down payment.

There's a website that lists most of these programs:

 

→ access my free cheat sheet to ​help you find first time homebuyer programs here​ 

 

When buying a home you have the down payment.

And you also have closing costs.

Closing costs are other fees that are part of buying a home.

For example:

- Escrow/Attorney fees.

- Government fees.

- Lender fees.

- Title fees.

 

But the good news..

First time homebuyer programs can help cover these fees too.

(and there's several other ways to get money when buying a home that we'll talk more about below)

Getting a home loan pre-approval and using first time homebuyer programs can help you buy a home sooner.

 

4. Shopping for Your Home

 

Finding and working with a real estate agent you trust can help you find your ideal home.

I've found ​Realtor.com​ to be a helpful place to find local real estate agents for free and read past customer reviews.

The free ​Redfin app​ has been my favorite way to lookup properties for sale the last 10+ years.

It has other free tools I find helpful when looking at homes for sale, like:

- The local schools rating.

- The neighborhood score.

- The free notifications it sends when a new home is listed.

Having an experienced real estate agent, and using free home shopping tools can help you find a home faster.

 

5. Making an Offer on a Home

 

After finding a home you love.

Your real estate agent will write up a purchase agreement on the home for you to sign before sending it to the real estate agent of the home seller.

The agreement includes things like:

- Your offer price.

- Any requests you have.

- Your home loan pre-approval letter.

- The date you want to become the new homeowner.

 

^{Example purchase agreement}

According to the National Association of Realtors, it takes most people 10 weeks on average to find their new home.

 

 

Thinking back to when I got a loan to buy my first tiny condo.

The one thing I wish I knew before home shopping.

Was all the different ways to get first time homebuyer money (things nobody told me).

It took me years to figure out these 4 ways to get homebuyer money, hope it's useful:

→ ​access the free playbook I've used to get $30,000 when buying a home here​ 

Knowing the different ways to get first time homebuyer money can help you become a homebuyer sooner.

 

6. Preparing to Close on Your Home

 

After a home seller accepts your offer to buy their home.

Many people do a home inspection.

A home inspector will come out to the home and inspect things like:

- The electrical system.

- The frame and foundation.

- The general quality of construction.

And you'll get a 25 to 50 page report that looks like this:

 

 

Some people only do a home inspection.

And some people do 2 or 3 different inspections like:

- A home inspection.

- A pest/termite inspection.

- A well inspection (if there's a well).

Inspections help you figure out if you want to move forward with the purchase of your new home after the home seller accepts your offer.

 

7. Getting Ready for Closing Day

 

If you're happy with the results of your home inspections.

Many people move forward with buying their new home.

Which includes:

- Getting their final loan approval.

- Signing their home loan documents.

- And getting the keys to their new home.

 

 

After finalizing your home loan, moving into your new home is the last step!

 

The bottom line

 

There's many decisions to make when buying your first home.

It can be stressful.

But it can also be exciting to walk through different homes for sale and think..

"hmm, my old couch can go here...the TV can go there...perfect, there's a Starbucks and a grocery store close by..."

Well... that's what usually goes on inside my mind anyway.

 

Buying a home is a thrilling experience.

A new chapter of life.

If you see homebuying in your future.

I hope this mini guide helps make the process a bit easier.

Here's a little cheat sheet with the steps above:

 

 

That's all for today.

See you next Saturday.