“Buying a House” Explained for the Forever-Renter Generation

I abandoned the idea of buying a house long, long ago. For years, I saw home ownership as the first step towards white picket fences, aprons, HOA fees, and minivans. If that wasn’t enough, we’re living in a post-2008 world, where buying a home is much more of an aspiration than the anticipated step into adulthood it was fifty years ago.

But, in spite of the challenges, I’m starting to change my mind about wanting a home of my own. Maybe I don’t want to settle down, but I’m sick of worrying about rent increases or losing my deposit every time I spill wine on the carpet.

Unfortunately, the presumption that my generation will be one of “Forever Renters” means very few resources exist to help young people understand what “buying a home” actually entails. I am very lucky, though, because my best friend, Lilly, is a real estate agent. She walked me through the process of buying a home from start to finish so I could create a definitive guide for my generation. No stone left unturned, no jargon gone unexplained, no wormhole of “learn more” links. Just a simple, straightforward guide to the home buying process, from one attention-deficit Millennial to another.

Before we get started, let’s define the term mortgage. A mortgage is a specific type of loan used to finance (pay for) the purchase of property. “Loan” and “mortgage” are used interchangeably in this article.

1. The Pre-Pre Buying Stage

This phase generally begins 1 to 5 years in advance of buying a home, depending on your financial position, timeline, and future goals. It can be really exciting, because you get to indulge in Pinterest boards and fantasize about your dream home. Do you like living in a city, or would you prefer a suburban area with a big yard? What style home do you want? How many bathrooms do you need? (No matter your budget, aim for at least one).

It can also be scary, though, because you have to take a realistic look at your finances. And, if applicable, your partner’s finances. Your credit score, debts, and income play a role in buying a home. The most daunting financial element of home buying is the down payment – the amount you pay the day you purchase the home. The down payment will need to be at least at least 3.5% of the total purchase price, but it’s widely recommended to aim for 20%. The bigger your down payment, the lower your loan’s interest rate.

To put those numbers in perspective: The national median home listing price is $226,800, according to Zillow. A 3.5% down payment would be $7,938. A 20% down payment would be $45,360.

It’s worth noting that there are certain types of mortgage loans that require little-to-no down payment, but the laws and programs vary by state, income bracket, and homeowner status.

During the home buying process, keep your finances as stable as possible. Carefully consider any job changes, don’t open new credit cards, and avoid major purchases like a car. It could change the loan amount or type you’re eligible for. 

2. The Pre-Buying Stage

This is when other people will become involved in your home buying process, starting with a loan officer, who represents the lending company. You provide them all of your financial information (even stuff you don’t tell your parents about), and they determine what mortgage loans you’re eligible for. 

It’s highly recommended to meet with a loan officer early in the home buying process so you can be pre-approved for loan. Being pre-approved means a lender (usually a bank or mortgage carrying company) has agreed to provide you with a mortgage loan and provides an estimate of what loan amounts and interest rates you qualify for. It also helps shorten waiting periods in later stages in the buying process, which improves your chance of closing on the sale. (Closing is the savvy way to say that you’ve completed the buying process and officially own the home).

It’s important to understand that a loan officer’s job is to tell you which loans you can apply for – not which ones you should. If possible, review your loan options with a financial advisor. They can help you understand which loan (namely the monthly mortgage payment) truly fits within your budget.

3. The HGTV Stage

This is your House Hunters moment, when you finally begin looking for a real home to call your own. Though you technically don’t need one, it’s highly to join forces with a realtor for your home search. You can usually find a good realtor through recommendations from friends and family.

A realtor does much more than walk you through houses and talk about the potential for open concept floor plans. Realtors are familiar with the local housing market and can quickly find potential homes that match your wish list and budget. They help negotiate a sale price that reflects the home’s current value, and they submit bids (offer to buy the house at a specific price) to the seller on your behalf. 

When you find a home that you are seriously considering, you can request a letter of pre-qualification from the loan officer. This letter serves two purposes: it states exactly what your loan amount and interest rate will be for that specific house, and it proves to the seller that you are ready and able to purchase, improving the chances of your bid being accepted.

4. The Option Period

If the seller accepts your offer, you enter into the Option Period (also known as the Due Diligence Period). Entering the Option Period prevents other buyers from submitting offers while you have inspections performed on the structure, HVAC performance, or anything else that may change the value of the home. Think of the Option Period as the last stage of the buying process where all parties have the option to terminate the sales contract without any major penalties. Entering the OP usually entails a fee or deposit known as the Option Fee or Good Faith Deposit.

While you’re working with inspectors, your loan application will be submitted to an underwriter for final approval. An underwriter represents the entity that will be providing the cash for the purchase of the house, and to whom you’ll be repaying the mortgage.

The last thing you do before signing on the dotted line is called the Final Walk Through. If any sort of damage or problems were discovered during inspection, you have the chance to renegotiate the sale price or request the seller remedy the issue before you close the sale. Once the Final Walk Through is completed, the terms of the sale are set in stone.

Closing The Sale

At this point, you know exactly how much you’ll be paying for the house and the terms of your mortgage for that price point. On the day you officially close the sale, you will be writing a check for the down payment and the closing costs. Closing costs include all costs involved in the home buying process. Typically, buyer’s closing costs include mortgage insurance, appraisal/inspection fees, realtor commissions, and legal fees related to ownership change.

When you write that final check, the money does not go to any parties involved in the sale up to this point. Instead, it goes into an Escrow account. Escrow is one of those obnoxious fancy terms for a simple concept. An Escrow Account is a completely neutral third party that handles the actual distribution of cash to each party involved in the sale, when the time comes. 

Home Free

Signed, sealed, delivered – that shit is yours! Congratulations. Take those gram worthy pics standing next to the Sold sign. Walk through the entryway of your very own home. You earned it!