Explore your mortgage options
Does it ever feel like everyone knows how to buy a house – except you? Well, looks can be deceiving. And, fortunately for you, home buying follows a standard set of steps to help you on your home buying journey.
And your good fortune doesn’t end there. We’ll outline the basics of the home buying process for you. Once you’re done, you should feel better prepared to make your debut in the housing market.
1. Make a Plan To Buy: Find a Real Estate Agent
Working with an experienced real estate agent should help make the home buying process easier and smoother. Yes, you can buy a home without a real estate agent, but that might be a risky decision.
A real estate agent can:
- Bring properties to your attention that you might’ve overlooked. Real estate agents can access the multiple listing service (MLS), which is a database agents use to learn about or list local properties for sale.
- Help you prepare an offer so you don’t overpay for a home and handle the negotiations.
- Walk you through the process and paperwork involved with home buying.
How do you find a real estate agent?
Whether you get a referral from friends and family or you find a real estate agent who works in the neighborhoods you’re interested in, it’s important to find out how long the agent has been working in real estate and what types of homes and neighborhoods they specialize in.
Plan to spend 1 – 2 weeks interviewing agents. You shouldn’t feel obligated to work with the first agent you speak to. It’s okay to ask for references and check an agent’s online reviews.
You can also check with the state’s real estate licensing board to see if there are any complaints or legal proceedings filed against the agent or broker.
2. Find a Mortgage Lender: Get Preapproved
Getting preapproved for a loan can speed up the home buying process in several ways.
First, you learn what you can afford to spend on a home. You’ll hopefully waste less time and keep your heartbreaks to a minimum over homes you can’t afford. Sellers will feel more confident about your purchase offer when your purchase offer is attached to a preapproval because they know a lender is considering you for a mortgage.
To get a preapproval, you must provide a lender with all sorts of information, including your credit score, employment information, proof of income, tax returns and verification of your down payment. You may also need to submit your most recent bank statements to verify your monthly debt payments.
Consider going through the preapproval process with a few lenders so you can compare offers and choose the best one for you.
At this stage of the home buying process, you must pay attention to the difference between preapproval and prequalification. Prequalification is a shorter, easier process that’s not as reassuring to home sellers as a preapproval.
Plan on preapproval taking 7 – 10 days to go through. In most cases, the lender’s preapproval letter is good for 60 – 90 days. So, it makes sense to wait until you’re ready to begin home shopping to get a preapproval letter.
3. Make a List: Start House Hunting
Once you’ve been preapproved for a mortgage and you know how much house you can afford, it’s time to start searching for your soon-to-be (fingers crossed!) home. You may have a wish list saved somewhere and a clear picture of what your dream house looks like, but be prepared to compromise on your vision. It’s unlikely that any listing will 100% live up to your imagination.
Make a list of features that really matter to you. Every list is different. Your must-have list may include a home office or a two-car garage. You should also create an I-can-live-without-it list. It should include all those features you’d love to have (think: high ceilings or granite countertops) but can live without.
These lists will come in handy while you’re attending open houses. Your real estate agent can also use your lists to help them choose which houses to show you. Your agent will also suggest that you keep in mind:
- The neighborhood surrounding the home (including shopping and entertainment)
- The school district (It’s important if you have kids, plan to have kids, are considering the home’s potential resale value and for property taxes.)
- The square footage of the home
- The home’s physical condition and necessary repairs
- Your commute to work or school and access to public transportation
- The home’s outdoor features (yard, pool and patio areas)
As you start to tour homes, make notes on what you see and what you like to make it easier to compare and contrast your top candidates later.
BTW, this process might take a while, and you shouldn’t feel discouraged. Most home buyers search for an average of 8 weeks and see about eight homes before they settle on one.[1]
Look at it this way, the more homes you see that aren’t the right fit, the more likely you are to quickly recognize the right home when you’re standing in it.
4. Make an Offer: Negotiate
Okay, you’ve found a home you can afford and it checks the must-have boxes on your list. Now it’s time to make an offer.
Do you know who’ll come in handy during this crucial step? That’s right: your real estate agent. Your agent will help you decide how much to offer on the house based on their knowledge of the property and the local real estate market and smart negotiating tactics.
Your purchase offer is more than the price you want to pay for the home. It should include anything (think: a preapproval, a fast escrow period or not asking for certain repairs) that can help persuade the seller that you’re the right buyer.
Make sure you’ve crunched all the numbers. You should arrive at an offer amount after taking into consideration what you might pay for the inspection and appraisal, your closing costs (which may cost as much as 4% – 6% of the purchase price), any appliances you’ll have to buy and moving costs. And don’t forget to include home insurance, property taxes and, if the home is in a homeowners association, the homeowners association fees.
If the seller accepts your offer, you are one step closer to homeownership. If the seller has plenty of offers to choose from, they may go with another offer or present a counteroffer.
You’ll have to decide whether to accept the counteroffer or negotiate and make a counteroffer. Remember, you can always walk away and keep looking.
5. Get Final Approval: Loan Processing
Once the seller has accepted your offer, a lot of steps start to happen at the same time. One of those steps is the final approval and processing of your mortgage loan. Mortgage underwriting is a more involved process, but it’s similar to the preapproval process.
Your lender will consider all the elements that went into your preapproval, including your income, credit score, proof of employment, debt-to-income (DTI) ratio and the loan-to-value (LTV) ratio of the house.
Once you’ve secured financing, you’re ready to complete the purchase of the home. Expect the entire approval process to take 3 – 4 weeks.
6. Time for an Appraisal: Home Value
While you’re in the process of getting approved for your mortgage, your lender will order an appraisal for the property you want to buy. Lenders typically require appraisals to make sure the house is worth the amount you want to borrow. Your lender will only lend you enough money to cover the home’s appraised value.
A licensed appraiser will thoroughly examine the home and compare the home’s value to comparable home sales in the area.
If the appraisal comes in lower than your offer, you’ll either need to negotiate with the seller to lower the purchase price or pay to cover the difference between the purchase price and the home’s appraised value.
One way to protect yourself from this kind of scenario is to include an appraisal contingency in your purchase agreement. With an appraisal contingency in place, you can walk away from the deal and get your escrow deposit refunded if the home doesn’t meet the required appraisal amount. Plan on the appraisal taking 1 – 2 weeks to happen.
7. Schedule Inspections: Make Sure It’s Move-In Ready
The appraisal helps the lender feel confident about the home you’re buying – and the inspection should give you the same confidence. Home inspectors check out the home’s structure and infrastructure, like the plumbing, electrical wiring, HVAC, roof and other areas, to determine the condition of the home.
The inspector will let you know if there are significant problems with the home, such as issues with the foundation, termite damage or repairs and renovations that aren’t up to code. They will also point out any smaller repairs that need to be done.
If there is a significant problem(s), you may negotiate with the seller to lower their sale price or make the repairs. You can also choose to make repairs yourself or walk away from the deal if you feel the problems with the home are too much to handle.
Expect the inspection to take about a week to set up. FYI: It could take longer if you want special inspections done in addition to a traditional inspection, such as a pest inspection.
8. Time to Close: Seal the Deal
Once the inspections and appraisal are completed, your lender can finalize and approve your loan. The entire closing process may take several weeks, but there is one day that is your closing day. Make lots of room on your calendar on closing day because you’ll be spending a few hours signing documents.
You’ll review your closing documents with your real estate agent, including your Closing Disclosure, which your lender should have sent you before the closing. The Closing Disclosure outlines the final terms of your loan, including any fees and closing costs. The closing typically takes place at your real estate agent’s office or the office of the escrow company or title company handling the paperwork.
Traditionally, you and the seller and your agents would meet in person for the closing. But nowadays, depending on who’s hosting, you may be able to opt for a virtual closing.
The seller signs the title of the property over to you at closing. The real estate agents and lawyers make sure the closing costs are paid and everyone involved in the closing is paid.
After all the paperwork is signed, congratulations are in order because you did it! You’re a homeowner!
It’s Like Baking: Follow the Steps and You’ll Be Rewarded
We love mysteries as much as the next person – but not when it comes to buying a home. Use our step-by-step home buying guide to make sure you’re on the right path to your new home.
The Short Version
- Buying a house could take up to 5 – 6 months from start to finish, but there are things you can do to speed the process along
- August is prime time for buying a house because summer inventory is high, but sellers are starting to lower prices as fall approaches
- Getting preapproved for a mortgage can smooth your path toward homeownership
National Association of REALTORS®. “Highlights From the Profile of Home Buyers and Sellers.” Retrieved March 2022 from https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
