This step-by-step guide will walk you through each step of the home buying process. Use it as reference and remember to ask your REALTOR® anytime you have questions. Your REALTOR® will help you through each step.
Preparing your finances
is the very first step in buying a home. This will allow you to find the price range that fits your budget before you start looking at homes. If you begin your home search in a higher price range than you are approved for, you are setting yourself up for disappointment. Start preparing your finances right from the start and you’ll be ready for the next step. Here are 5 important tips to help you through the home financing process:
Know Your Credit History
Some people may just assume that their credit is good enough to buy a house because they have never had a late payment. Others may be afraid to check their credit because they assume that it’s so bad that they could never qualify. Both could be wrong. No matter what your situation is, you need to check your credit history and know your credit before buying a home. It doesn’t matter how good or bad you are with money, all that matters is what’s on your credit history. If you find something on your credit history that is incorrect, be sure to resolve it before buying a house.
Calculate Your Debt-to-Income Your debt-to-income ratio is one of the main criteria a mortgage lender will consider when determining your loan pre-approval. This number is found by comparing your average monthly debt (bills, taxes, etc.) to your average monthly income. Often, mortgage lenders don’t want higher than a 43% debt to income ratio. Here’s an example of how to calculate your debt to income. For example if your mortgage payment is $2,000 per month and your auto and credit card payments are $1,000 per month, your total debt is $3,000. For brevity we will assume that these are your only monthly debts. If your income is $7,000 per month, your debt-to-income would be 43% ($3,000 [debt] % $7,000 [income] = 43%). That is right at the limit.
Gather Your Tax, Financial, & Employment Documents
When you apply for a mortgage, the loan officer will ask you for previous years tax returns, employment verification forms, and previous month’s bank statements. It’s good to have this information accessible before looking at homes. Some lenders may not ask for these documents until you are under contract. If you are asked for these documents later and you cannot provide them in a timely manner, it could affect your ability to purchase the home. Make sure you have all of your key documents ready, and preferably get them to your loan officer before you put a contract on a home.
Find A Mortgage Lender
Now that you have checked your credit, calculated your debt-to-income, and have gathered all your financial docs, you’re ready to talk to mortgage loan officer. There are MANY loan officers to choose from. Be sure to take your time and find the one that works best for you. Closing costs, interest rates, and speed of closing are all good items to ask your loan officer about. Most REALTORS® will have lenders who they can recommend as well. Be sure to contact a few different ones to compare rates and personality types. Choose one that you feel comfortable working with. You will be communicating with them often throughout the process of your home purchase.
Complete Your Loan Pre-Approval
In order to be treated as a legitimate buyer when you are out looking at homes, you will need to have a pre-approval letter ready from your lender. Once you have gone through all of the steps above and found a good mortgage lender, it’s time to finalize your pre-approval. Make sure that your lender has thoroughly investigated your finances. Some lenders will do a basic mortgage pre-qualification that is based off of minimal questioning. This can mean problems later when you are actually under contract to purchase. A full mortgage pre-approval will help guarantee that your financing doesn’t fall apart later while you are halfway into the home buying process.
Find A Home
Once you have prepared your finances to buy a home, the next step is to find one. This is the fun part of the home buying process, but it can also be exhausting. Following the steps below will help you determine a clear path to finding the best house that fits your needs.
Find A Good REALTOR®
A good REALTOR® is your strongest asset when buying a home. The will provide you will online tools that will keep you updated when new homes come on the market. They will also help educate you on the process and advise you how to respond to certain situations that will arise throughout the process. Don’t just hire the first REALTOR® that you know. Be sure to take your time and find a REALTOR® with strong credentials and a proven track record of helping people.
Research Local Areas
Before you can find a home, you really need to know which part of town you want to live in. Be sure to research local crime stats, school ratings, and area amenities to help determine the areas that you would enjoy living in. These things also affect future resale, so take that into consideration when doing your research. Within certain areas, there will also be specific neighborhoods that you may like or dislike. It takes time to gather all of this information, so be patient and do your due diligence.
Search For Homes Online
When you know the areas that you like best, you can go online and look at all of the homes available in those areas. You can also set yourself up to be notified anytime a new home comes on the market within your search criteria. On our site, all you have to do is click “Save Search” on our search page and you will be setup. This is one of the best ways to keep up with the market. Remember that homes usually look different in person than they do online.
Visit Homes In Person
Once you have gathered some homes that you would like to see, contact your REALTOR® and setup a time to view them. Your agent will handle all of the showing coordination and details. As you visit the homes, be sure to take notes, photos, or videos to help remind you of the details. It’s easy to forget aspects of a home when you are looking at multiple properties within the same day. As you’re looking at homes with your REALTOR®, be sure to verbalize the things that you do and don’t like so your agent can learn what your styles and preferences are.
Make An Offer
Once you have found the perfect home, it’s time to make an offer on it! Your REALTOR® will be able to help you determine a good offer price by providing you with recent past sales data and current market data. Every area, price range, and home style have different aspects that determine value. Taking all of these into account will help you present an offer that is fair, but strong. Some properties may be in multiple offer situations, which requires even more thought when structuring the offer details.
Get The Keys
Now that you have prepared your finances and found a home, it’s time to close the transaction and get the keys! These items need to be handled in a timely manner. Your REALTOR® will help guide you through each step. You can use this section as a reference as you are moving through the final steps of buying your new home.
Negotiate The Transaction Terms
Once you have submitted an offer on a home, it’s possible that you will receive a counteroffer from the seller. You will need to negotiate the terms of the contract, such as the closing date, seller concessions, appraisal deadlines, inspection deadlines, repairs, etc. Your REALTOR® will guide you through all of your options and make everything clear. There are many different variables to negotiate on a sales contract, so take your time and be sure to think through every option. Once you’re under contract it’s very difficult, if not impossible, to change things later.
Deposit Earnest Money
Once you have an executed sales contract signed by both parties, you will need to submit your earnest money. Earnest money is kind of like a down payment for the transaction. Sellers want more than just a signed contract before they take their house off of the market. Earnest money proves to the sellers that you are a serious buyer and ready to purchase a home. The earnest money is credited back to you at closing, or will default to the seller if you cannot perform the details of the sales contract.
Most contracts are written with an inspection period to allow the buyer time to hire a home inspector and have the property thoroughly inspected. There are many different types of inspections, such as radon, mold, pest, structural, and full home inspections. Having an inspection performed is one of the most important parts of the home buying process. Make sure that you allow plenty of time to get all of your inspections done within the days allotted in your sales contract. Once you are past inspections, you’re almost done!
The appraisal is one of the last steps in the home buying process. Mortgage companies require appraisals to verify that the loan amount they are providing is equal to, or better than the appraised value of the home. It’s protection for the lender. If the house does not appraise at value, then the contract will either be terminated or renegotiated. Be sure to have the appraisal ordered as soon as your inspections are done. Delayed appraisals are one of the main causes of late closings.
Close The Transaction
Once you are past the inspections and appraisal process, you can set up a closing time with your title company and the other party. Be sure to bring your driver’s license (or passport) to closing, along with any monetary items required by the sales contract and/or lender. Once both parties have signed all of the documents and the mortgage company has funded the loan, you will get the keys. You are now the proud owner of your new home.