Buying a house is one of the biggest financial ventures you can make in your lifetime. If you break the process down into steps, however, it becomes a more manageable process. Use this guide to help navigate your way through the waters of finding and buying your next home.
The Process of Buying a Home
Tackle the home buying process one step at a time.
Evaluate Credit and Finances
Your credit history and credit score play a starring role in obtaining approval for a mortgage. Before you start house hunting, take the time to make sure that you have all of your financial affairs in order. Pull your credit report from all three credit reporting agencies to check your credit. The higher your credit score and the better your credit history, the better terms and conditions you can typically obtain on your financing.
You also have to determine how much you can realistically afford to pay for a home. The rent you pay on a home or an apartment can act as a guideline for what you can afford to pay for your mortgage payment. Keep in mind that homeownership includes paying taxes, insurance and maintenance costs, which can increase your monthly obligation over what you would pay on rent. Zillow offers a mortgage calculator to help you estimate your monthly mortgage payment, including taxes and insurance, based on the amount you plan to finance.
Build a Down Payment
Another financial aspect of getting ready to buy a home is building up a down payment. According to Bank of America, down payment amounts vary according to the purchase price of the home and the lender. Typically, down payments range from 5% of the purchase price to 20% of the purchase price. The down payment money is cash that you need to have on hand in addition to the cash you need to cover your closing costs.
Shop for a Lender
Shop and compare lenders and mortgage options. According to Real Simple, it is wise to talk with at least three lenders, which can include banks, lenders and mortgage brokers. Find out the mortgage options available to you with each resource.
When you compare one lender to another, make sure you are comparing the same type of mortgage (30 year fixed to a 30 year fixed or a 15 year fixed to a 15 year fixed) from lender to lender. Talk with your lender about different mortgage programs that offer different down payment amounts.
The best way to determine how much of a mortgage you can afford is to obtain pre-approval from a lender. The pre-approval process takes you through the mortgage process without having chosen a specific home yet. The lender reviews your credit and personal finances to determine how much of a mortgage you can qualify to obtain.
Pre-approval not only guides you to the price range you should be looking at for a home, but it is also a bargaining chip during the offer process. When you present a pre-approval letter to a seller from your lender, it reassures the seller that it is likely that the deal can close.
Wants and Needs
Before you start looking for home, sit down and make a list of the wants and needs you have in a home. Making the list helps you prioritize, but it is also a great tool for communicating with a real estate agent when it comes time to start your home search. While you might not find a home with everything on your list, it helps you to narrow down home choices in your search.
Hire a Real Estate Agent
Find a real estate agent to work with you throughout the process. Ask for referrals from family members, friends and co-workers that have bought a home recently. According to Keller Williams, the right real estate agent educates you about the real estate market while acting as your guide to match your personal situation with the right home for you.
While looking for someone that has experience in the market where you are looking to buy is important, it is also imperative that your personality and the personality of the agent work well together. The real estate agent is someone you are going to be working with on a regular basis for a very important transaction, so feeling comfortable working with them is also important.
Hunt for Houses
Once you have your list of wants and needs and a real estate agent to work with, you can start searching for the houses that fulfill the items on your list. Your real estate agent uses the Multiple Listing System (MLS) to search for the homes that fall under your parameters. You can also keep your eye out for classified ads online and in the real estate section of the local newspaper. Let your agent know about any properties for sale you see that you are interested in viewing.
Make an Offer
When you find a home you are interested in buying, it is time to make an offer to purchase. The real estate agent can help you find comparable homes in the area that are for sale or have recently sold. This can help guide you into determining the price you want to offer to buy the home. The offer is made in writing to the seller through the real estate agents. If and when the seller accepts your offer, then you can proceed with the rest of the closing process.
If the seller counteroffers, you can choose to accept the counteroffer or deny it. If you accept it, then you can proceed with the closing. If you deny the counteroffer, then the deal dies and you can proceed looking for another house.
Have a Home Inspection
After the purchase contract is signed by you and the seller, you have a rectified contract. One of the first steps you want to take is to have an inspection done on the home. A certified home inspector evaluates the condition of the property from top to bottom and from inside to outside. They provide a report in writing that details the condition of the home and any faults or repairs that are required on the home.
The purchase contract states a specific dollar amount for repairs. If the repairs exceed the stated dollar amount, then you as the buyer have the right to end your contract and not proceed with the deal to buy the home. Otherwise, the report is informational so that you know what kind of repairs you have in store for you in the future.
Finish the Mortgage Process
Contact the mortgage company where you have your pre-approval to finish the mortgage process. Provide them with the address, purchase price and down payment amount for the property. The loan officer will proceed with ordering the appraisal and the title work on the property. They may also ask you to update your personal financial information, such as account statements, if more than 30 days has passed since you originally received pre-approval.
Attend the Closing
Once you receive final approval for the mortgage, the lender sets a closing date that is mutually convenient to the buyer and the seller. At closing, both parties sign paperwork to transfer the ownership of the property from the seller to the buyer. The buyer also signs paperwork for the mortgage company, which binds the buyer to pay the mortgage company.
After you attend the closing, you receive the keys to your new home. It is time to pack your boxes and personal belongings so you can move. Once you complete these steps, you are now a homeowner. Homeownership can be one of the most rewarding experiences you can have.