The Residential Home Buying Process Simplified in 9 Steps
Written Sep. 26, 2018 by Conor Green
Buying a home can seem like a daunting task. Especially with all of the paperwork and the number of steps it takes to finally get to the closing table! Here I simplify the process to nine steps, in order to give you high-level insight and clarify your expectations!
1. Calculate What You Can Reasonably Afford
Step one is figuring out a feasible price range for your new home! As a general rule, you should be looking at a home that is within two to three times your annual income. You do not want to overstretch your financial assets, so normally it is not advisable to go beyond that. Here’s an interesting Nerd Wallet tool for you to use a supplementary resource!
Do you have your price range? Great, you are going to want to save up to 20% of that price for a downpayment. Your credit history and loan type will largely determine the amount of money down needed on the house. You can get all three credit reports for free at AnnualCreditReport.com. They have been authorized by the federal government to help the public become better informed about their credit health. The most important credit score is your FICO score because that is the score most lenders will need to determine your eligibility to receive a home mortgage.
2. Get Pre-Approved by a Lender
Now that we have our price range, it’s good to get pre-approved by a mortgage lender for your desired home price! This will reconfirm your assertion that that is a financially feasible price based on your current income and make you a more attractive buyer. If you end up finding your dream home and are competing with another buyer you will want to be able to bring your pre-approved letter to the table! Make sure you stick to your price range regardless of what you get approved for since the mortgage lender may push the upper boundary of what you can afford. Any expected financial troubles could cause you to be overextended, so it’s better to play it a little safe!
3. Find a Real Estate Agent
When you are buying a home you will definitely want to get a real estate agent. The agent will not get paid until they find you the perfect home and the seller accepts the offer. Even then, the seller pays their listing agent and your buying agent out of the sales price; it never comes out of your own pocket. Some agents are charging upfront flat-fees these days, which is ridiculous. If you’re interested in a relationship based agent, who not only has the skills needed for the job but also the patience to make sure you get the best deal possible then contact me! You can learn more about my methodology and values on my homepage.
From a high level, you should analyze how agents market themselves, their past performance, and their reviews (Facebook page, Google MyBusiness, etc). Once you have created a shortlist, you should interview each one and see who you are most comfortable with. You are going to spending a lot of time with them, so it is always good to choose someone you get along with!
4. Shop for a House & Insurance
Time to start shopping! You should have an in depth conversation with your real estate agent about what you are looking for so they can find you exactly what you want. Beyond the basics, do you want to be around certain amenities? Within a certain school district? Do you want a big backyard with privacy? These are all questions your real estate agent should ask you so that they can include all of the finer details into their search as well.
While the house hunt is on, you should be simultaneously shopping for homeowner’s insurance. In order for you to receive your mortgage, your lender will require you to have an insurance policy on the home. It is advantageous to get this taken care of early so that you are ready to move on your dream house when you find it!
5. Submit an Offer!
You found the perfect home! It is time to put an offer down on it for the seller to review. If your offer is too low, you could offend the seller and dissuade them from considering you. Especially if there is another potential buyer, a lowball offer can be a questionable tactic. On the other hand, offering too high of a price unnecessarily wastes money that could be spent on upgrading your new home. Your real estate agent should complete a market analysis on the home to determine its fair market value and the price you should offer, given the tactical nuances.
6. Do Your Due Diligence
The due diligence process usually includes getting a home inspection to make sure you haven’t missed any hidden problems on your walk-throughs. If issues are found, negotiate for the current owner to fix them or take the cost of repair off the closing costs. The goal of this part in the process is to ensure that you are indeed getting what you believe you are in terms of condition and value.
7. Submit Your Mortgage Application
If you’ve been pre-approved or pre-qualified, you can now work with your mortgage lender to finalize the details of your mortgage. Based on the contracted purchase price, your lender can determine monthly payments based on your interest rate and other expenses, such as escrow payments to cover property taxes. Your bank also will hire an appraiser to make sure the home is worth what they are preparing to lend to you.
It is key that you do not buy any high-priced items while trying to secure a new home. These expensive purchases, such as a new TV or a new chandelier, could seriously hurt your chances of being approved - Conor J. Green
8. Final Walk-Through
This is your last chance to make sure everything is as you expect and are accounting for in your purchase. If anything is out of place, missing, damaged, or different than it was before you placed your offer then have your agent bring it up with the listing agent. Any issues will need to be reconciled before the closing.
9. Sign those Papers!
So you did your final walk-through and everything looks good or at least was resolved. You are now ready to sign the papers and finalize the transaction! Buying a new home can be a long process, but it is very rewarding when you finally find that perfect house for you and your family!
Do you have any questions or comments about the home buying process? Leave a comment below and I will answer your question! Have a friend about to buy a home? Share the article with them so they can better understand the process!
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